Informational Effect of Select Private Placements of Equity: An Empirical Analysis in Indian Capital Market

Abstract

RESEARCH Executive Summary includes research articles that focus on the analysis and resolution of managerial and academic issues based on analytical and empirical or case researchIn India, private placement of equity shares or securities convertible into equity shares by listed companies is of two types-preferential allotment and qualified institutional placement (QIP). While preferential allotments have been in existence for a long time, QIPs are of recent origin. QIPs are a quicker and cost-effective form of raising money and have emerged as an important and preferred choice among the listed companies for an issuance of follow-on equity financing in India.The objective of the study is to investigate the information content of 150 placements of equity shares on QIP basis made by 131 Bombay Stock Exchange (BSE) listed companies from May 8, 2006 to December 31, 2012. The study seeks to analyze the effect of QIP announcements on Indian capital market. It explores the possibility of a relationship between short-run abnormal returns following QIP equity issues using market model-based event study methodology.The results of the study show that the stock market response is negative to the QIP equity announcements and support the hypothesis of semi-strong form of market efficiency only during the three-day event period. The results are inconsistent with the findings of majority of the earlier studies which suggest that there is a positive stock-price performance following the announcements of private placements of equity.As part of robustness checks, the study accords importance to the US subprime and European debt crisis and finds that the sample period could not be taken as the possible reason for adverse market reaction. The study also carries out a set of test statistics for the sample events that are free from event clustering and finds no significant difference in the results.The study concludes that companies are overwhelmingly resorting to QIPs, as they offer a quick and easy way to raise funds on private placement basis but blames the regulatory loopholes for the negative market perception about QIPs. There is a scope for further research with regard to using sophisticated techniques for event clustering and conducting a volume event study to analyse changes in the trading volume surrounding the QIP equity announcements. KEY WORDS

Reaction of Stock Price to Frauds’ Announcements: Evidence from Indian Banking Sector

“…Event study is also used by Wronska et al (2018) to measure market reaction to share repurchase announcement and the factor that determines the pattern of the market reaction in Poland; Chakrabarti et al (2017) to investigate the effect on stock returns after stock split in Indian context; Achleitner et al (2018) to find out effect of foundation ownership on shareholder value; Yildiz el al. (2017) to measure the market reaction to stock grouping announcements; Tan et al (2017) to explore the influence on corporate governance news on stock performance; Basgoze et al (2016) to examine the effects of brand value announcements on stock returns of Turkish firms and Tuli and Shukla (2015) to analyse the effect of Qualified Institutional Placement Announcements on Indian Capital Market in India.…”