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Managerial Placement and Entrenchment

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  • Qizhi Tao
  • Zhao Zhao
  • Mingming Zhang
  • Xueman Xiang

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.

Suggested Citation

  • Qizhi Tao & Zhao Zhao & Mingming Zhang & Xueman Xiang, 2018. "Managerial Placement and Entrenchment," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(14), pages 3366-3383, November.
    • Handle: RePEc:mes:emfitr:v:54:y:2018:i:14:p:3366-3383
    DOI: 10.1080/1540496X.2018.1474739
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