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Long-Run Performance following Private Placements of Equity

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Author Info

  • Michael Hertzel

    (Arizona State University,)

  • Michael Lemmon

    (University of Utah,)

  • James S. Linck

    (University of Georgia,)

  • Lynn Rees

    (Texas A&M University)

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    Abstract

    Public firms that place equity privately experience positive announcements effects, with negative post-announcement stock-price performance. This finding is inconsistent with the underreaction hypothesis. Instead, it suggests that investors are overoptimistic about the prospects of firms issuing equity, regardless of the method of issuance. Further, in contrast to public offerings, private issues follow periods of relatively poor operating performance. Thus, investor overoptimism at the time of private issues is not due to the behavioral tendency to overweight recent experience at the expense of long-term averages. Copyright The American Finance Association 2002.

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    Bibliographic Info

    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 57 (2002)
    Issue (Month): 6 (December)
    Pages: 2595-2617

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    Handle: RePEc:bla:jfinan:v:57:y:2002:i:6:p:2595-2617

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    Cited by:
    1. Almazan, Andres & Suarez, Javier & Titman, Sheridan, 2004. "Stakeholders, Transparency and Capital Structure," CEPR Discussion Papers 4181, C.E.P.R. Discussion Papers.
    2. Otavio Ribeiro De Medeiros & Alberto Shigueru Matsumoto, 2004. "Market Reaction and Volatility in the Brazilian Stock Market," Finance 0412020, EconWPA.
    3. Eckbo, B. Espen & Norli, Øyvind, 2004. "The choice of seasoned-equity selling mechanism: Theory and evidence," Discussion Papers 2004/17, Department of Business and Management Science, Norwegian School of Economics.
    4. Hertzel, Michael G. & Huson, Mark R. & Parrino, Robert, 2012. "Public market staging: The timing of capital infusions in newly public firms," Journal of Financial Economics, Elsevier, vol. 106(1), pages 72-90.
    5. Dahiya, Sandeep & Klapper, Leora & Parthasarathy, Harini & Singer, Dorothe, 2013. "The role of private equity investments in public firms : international evidence," Policy Research Working Paper Series 6484, The World Bank.
    6. Renneboog, L.D.R. & Szilagyi, P.G., 2006. "Corporate Restructuring and Bondholder Wealth," Discussion Paper 2006-23, Tilburg University, Center for Economic Research.
    7. Lin, Wen-Chun & Chang, Shao-Chi & Chen, Sheng-Syan & Liao, Tsai-Ling, 2013. "The over-optimism of financial analysts and the long-run performance of firms following private placements of equity," Finance Research Letters, Elsevier, vol. 10(2), pages 82-92.
    8. Chakraborty, Indraneel & Gantchev, Nickolay, 2013. "Does shareholder coordination matter? Evidence from private placements," Journal of Financial Economics, Elsevier, vol. 108(1), pages 213-230.
    9. Polwat Lerskullawat, 2013. "Warrant Seos in an Emerging Market: Evidence from Thailand," Diversity, Technology, and Innovation for Operational Competitiveness: Proceedings of the 2013 International Conference on Technology Innovation and Industrial Management, ToKnowPress.
    10. Cécile Carpentier & Jean-François L'Her & Jean-Marc Suret, 2004. "Le placement privé dans les sociétés ouvertes : dimensions réglementaires, économiques et financières," CIRANO Working Papers 2004s-46, CIRANO.
    11. Brown, James R. & Floros, Ioannis V., 2012. "Access to private equity and real firm activity: Evidence from PIPEs," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 151-165.
    12. Drienko, Jozef & Sault, Stephen J., 2013. "The intraday impact of company responses to exchange queries," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4810-4819.
    13. Sara B. Moeller & Frederik P. Schlingemann & Rene M. Stulz, 2003. "Do shareholders of acquiring firms gain from acquisitions?," NBER Working Papers 9523, National Bureau of Economic Research, Inc.
    14. Tomáš Buus, 2008. "Performance of Quoted and Non-quoted Companies in the Europe," European Financial and Accounting Journal, University of Economics, Prague, vol. 2008(4), pages 45-69.
    15. Dong Lou, 2009. "Attracting investor attention through advertising," LSE Research Online Documents on Economics 29311, London School of Economics and Political Science, LSE Library.
    16. Liang, Hsiao-Chen & Jang, Woan-Yuh, 2013. "Information asymmetry and monitoring in equity private placements," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(4), pages 460-475.
    17. Henk Berkman & Michael McKenzie & Patrick Verwijmeren, 2013. "Hole in the Wall: Informed Short Selling ahead of Private Placements," Tinbergen Institute Discussion Papers 13-153/IV/62, Tinbergen Institute.
    18. Bengtsson, Ola & Dai, Na, 2013. "Financial Contracts in PIPE Offerings: The Role of Expert Placement Agents," Knut Wicksell Working Paper Series 2013/7, Knut Wicksell Centre for Financial Studies, Lund University.
    19. Cécile Carpentier & Jean-François L'Her & Stephan Smith & Jean-Marc Suret, 2007. "Risk, Timing and Overoptimism in Private Placements and Public Offerings," CIRANO Working Papers 2007s-27, CIRANO.
    20. Hoechle, Daniel & Schmid, Markus & Zimmermann, Heinz, 2012. "Measuring Long-term Performance: a Regression Based Generalization of the Calendar Time Portfolio Approach," Working Papers on Finance 1216, University of St. Gallen, School of Finance.

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