The Return on Private Placement in Small Public Equity
33 Pages Posted: 21 Nov 2010 Last revised: 12 May 2011
Date Written: May 4, 2011
Abstract
Private placements provided by institutional or individual accredited investors are becoming an important financing tool for small public firms worldwide. However, private placement issuers offer, on average, poor returns. We explain this puzzle using 2,987 traditional private placements by Canadian small public firms over a decade. We observe significant long-run post-issue underperformance using a classic factor pricing model. This underperformance is partially erased when the returns are adjusted to consider the high level of investment by the issuers, and to include the discount granted to private investors. We split the sample by the glamour/value dimension and by the firms’ investment activity. Only glamour firms with high investment activity underperform in the long run. Private investors obtain positive returns on placements in value and high investment firms. However, they overestimate investment projects of glamour firms.
Keywords: PIPEs, Private Placement, Canada, Long-Run, Underperformance
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Financing Under Extreme Risk: Contract Terms and Returns to Private Investments in Public Equity
By Susan Chaplinsky and David Haushalter
-
Does Investor Identity Matter in Equity Issues? Evidence from Private Placements
By Srinivasan Krishnamurthy, Paul A. Spindt, ...
-
By Na Dai
-
The Choice of Equity Selling Mechanisms: PIPES versus SEOS
By Hsuan‐chi Chen, Na Dai, ...
-
The Quality and Price of Investment Banks' Service: Evidence from the PIPE Market
-
By Kimberly C. Gleason, Ravi Jain, ...
-
By Karen H. Wruck and Yilin Wu
-
By Ioannis V. Floros and Kuldeep Shastri