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Equity private placements, liquid assets, and firm value

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  • Brooks
  • J. Graham

Abstract

This paper finds wealth enhancement from equity private placement issuances where liquid assets are provided to slack-poor companies. This result runs counter to the expected Jensen's (1986) excess free-cash-flow problem, where the predominant findings of numerous studies include negative wealth effects from externally financed liquidity enhancements. We also find greater announcement-period returns for smaller firms and firms with better recent performance. Investors appear to view either of these factors, together with the private investor’s willingness to provide additional liquidity, as an asymmetric information release on the firm’s viability and likelihood of improved performance. Copyright Springer 2005

Suggested Citation

  • Brooks & J. Graham, 2005. "Equity private placements, liquid assets, and firm value," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 29(3), pages 321-336, September.
    • Handle: RePEc:spr:jecfin:v:29:y:2005:i:3:p:321-336
    DOI: 10.1007/BF02761578
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    References listed on IDEAS

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    Cited by:

    1. Madhuri Malhotra & M. Thenmozhi & Arun Kumar Gopalaswamy, 2011. "Evidence on Changes in Time Varying Volatility around Bonus and Rights Issue Announcements," Working Papers 2011-061, Madras School of Economics,Chennai,India.
    2. Marcos Melo & Feruccio Bilich, 2013. "Expectancy balance model for cash flow," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(2), pages 240-252, April.
    3. Fonseka, M.M. & Colombage, Sisira R.N. & Tian, Gao-Liang, 2014. "Effects of regulator's announcements, information asymmetry and ownership changes on private equity placements: Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 126-149.
    4. 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.

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