Risk, illiquidity or marketability: What matters for the discounts on private equity placements?

Chen, Linda H.; Dyl, Edward A.; Jiang, George J.; Juneja, Januj

doi:10.1016/j.jbankfin.2015.03.009

Cited by 14 publications

(4 citation statements)

References 52 publications

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“…This is the special 'replacement function' of the clearing house. All these actions of the clearing house can be successfully realized because it has strong financial resources and has implemented a margin system, which is a set of strict debt-free financial operation system [42].…”

Section: Clearing Housementioning

confidence: 99%

Applying blockchain for primary financial market: A survey

Li³

et al. 2021

IET Blockchain

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In financial market, especially primary market, it is very costly and difficult to make a deal due to discovery difficulty, information asymmetry, lack of trust, complicated trading process and low liquidity. Blockchain is an innovative technology enabling new business models of distributed data storage, point-to-point transaction and decentralized autonomous organizations via consensus. The unique features of blockchain, 'decentralization, highly transparent, enhanced security and immutability of information', make it a good solution candidate to meet the needs of private equity exchange. This article focuses on analysing the technical basis of the blockchain financial model and the typical application scenarios of the blockchain in the financial market. It discusses the importance of applying key blockchain technology to the financial market, especially in the primary market. Research has found that the development of blockchain technology, especially the maturity of stabilized token technology, makes it possible for blockchain to become a supporting technology to support the next generation of infrastructure in the future financial market. At present, blockchain technology has been concentrated in the issuance, registration, clearing, settlement and derivatives management of private equity and other over-the-counter securities. The use of blockchain to build a decentralized primary market has not received enough attention in research and practice, and the use of blockchain technology to establish a primary market with diverse distribution methods is still in its infancy. On this basis, this article further analyses the current problems and the possibility of solving these problems in the application of blockchain in the primary market and points out several interesting directions for future research in this field.

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Section: Clearing Housementioning

confidence: 99%

Applying blockchain for primary financial market: A survey

Li³

et al. 2021

IET Blockchain

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“…It reflects the relative size of the private placement deal, or the dilution level of the deal. As in L. H. Chen et al (), Discount is the discount rate of the issuing price compared to the market price of the firm one day before the issuance announcement. The standard auction theory (e.g., Cammack , p. 113) predicts a positive relation between the number of bidders and dispersion of opinion.…”

Section: Data and Variable Definitionsmentioning

confidence: 99%

“…The mean (median) discount rate of the issuing price is 16.678% (16.740%). A positive discount rate is typically driven by the illiquidity premium for a long lock‐up period, firm risk, and marketability (L. H. Chen et al ). The mean (median) quantity of issuing shares is 154,980,000 (53,640,000).…”

Section: Data and Variable Definitionsmentioning

confidence: 99%

Divergence of Opinion and Long‐run Performance of Private Placements: Evidence From the Auction Market

Han

Pan

Zhang

2019

J of Financial Research

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In this article, we propose and construct a direct measure of investors' divergence of opinion based on auction bids data from private placements in China. We find that firms with higher bids dispersion generate lower long-run stock returns after the issuance of private placements. This effect is economically significant and robust when controlling for market discount, earnings management, alternative dispersion measures, and self-selection bias. Moreover, this negative relation is stronger for stocks with more stringent short-sale constraints. Our findings therefore provide strong evidence for the overvaluation hypothesis.

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“…It reflects the relative size of the private placement deal, or the dilution level of the deal. As in Chen et al (2015), discount is the discount rate of the issuing price compared to the market price of the firm one day before the issuance announcement. The fundamentals of the firm include firm size log(value), Tobin's Q, cash holding cash, f irmage, and book leverage lev.…”

Section: Variables Constructionmentioning

confidence: 99%

Three Essays on Empirical Corporate Finance

Han¹

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This thesis comprises three essays on empirical corporate finance.The first essay provides a new explanation for investment-cash flow sensitivity from the perspective of CEO inside debt holdings. We examine the effect of CEO pensions and deferred compensation (inside debt) on investment-cash flow sensitivity for a sample of U.S. manufacturing firms from 2006 to 2012. We find that the firms with higher relative CEO leverage ratios (CEO's debt/equity ratio scaled by the firm's debt/equity ratio) generate higher investment-cash flow sensitivity. Moreover, one standard deviation increase in the logarithm of the relative CEO leverage ratio enlarges investmentcash flow sensitivity by 50%. This positive relationship still holds even after we take endogeneity and financial constraints into account.The second essay explores the net effect of a politically connected board on a firm. Using a quasinatural experiment in China -a regulatory change to forbid bureaucrats from sitting on the board of public firms -we address the causality by testing the market reaction. Those firms with politically connected directors who are targeted by the regulatory change show a significantly positive abnormal stock return on average. The result is robust for various model settings and for a matched sample using the propensity score methodology. Additionally, the announcement effect when a politically connected director resigns is significantly positive, and significantly higher than the effect when a non-connected director resigns. Overall, our results suggest that the agency cost effect of a politically connected director dominates the value effect.The third essay examines the effect of investor divergence of opinions on the long-run performance of private placements. We propose and construct a direct measure of investor divergence of opinion, based on auction bids data of the private placements in China. We find that firms with higher bids dispersion generate lower long-term stock returns after the issuance of private placements. This effect is economically significant and robust when controlling for market discount and for dispersion in analyst forecasts. Moreover, this negative relation is stronger for stocks with more stringent shortsale constraints. Our findings provide strong evidence in support of the Miller's (1977) divergence of opinion hypothesis.iii Declaration by AuthorThis thesis is composed of my original work, and contains no material previously published or written by another person except where due reference has been made in the text. I have clearly stated the contribution by others to jointly-authored works that I have included in my thesis.

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Risk, illiquidity or marketability: What matters for the discounts on private equity placements?

Cited by 14 publications

References 52 publications

Applying blockchain for primary financial market: A survey

Applying blockchain for primary financial market: A survey

Divergence of Opinion and Long‐run Performance of Private Placements: Evidence From the Auction Market

Three Essays on Empirical Corporate Finance

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