Market Discounts and Shareholder Gains for Placing Equity Privately

Michael G Hertzel and Richard Smith ()

Journal of Finance, 1993, vol. 48, issue 2, 459-85

Abstract: Despite selling at substantial discounts, private placements of equity are associated with positive abnormal returns. The authors find evidence that discounts reflect information costs borne by private investors and abnormal returns reflect favorable information about firm value. Results are consistent with the role of private placements as a solution to the Myers and Majluf (1984) underinvestment problem and with the use of private placements to signal undervaluation. The authors also find some evidence of anticipated monitoring benefits from private sales of equity. For the smaller firms that comprise their sample, information effects appear to be relatively more important than ownership effects. Copyright 1993 by American Finance Association.

Date: 1993
References: Add references at CitEc
Citations: View citations in EconPapers (196)

Downloads: (external link)
http://links.jstor.org/sici?sici=0022-1082%2819930 ... O%3B2-W&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:48:y:1993:i:2:p:459-85

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().