Comparing the Characteristics and Performance of Private Equity Offering Firms with Seasoned Equity Offering Firms

Shin-Herng Michelle Chu, George H. Lentz and Espen Robak
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Shin-Herng Michelle Chu: Finance, Real Estate & Law Department, California State Polytechnic University
George H. Lentz: Finance; Real Estate & Law Department, California State Polytechnic University
Espen Robak: Business & Real Estate Valuation Services, FMV Opinions Inc.

Journal of Economics and Management, 2005, vol. 1, issue 1, 57-83

Abstract: This paper examines why the majority of private placements of equity sell at substantial discounts, while a few sell at premiums. We compare private equity offering (PEO) firms with comparable seasoned equity offering (SEO) firms and find that PEO firms had poorer financial performance than SEO firms both prior and subsequent to the year of issue. Furthermore, PEO firms typically showed signs of financial distress prior to the equity issue. Our results also indicate that the holding period returns on investments in PEO firms were substantially below returns on the market index and worse than those of SEO firms. The financial characteristics and the holding period returns of PEO firms issuing at a price premium were found to be significantly better than those that sold at a discount. The private equity premiums may reflect risky future growth opportunities as well as potential takeover premiums.

Keywords: private equity offering; seasoned equity offering; financial performance (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2005
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