Litigation and Information Effects on Private Sales of Securities

66 Pages Posted: 13 Aug 2021

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: August 11, 2021

Abstract

We analyze the resolution of information asymmetry in transactions of private investments in public
equity (PIPEs) in which the issuer has experienced class action lawsuits. We explain the associated wealth and pricing effects (information effects). We show that litigated PIPEs are associated with higher announcement wealth effects and lower levels of discounts than non-litigated PIPEs. We find that disclosure, prior investors’ ownership, early registration, and intermediation have positive information effects on incumbent and new investors when issuers concurrently pursue the desired corporate actions (proxied by the auditor changes). We conclude that PIPE issuers can mitigate information effects from prior litigation.

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

JEL Classification: G14; G23; 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 11, 2021). 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

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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