Litigation and Information Effects on Private Sales of Securities
65 Pages Posted: 13 Aug 2021 Last revised: 12 Jan 2023
Date Written: January 11, 2023
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: Suggested Citation