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
Date Written: August 29, 2019
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: Suggested Citation