Wealth Transfer Through Private Placements? Evidence From China

Lin, J., Zheng, S.X., & Zhou, M. (2019). Wealth transfer through private placements? Evidence from China. The Financial Review, Forthcoming.

41 Pages Posted: 7 Oct 2019

See all articles by Jing Lin

Jing Lin

School of Management and Economics, University of Electronic Science and Technology of China

Steven Xiaofan Zheng

University of Manitoba - Asper School of Business

Mingshan Zhou

Southwestern University of Finance and Economics (SWUFE)

Date Written: August 29, 2019

Abstract

We examine private issuance of public equity (PIPE) in China, and our results suggest that PIPE investors benefit from the price manipulation before and after issuance. These investors tend to cash out after lockup expiration and make large profits. We also find evidence that the trading of PIPE investors after lockup expiration is informed. Tests about the abnormal returns in the three years after lockup expiration suggest that at least part of the benefits PIPE investors receive come from wealth transfer from outside investors. Overall, PIPE issuers in China seem to use an opaque mechanism to compensate PIPE investors.

Keywords: private placement, price manipulation, earnings management, informed trading

JEL Classification: G14, G23, G32, G34

Suggested Citation

Lin, Jing and Zheng, Steven Xiaofan and Zhou, Mingshan, Wealth Transfer Through Private Placements? Evidence From China (August 29, 2019). Lin, J., Zheng, S.X., & Zhou, M. (2019). Wealth transfer through private placements? Evidence from China. The Financial Review, Forthcoming. . Available at SSRN: https://ssrn.com/abstract=3460297 or http://dx.doi.org/10.2139/ssrn.3460297

Jing Lin

School of Management and Economics, University of Electronic Science and Technology of China ( email )

Steven Xiaofan Zheng (Contact Author)

University of Manitoba - Asper School of Business ( email )

Department of Accounting and Finance
Winnipeg, Manitoba R3T 5V4
Canada
204-474-7933 (Phone)

Mingshan Zhou

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

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