Competitor Firms’ Stock-Price Reaction to Private Equity Placement Announcements: Evidence from China

44 Pages Posted: 14 Feb 2014

See all articles by M. M. Fonseka

M. M. Fonseka

Xi'an Jiaotong University (XJTU)

Sisira R. N. Colombage

Monash Business School

Gao-Liang Tian

Xi'an Jiaotong University (XJTU) - School of Management

Date Written: February 14, 2014

Abstract

Private equity funds have taken a strong position in Chinese equity market particularly after the Chinese Security Regulatory Commission started regulating private equity placements (PEP) in 2006. We investigate impact of market reaction to the announcements of the PEP application, withdrawal, rejection, approval, and completion, while examining the cross-sectional differences of the market performance of competitor firms in the industry both in the short and long run. We find that competitors experience a decrease in stock prices in response to the announcements of application, approval, and completion of PEPs and increase in stock prices around the announcements of withdrawal or rejection of applications, suggesting the existence of competitive effects in the short-run. Competitors experience an increase in the long-term stock performance following private placements while also being consistent with competitive effects in the long-run.

Keywords: Announcements, China, Competitive effects, Contagion effects, Competitor firms, Private Equity Placement

JEL Classification: G10, G20, G34, P34

Suggested Citation

Fonseka, M. M. and Colombage, Sisira R. N. and Tian, Gao-Liang, Competitor Firms’ Stock-Price Reaction to Private Equity Placement Announcements: Evidence from China (February 14, 2014). Available at SSRN: https://ssrn.com/abstract=2396029 or http://dx.doi.org/10.2139/ssrn.2396029

M. M. Fonseka (Contact Author)

Xi'an Jiaotong University (XJTU) ( email )

26 Xianning W Rd.
Xi'an Jiao Tong University
Xi'an, Shaanxi 710049
China

Sisira R. N. Colombage

Monash Business School ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Gao-Liang Tian

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

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