Institutional Ownership and Private Equity Placements: Evidence from Chinese Listed Firms

Abstract

This paper examines the impact of institutional ownership on the performance of private equity placements (PEPs) for listed firms in China. We find that the presence of institutional investors can alleviate the information asymmetries between listed firms and the market. The market reaction to PEP announcements is significantly smaller if there is a higher portion of institutional shareholdings. Long‐term firm operational performance after PEPs is positively correlated with institutional shareholdings. Moreover, we find that the relationship between institutional shareholdings and PEP performance is mainly driven by nonlisted corporate investors and mutual funds. Finally, the relationship between PEP performance and institutional shareholdings is stronger in smaller PEP issuers.