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Do large shareholders collude with institutional investors? Based on the data of the private placement of listed companies

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  • Ruan, Yong-Ping
  • Song, Xin
  • Zheng, Kai

Abstract

What role on earth do the institutional investors play in the private placement of listed company? Is it the “balance of interests” or the “large shareholders of conspiracy”? In this paper, we measured the private placement discount and financing purposes to examine the role of institutional investors in the targeted private placement. The research shows that the large shareholders deliver self-benefit through higher discount of private placement, and with the increase in the proportion of large shareholders, the discount rate is significantly higher. The participation of institutional investors can effectively reduce the issuance discount rate. The large shareholders were more involved in the capital operation case of the private placement from the standpoint of their own interests, while institutional investors were more involved in the project financing case of the private placement. The results of the study indicate that institutional investors play a passive role in the private placement led by large shareholders. Institutional investors do not collude with large shareholders to manipulate pricing and operate the capital, instead they are project participants, who get stock at a high price and promote enterprise projects. Institutional investors have played a key role in balancing large shareholders interests, maintaining market equity, and promoting the rational allocation of resources as well as protecting the interests of small and medium-sized investors.

Suggested Citation

  • Ruan, Yong-Ping & Song, Xin & Zheng, Kai, 2018. "Do large shareholders collude with institutional investors? Based on the data of the private placement of listed companies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 508(C), pages 242-253.
    • Handle: RePEc:eee:phsmap:v:508:y:2018:i:c:p:242-253
    DOI: 10.1016/j.physa.2018.05.090
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    1. Liu, Duan & Wang, Lili & Yan, Jing & Wan, Hong, 2023. "R&D manipulation and SEO pricing in the Chinese capital market: The information effect of inefficient investment," Research in International Business and Finance, Elsevier, vol. 65(C).

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