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The Informativeness of Offer Characteristics versus Investor Identity in PIPE Transactions

61 Pages Posted: 5 Apr 2006  

Date Written: April 2, 2006

Abstract

Investors participating in private placements of public companies (PIPE transactions) learn significant information about the issuing firms by performing due diligence prior to the offerings. Consequently, the announced offering terms such as the offer price and the fraction of the company sold in the offer, along with the identity of the investors participating in the offer, may be informative to non-participating investors. By splitting the sample into groups based on the premium paid by investors in the offer, and using a much larger sample than samples used in prior studies, the study shows that offer characteristics alone can explain the market reaction to the offer and the long-term performance of the issuers. Investor identity has no additional explanatory power. This finding contrasts other studies which suggest that announcement returns and long-term performance can be explained by distinguishing between active and passive investors.

Keywords: Private placements, Long-term performance, Market efficiency

JEL Classification: G14, G24, G32

Suggested Citation

Meidan, Danny, The Informativeness of Offer Characteristics versus Investor Identity in PIPE Transactions (April 2, 2006). Available at SSRN: https://ssrn.com/abstract=894689 or http://dx.doi.org/10.2139/ssrn.894689

Danny Meidan (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Department of Finance
2001 Sheridan Road, 4th Floor
Evanston, IL 60208
United States

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