Firm Quality and the Placement Price of Private Equity

17 Pages Posted: 13 Mar 2007

See all articles by Hamish D. Anderson

Hamish D. Anderson

Massey University - School of Economics and Finance

Lawrence C. Rose

Massey University

Date Written: January 15, 2007

Abstract

In this article we argue the price per share at which private equity is sold relative to current market price conveys important information to the stock market regarding firm quality. The information content of the placement price may be especially important in markets where there are no specific regulations governing either the placement price or the on-market resale of the new shares. New Zealand's laissez-faire attitude towards market regulations during the later part of the 20th century makes an ideal laboratory to explore this proposition. In particular, there is a strong link between placement price relative to current market price and the announcement reaction to new private equity offerings. Further, the size of the discount to current market price is strongly related to proxies for the quality of the firm's future prospects and risk.

Keywords: Private Equity, Pricing, Firm Quality, Regulation

JEL Classification: G32, G38

Suggested Citation

Anderson, Hamish D. and Rose, Lawrence (Larry) Craig, Firm Quality and the Placement Price of Private Equity (January 15, 2007). Available at SSRN: https://ssrn.com/abstract=968249 or http://dx.doi.org/10.2139/ssrn.968249

Hamish D. Anderson (Contact Author)

Massey University - School of Economics and Finance ( email )

New Zealand

Lawrence (Larry) Craig Rose

Massey University ( email )

Private Bag 102-904
North Shore Mail Centre
Auckland, 0745
New Zealand
+64 9 4140800, ex 9558 (Phone)
+64 9 441 8150 (Fax)

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