Premium PIPEs: Share Issuances that Exceed the Market Price
71 Pages Posted: 11 Jul 2024
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: Suggested Citation