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Comparing the Characteristics and Performance of Private Equity Offering Firms with Seasoned Equity Offering Firms

Journal of Economics and Management, Vol. 1, No. 1, pp. 57-83, 2005

27 Pages Posted: 28 May 2009  

Shin-Herng Chu

California State Polytechnic University, Pomona

George H. Lentz

California State Polytechnic University, Pomona

Espen Robak

Pluris Valuation Advisors

Date Written: May 27, 2005

Abstract

This paper examines why the majority of private placements of equity sell at substantial discounts, while a few sell at premiums. We compare private equity offering (PEO) firms with comparable seasoned equity offering (SEO) firms and find that PEO firms had poorer financial performance than SEO firms both prior and subsequent to the year of issue. Furthermore, PEO firms typically showed signs of financial distress prior to the equity issue. Our results also indicate that the holding period returns on investments in PEO firms were substantially below returns on the market index and worse than those of SEO firms. The financial characteristics and the holding period returns of PEO firms issuing at a price premium were found to be significantly better than those that sold at a discount. The private equity premiums may reflect risky future growth opportunities as well as potential takeover premiums.

Keywords: private equity offering, seasoned equity offering, financial performance, restricted stock, Rule 144, illiquidity discounts, marketability discounts

JEL Classification: G32

Suggested Citation

Chu, Shin-Herng and Lentz, George H. and Robak, Espen, Comparing the Characteristics and Performance of Private Equity Offering Firms with Seasoned Equity Offering Firms (May 27, 2005). Journal of Economics and Management, Vol. 1, No. 1, pp. 57-83, 2005. Available at SSRN: https://ssrn.com/abstract=1410730 or http://dx.doi.org/10.2139/ssrn.1410730

Shin-Herng Chu

California State Polytechnic University, Pomona

3801 W. Temple Avenue
Pomona, CA 91768
United States
909-869-4587 (Phone)
Not available (Fax)

George H. Lentz

California State Polytechnic University, Pomona ( email )

3801 W. Temple Avenue
Pomona, CA 91768
United States
909-869-4435 (Phone)
909-869-2124 (Fax)

Espen Robak (Contact Author)

Pluris Valuation Advisors ( email )

26 Broadway
Suite 1202
New York, NY 10004
United States
212.248.4500 (Phone)
212.248.4599 (Fax)

HOME PAGE: http://www.PlurisValuation.com

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