Does Investor Identity Matter in Equity Issues? Evidence from Private Placements

56 Pages Posted: 7 Feb 2004

See all articles by Srinivasan Krishnamurthy

Srinivasan Krishnamurthy

North Carolina State University - Poole College of Management

Paul A. Spindt

Tulane University - A.B. Freeman School of Business

Venkat Subramaniam

Tulane University

Tracie Woidtke

University of Tennessee, Haslam College of Business

Multiple version iconThere are 2 versions of this paper

Abstract

We examine the relation between stock price performance and the identity of the investors buying the shares in private placements of equity. We find that although the shareholders not participating in the placement experience post-issue negative long-term abnormal returns, the participating investors purchase the shares at a discount and earn normal returns. For the non-participating investors, both announcement and long-term abnormal returns are significantly higher when the shares are placed with affiliated than only with unaffiliated investors. Additionally, when we exclude financially-distressed firms, we find insignificant announcement returns followed by negative long-term abnormal returns in placements to unaffiliated investors. On the other hand, consistent with affiliated investors having a certification effect, we find positive announcement returns and normal long-term returns following placements to affiliated investors. Thus, the disparity found in private placements between the positive announcement period and the negative post-issue long-term abnormal returns disappears when we control for financial distress and participating investor identity.

Keywords: Private placements, informed investors, long-term returns, financial distress

JEL Classification: G14, G24, G32

Suggested Citation

Krishnamurthy, Srinivasan and Spindt, Paul A. and Subramaniam, Venkat R. and Woidtke, Tracie, Does Investor Identity Matter in Equity Issues? Evidence from Private Placements. Journal of Financial Intermediation, Forthcoming. Available at SSRN: https://ssrn.com/abstract=496235

Srinivasan Krishnamurthy

North Carolina State University - Poole College of Management ( email )

Hillsborough Street
Raleigh, NC 27695-8614
United States

Paul A. Spindt

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States
504-865-5413 (Phone)

Venkat R. Subramaniam

Tulane University ( email )

A.B. Freeman School of Business
New Orleans, LA 70118
United States
504-865-5493 (Phone)
504-862-8327 (Fax)

HOME PAGE: http://www.tulane.edu/~vencat

Tracie Woidtke (Contact Author)

University of Tennessee, Haslam College of Business ( email )

428 Stokely Management Center
Knoxville, TN Tennessee 37996-0540
United States
865-974-1718 (Phone)
865-974-1716 (Fax)

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