The economics of PIPEs

Jongha Lim, Michael Schwert and Michael Weisbach

Journal of Financial Intermediation, 2021, vol. 45, issue C

Abstract: Private investments in public equities (PIPEs) are an important source of finance for public corporations. PIPE investor returns decline with holding periods, while time to exit depends on the issue's registration status and underlying liquidity. We estimate PIPE investor returns adjusting for these factors. Our analysis, which is the first to estimate returns to investors rather than issuers, indicates that the average PIPE investor holds the stock for 384 days and earns an abnormal return of 19.7%. More constrained firms tend to issue PIPEs to hedge funds and private equity funds in offerings that have higher expected returns and higher volatility. PIPE investors’ abnormal returns appear to reflect compensation for providing capital to financially constrained firms.

Keywords: PIPE; Private placement; Alternative investment; Hedge fund; Private equity fund; Warrant (search for similar items in EconPapers)
JEL-codes: G12 G23 G32 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Working Paper: The Economics of PIPEs (2017)
Working Paper: The Economics of PIPEs (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:45:y:2021:i:c:s1042957319300488

DOI: 10.1016/j.jfi.2019.100832

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