Why Do Public Firms Issue Private Equity?

Posted: 22 Mar 2009

See all articles by Yildiray Yildirim

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York

Ya-Wei Yang

Syracuse University - Whitman School of Management

Milena T. Petrova

Bocconi University

Date Written: March 18, 2009

Abstract

We examine the determinants of placing equity privately vs. publicly and analyze 5359 private investments in public equity (PIPEs) and seasoned equity offerings (SEOs) during 1997 to 2006. Using a p-score matched sample analysis we document that firms that are more likely to use PIPEs tend to be higher levered, unprofitable, less liquid, more opaque and cash restricted companies, compared to SEO issuers. Our long run performance analysis suggests that PIPE issuers underperform less severely than SEO firms one and two years after the offering, but are more likely to become takeover targets. The results from the empirical analysis are consistent with the information acquisition hypothesis for PIPE issues and the signaling hypothesis for SEO issues.

Keywords: private equity, SEOs, performance, abnormal returns

JEL Classification: G3; G32

Suggested Citation

Yildirim, Yildiray and Yang, Ya-Wei and Petrova, Milena T., Why Do Public Firms Issue Private Equity? (March 18, 2009). Available at SSRN: https://ssrn.com/abstract=1364783 or http://dx.doi.org/10.2139/ssrn.1364783

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York ( email )

55 Lexington Ave., Box B13-260
New York, NY 10010
United States

Ya-Wei Yang

Syracuse University - Whitman School of Management

721 University Avenue
Syracuse, NY 13244-2130
United States

Milena T. Petrova (Contact Author)

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

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