The Choice of Equity Selling Mechanisms: PIPES versus SEOS

48 Pages Posted: 3 Jun 2008 Last revised: 8 Nov 2009

See all articles by Hsuan‐Chi Chen

Hsuan‐Chi Chen

University of New Mexico - Anderson School of Management

Na Dai

SUNY at Albany - School of Business

John Schatzberg

University of New Mexico - Robert O. Anderson Schools of Management

Date Written: August 11, 2009

Abstract

We examine the firm's choice between an SEO and a PIPE, an innovation in follow-on equity selling mechanism seen in the late 1990s. Our primary finding indicates that the rapid rise of the PIPE market fills the capital needs of firms which may not have access to more traditional alternatives. This lack of access is driven mainly by information asymmetry and weak operating performance. We also show that firms are more likely to choose PIPEs when the general market and the firm's stock are performing poorly. Furthermore, we find that selected firms with access to the public market may prefer a PIPE due to specific cost considerations.

Keywords: Private investment in public equity (PIPE), seasoned equity offering (SEO)

JEL Classification: G10, G32

Suggested Citation

Chen, Hsuan-Chi and Dai, Na and Schatzberg, John, The Choice of Equity Selling Mechanisms: PIPES versus SEOS (August 11, 2009). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1139887

Hsuan-Chi Chen

University of New Mexico - Anderson School of Management ( email )

1924 Las Lomas NE
Albuquerque, NM 87131
United States

HOME PAGE: http://www.mgt.unm.edu/faculty/directoryArea.asp#FIN

Na Dai (Contact Author)

SUNY at Albany - School of Business ( email )

1400 Washington Ave.
Albany, NY 12222
United States

John Schatzberg

University of New Mexico - Robert O. Anderson Schools of Management ( email )

Albuquerque, NM 87131
United States

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