Premium PIPEs: Share Issuances that Exceed the Market Price

71 Pages Posted: 11 Jul 2024

See all articles by Leonce Bargeron

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics

Ioannis V. Floros

University of Wisconsin - Milwaukee - Department of Finance

Date Written: July 06, 2024

Abstract

Private investments in public equity (PIPEs) are frequently issued above the market price. Although largely ignored in prior literature, premium PIPEs constitute 24.5% of common stock PIPE issuances. They are prevalent across time, issuer industry, and investor type. Average abnormal announcement returns are 9.4% greater for premium PIPEs than discount PIPEs. Adverse selection problems are mitigated because the issuer negotiates the price with a small group of sophisticated investors. We find investors' willingness to pay a premium certifies issuer undervaluation resulting from private information or evolving strategic/monitoring relationships. In premium PIPEs, undervalued firms issue shares instead of repurchasing shares.

Keywords: JEL classification: G14, G23, G24, G32, G34 Premium offerings, Private Information Sharing, Private Investments in Public Equity (PIPEs), Private Placements, Undervaluation, Certification

JEL Classification: G14, G23, G24, G32, G34

Suggested Citation

Bargeron, Leonce and Floros, Ioannis V., Premium PIPEs: Share Issuances that Exceed the Market Price (July 06, 2024). Available at SSRN: https://ssrn.com/abstract=4887351 or http://dx.doi.org/10.2139/ssrn.4887351

Leonce Bargeron (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-4397 (Phone)

Ioannis V. Floros

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

Milwaukee, WI 53201-0742
United States

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