Invisible hand and helping hand: Private placement of public equity in China

Gang Nathan Dong, Ming Gu and Hua He

Journal of Corporate Finance, 2020, vol. 61, issue C

Abstract: In this study of private placement of public equity (PEP) in China, we examine post-placement stock performance and the possible bases for regulatory approval for PEP applications. We find that firms receiving approvals for PEP issues are financially stronger than those rejected by regulatory authorities and experience significant positive long-term abnormal returns following the placements. These long-term abnormal returns are higher when controlling shareholders participate in the placements and when the capital raised is allocated to asset restructuring or M&As. The evidence supports the view that the government offers a “helping hand” by screening PEP applications and approving those with promising investments and capable investors. Investor overoptimism about investment opportunities at firms that issue equity privately is constrained because PEP participants can effectively monitor and discipline management and help improve investment efficiency over time.

Keywords: Private placements; Chinese stock market; Regulatory intervention; Long-term performance (search for similar items in EconPapers)
JEL-codes: G14 G15 G18 G20 G32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:61:y:2020:i:c:s0929119918301640

DOI: 10.1016/j.jcorpfin.2018.08.011

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