Financial Constraints and Private Equity Placements

Abstract

This study examines whether and to what extent private equity placements reduce financial constraints for issuing firms in the Taiwan Stock Exchange. We find that private equity placements mitigate financial constraints and potentially provide a source of value by enabling issuing firms to improve their investment policy. Furthermore, we show that the post-placement performance of issuers significantly improves due to the reduction of financial constraints. Finally, we demonstrate that offerings subject to higher financial constraints are more heavily discounted, and there exists a negative relationship between offering price discounts and financial constraints.

Keywords: private equity placements, financial constraints