The Role of Corporate Governance and Information Asymmetry in Private Placement in Australia

50 Pages Posted: 30 Jan 2014

See all articles by Suichen Xu

Suichen Xu

Queensland University of Technology - School of Economics and Finance

Janice C. Y. How

Queensland University of Technology; Financial Research Network (FIRN)

Peter Verhoeven

Queensland University of Technology - QUT Business School; Financial Research Network (FIRN)

Date Written: January 29, 2014

Abstract

In a private sale of equity, the issuing firm sells a block of securities to an individual or a small group of investors at a discounted price. Non-participating shareholders suffer from ownership dilution and are also deprived of the discount. We provide the first evidence on whether and how corporate governance can protect non-participating shareholders’ interests in private placements. Based on a sample of 329 private placements issued by the top 250 Australian listed firms between 2002 and 2009, we find firms with a higher governance index, a larger proportion of independent directors, and a larger board are more likely to issue private placements with a share purchase plan (SPP), which protects non-participating shareholders from ownership dilution. However corporate governance has no impact on private placement discounts. There is also evidence that private placement discounts compensate investors for information asymmetry. Our findings are robust to corrections for endogeneity and self-selection bias.

Keywords: Private placements; Corporate governance; Information asymmetry; Share purchase plan (SPP)

JEL Classification: G30; G34

Suggested Citation

Xu, Suichen and How, Janice C. Y. and Verhoeven, Peter, The Role of Corporate Governance and Information Asymmetry in Private Placement in Australia (January 29, 2014). 2014 Financial Markets & Corporate Governance Conference. Available at SSRN: https://ssrn.com/abstract=2387311 or http://dx.doi.org/10.2139/ssrn.2387311

Suichen Xu (Contact Author)

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Janice C. Y. How

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Peter Verhoeven

Queensland University of Technology - QUT Business School ( email )

GPO Box 2434
Brisbane, Queensland 4001
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Register to save articles to
your library

Register

Paper statistics

Downloads
161
Abstract Views
920
rank
184,267
PlumX Metrics