Private Placement of Public Equity in China

By retrieving entries from the financial-data vendor Wind and collecting relevant data from private placement statements, the author builds a proprietary database and studies five aspects of private placement in China.

He examines which listed firms are more likely to choose private placement over SEO in refinancing; he looks into the controlling shareholder’s decision on whether or not to purchase privately placed shares; he investigates how the offer discount is determined; he calculates announcement periods for abnormal returns on private placements.

Where the abnormal return is significantly positive, he documents positive long-run abnormal return on private offerings and evidence supporting the under-reaction hypothesis.

Finally, he concludes that the largest shareholders tunnel by means of excess discounts from which they benefit but which is harmful to other shareholders.