Non-underwritten Placements and Their Agents

Abstract

We examine private placements of non-underwritten equity. We posit that healthier firms place
their equity directly with investors, whereas agent-intermediated placements indicate relative
weakness. Indeed, the market reaction to announcements of non-intermediated, direct placements
of equity is significantly positive. In contrast, the corresponding market reaction to intermediated
deals is sharply negative. Consistent with short-term performance, we show that firms of a
relatively superior quality make direct placements and exhibit significantly higher long-run stock
performance. After analyzing the surrounding information environment, we find that their analyst
coverage, but not the level of optimism, is related to the choice of intermediation.

Keywords: Placement Agents; Intermediated; Direct Placements; PIPEs; Private Investments in Public Equity; Analyst Coverage

JEL Classification: G24, G23, G32, G38, G18