Litigation and Information Effects on Private Sales of Securities

53 Pages Posted: 13 Aug 2021 Last revised: 31 Aug 2023

See all articles by Onur Bayar

Onur Bayar

University of Texas at San Antonio - Alvarez College of Business

Ioannis V. Floros

University of Wisconsin - Milwaukee - Department of Finance

Yini Liu

University of Western Ontario

Juan Mao

University of Texas at San Antonio - Department of Accounting

Date Written: August 30, 2023

Abstract

We analyze PIPE (Private Investments in Public Equity) transactions in which the issuer experienced class action lawsuits. We explain the associated information effects measured by the announcement wealth effects and the discounts. Counting on a comprehensive, hand-gathered dataset, we show that the more severely litigated PIPEs are associated with higher announcement wealth effects and higher levels of discounts. We find that the issuer’s voluntary disclosure positively influences PIPE information effects particularly when coupled with auditor changes. We report that certain mitigation actions affect the pricing of PIPEs along with their associated wealth effects while facing ongoing litigation. We posit that confidentiality in privately negotiated securities is the key in litigated transactions as issuers efficiently share the operational details of mitigation efforts. PIPE transactions are not necessarily costlier funding venues even when securities class action lawsuits are ongoing compared to the PIPE transactions that did not experience any prior litigation action.

Keywords: Law and Finance; Information Effects; Private Investment in Public Equity (PIPE); Private Placements; Mitigation Actions

JEL Classification: G14; G23; G32; K41; K42

Suggested Citation

Bayar, Onur and Floros, Ioannis V. and Liu, Yini and Mao, Juan, Litigation and Information Effects on Private Sales of Securities (August 30, 2023). Available at SSRN: https://ssrn.com/abstract=3903448 or http://dx.doi.org/10.2139/ssrn.3903448

Onur Bayar

University of Texas at San Antonio - Alvarez College of Business ( email )

The University of Texas at San Antonio
One UTSA Circle
San Antonio, TX 78249
United States
210-458-6837 (Phone)
210-458-6320 (Fax)

Ioannis V. Floros (Contact Author)

University of Wisconsin - Milwaukee - Department of Finance ( email )

Milwaukee, WI 53201-0742
United States

Yini Liu

University of Western Ontario ( email )

1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada

HOME PAGE: http://https://dan.uwo.ca/people/faculty/yini_liu.html

Juan Mao

University of Texas at San Antonio - Department of Accounting ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8305 (Phone)

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