The Role of Private Equity Investments in Public Firms: International Evidence

48 Pages Posted: 20 Apr 2016

See all articles by Sandeep Dahiya

Sandeep Dahiya

Georgetown University - Department of Finance

Leora F. Klapper

World Bank; World Bank - Development Research Group (DECRG)

Harini Parthasarathy

World Bank

Dorothe Singer

World Bank

Date Written: June 1, 2013

Abstract

This paper compares the raising of external equity capital from private equity investors via private investments in public equity (PIPEs) and seasoned equity offerings (SEOs) using a sample of 456 PIPEs and 1,910 SEOs drawn from nine Asian countries. Consistent with the idea that insiders attempt to time the markets, firms issuing SEOs are preceded by a significantly higher run-up in stock price compared with those issuing PIPEs. This result is consistent with the undervaluation hypothesis that states that firms are more likely to issue PIPEs when they perceive their stock to be undervalued. In contrast to the United States where this undervaluation appears to be driven by financial distress and asymmetric information, the results show PIPE and SEO issuers to be statistically undistinguishable from each other. The announcement of a PIPE offering is on average associated with a significantly higher stock market reaction compared with an issue of a SEO, suggesting that private equity investors may play a certification or monitoring role. However, a comparison of PIPE issuers' operating performance and stock market returns in the pre-issue and the post-issue periods does not detect any significant improvements.

Keywords: Debt Markets, Emerging Markets, Markets and Market Access, Investment and Investment Climate, Economic Theory & Research

Suggested Citation

Dahiya, Sandeep and Klapper, Leora F. and Parthasarathy, Harini and Singer, Dorothe, The Role of Private Equity Investments in Public Firms: International Evidence (June 1, 2013). World Bank Policy Research Working Paper No. 6484, Available at SSRN: https://ssrn.com/abstract=2280647

Sandeep Dahiya

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-3832 (Phone)

Leora F. Klapper

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States
202-473-8738 (Phone)

HOME PAGE: http://econ.worldbank.org/staff/lklapper

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Harini Parthasarathy

World Bank ( email )

1818 H Street NW
MC3-592, mailstop MC3-307
Washington, DC 20433
United States
202-458-1915 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/programs/finance

Dorothe Singer

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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