Effects on shareholders' wealth and premium (discount) of private placement announcement

Authors: Shu-Ling Lin, Rita Chuang

Journal: Chiao Da Manaement Review. Jun. 2010, 30(1): 1-45.

Keywords: Private placement announcement; Shareholder’s wealth; Premium or discount ; Event study

Abstract:
The study examines the effects of shareholder' s wealth and premium (discount) from private placement announcements after the Financial Supervisory Commission (FSC) announced regulations at October 2005, and analyzes the factors of cumulative abnormal returns and premium or discount on private placement announcement. The findings can be summarized as follows: Firstly, the average cumulative abnormal return of private placement announcement is significantly positive, and the stock price shows rising before 27 days of the announcement, it implies that the information content of private placement announcement exists with early information leakage and asymmet Furthermore, it shows that “the change of ownership" is a significant factor affecting cumulative abnormal return from private placement announcement. The average cumulative abnormal return is up to 40.28%. Investors could take the result as a reference to make decision after receive the information of announcement. Finally, the ratio of insider purchasers is not significantly related to the discount on private placements, which reject the hypothesis of managerial self dealing by literatures. The firms did not benefit managerial insiders though larger discount of private offerings after the FSC announced new enforced regulations. The findings show that “the changed numbers of chairs in board of directors" is a significant factor affecting private placement discount. It further evidenced that firms offer lower offering price to attract new investors to participate into the managerial board.