Divergence of opinion and long-run performance of private placements: evidence from the auction market

Jianlei Han (), Zheyao Pan () and Guangli Zhang ()
Additional contact information
Jianlei Han: Tasmanian School of Business & Economics, University of Tasmania, http://www.utas.edu.au/business-and-economics
Zheyao Pan: The University of Otago, New Zealand
Guangli Zhang: Central University of Finance and Economics, China, http://ensf.cufe.edu.cn/index.htm

No 2017-09, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: In this paper, we propose and construct a direct measure of investors' divergence of opinion based on auction bids data of the private placements in China. We find that the 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, analysts forecast dispersion, and self-selection bias. Moreover, this negative relation is stronger for stocks with more stringent short-sale constraints. Our findings therefore provide strong evidence in support of the Miller (1977)'s divergence of opinion hypothesis.

Keywords: private placement; divergence of opinion; long-run stock returns; short-sale constraint; auction (search for similar items in EconPapers)
JEL-codes: D44 G12 G14 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2017
New Economics Papers: this item is included in nep-tra
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Published by the University of Tasmania. Discussion paper 2017-09

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