Litigation and Information Effects on Private Sales of Securities

65 Pages Posted: 13 Aug 2021 Last revised: 12 Jan 2023

See all articles by Onur Bayar

Onur Bayar

University of Texas at San Antonio - Carlos 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: January 11, 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 conclude that PIPEs do not necessarily constitute costlier financing venues for issuers undergoing litigation compared to the ones that are not, conditional on certain mitigation actions being pursued.

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 (January 11, 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 - Carlos 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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