Why do firms issue private equity repeatedly? On the motives and information content of multiple PIPE offerings

Floros, Ioannis V.; Sapp, Travis R.A.

doi:10.1016/j.jbankfin.2012.08.001

Cited by 40 publications

(13 citation statements)

References 30 publications

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“…Many recent security issues are privately placed. In fact, Chen et al () and Floros and Sapp () show that the private placement market has surpassed the traditional seasoned equity market, both in terms of number of annual transactions and total annual issue volume. Issuing a security privately could have implications for announcement effects.…”

Section: Factors Explaining Wealth Effects Of Seosmentioning

confidence: 99%

Wealth Effects of Seasoned Equity Offerings: A Meta‐Analysis

2018

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We use meta‐analysis to review studies on announcement effects associated with seasoned equity offerings. Our sample includes 199 studies from 38 leading finance journals and Social Sciences Research Network working papers. The studies cover different countries, but the US is particularly well‐represented with 131 studies. We find a statistically significant mean cumulative abnormal return of −0.98%. Abnormal returns are more negative for equity issues by US companies and for non‐US rights issues and are less negative for private placements. In addition, wealth effects are more negative when the proceeds are used for debt reduction, when the SEO is issued shortly after IPO, and for issues by nondividend‐paying companies and industrial companies. We identify important avenues for future research.

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Section: Factors Explaining Wealth Effects Of Seosmentioning

confidence: 99%

Wealth Effects of Seasoned Equity Offerings: A Meta‐Analysis

2018

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“…Chen, Cheng, Cheng and Chih (2010) identify 288 private equity placements from 1997 to 2003, also drawn from the SDC. Hence, there has been a rapid rise in PIPE activities in recent years (Floros and Sapp, 2011).…”

Section: Sample Selection and Summary Statisticsmentioning

confidence: 99%

“…The private placement market has become an important source of funding for many public firms seeking equity. Floros and Sapp (2011) and Huson, Malatesta and Parrino (2010) document that not only is there a notable increase in private investments in public equity (PIPE) activities in recent years, the common equity raised through PIPE offerings rivaled the common equity raised through seasoned equity offerings (SEOs) in the United States 1 . Additionally, while equity is typically issued at a discount, PIPE discounts are disproportionately larger than those of SEOs.…”

Section: Introductionmentioning

confidence: 99%

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The Impact of Mispricing and Asymmetric Information on the Price Discount of Private Placements of Common Stock

Glegg

Harris

Madura

et al. 2012

The Financial Review

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The price discount on privately placed stock is large and can vary substantially among firms. While earlier studies attribute price discounts on privately placed stock to illiquidity and costs of gathering information, we offer a more complete explanation. We find that firms exhibiting higher overvaluation have significantly larger price discounts in private stock sales. We also find that higher levels of asymmetric information about the issuing firm and about the stock market environment at the time of the private placement cause more pronounced discounts in the offer price. Our analysis also shows that post‐issue abnormal returns following private placements are higher when discounts are less pronounced.

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“…He argues that monitoring may not become more effective after private placements if ownership is concentrated in the hands of passive investors. Floros and Sapp (2012) find that during 1995-2008, multiple or repeated issues of private equity placements have been a substantial source of finance for the US corporations. They show that positive stock price reaction to the private placement announcement is true for initial offerings only.…”

Section: Literature Reviewmentioning

confidence: 99%

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

Tuli

Shukla

2015

Vikalpa: The Journal for Decision Makers

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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

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Why do firms issue private equity repeatedly? On the motives and information content of multiple PIPE offerings

Cited by 40 publications

References 30 publications

Wealth Effects of Seasoned Equity Offerings: A Meta‐Analysis

Wealth Effects of Seasoned Equity Offerings: A Meta‐Analysis

The Impact of Mispricing and Asymmetric Information on the Price Discount of Private Placements of Common Stock

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

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