Managerial Placement and Entrenchment

Qizhi Tao, Zhao Zhao, Mingming Zhang and Xueman Xiang

Emerging Markets Finance and Trade, 2018, vol. 54, issue 14, 3366-3383

Abstract: Using data on companies that have implemented private placements in China from 2011 to 2016, we examine the discount on private placements, short-term stock returns, and long-term performance after the placements. Our goal is to determine whether the prevailing certification and entrenchment hypotheses can explain managerial placements. We find that the participation of managerial investors has a significant and negative impact on short-term stock returns. Such a negative effect can also be found on issuing companies’ long-term profitability. Moreover, managerial placements have a higher discount than nonmanagerial placements. Our findings suggest that managerial placement is consistent with the entrenchment hypothesis but not the certification hypothesis.

Date: 2018
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DOI: 10.1080/1540496X.2018.1474739

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