Advanced Search
MyIDEAS: Login

The Return on Private Investment in Public Equity

Contents:

Author Info

  • Cécile Carpentier

    ()

  • Jean-François L'Her
  • Jean-Marc Suret

    ()

Registered author(s):

    Abstract

    We examine the long-run performance following traditional private placements by Canadian public firms, to provide an explanation for the common observation that such placements are generally followed by abnormally low returns. We investigate 3,291 Canadian private investments in public equity from 1993 to 2003, and we observe a significant long-run post-issue underperformance using a classic Fama-French Three Factor Pricing Model. Adding an investment risk factor, as in Lyandres, Sun and Zhang (2008), to the calendar-time regressions sharply reduces the abnormal performance. We then take into account the discount and show that the long-run return of private equity investors differs from the shareholders’ return and is normal on average. In a third step, we split the sample according to the glamour value dimension and according to the firms’ investment activity. Only glamour firms with high investment activity are found to underperform in the long run. The underperformance appears to be driven by a subset of firms. Private investors obtain positive returns following private placements, if they invest in value and low investment firms. This supports the hypothesis that private investors correctly assess investment projects of value firms, while they tend to systematically overestimate investment projects of glamour firms that issue equity. Nous étudions la performance boursière postérieure aux placements privés des sociétés ouvertes au Canada, pour tenter de déterminer l’origine des rendements anormalement faibles qui suivent ce type d’opération de financement. Nous analysons 3291 placements privés effectués entre 1993 et 2003. A l’aide du modèle à facteurs de Fama et French, nous observons une contre-performance statistiquement significative que réduit l’ajout du facteur d’investissement, proposé par Lyandres, Sun and Zhang (2008). Nous tenons compte ensuite de l’escompte pour estimer le rendement du point de vue des investisseurs privés. Ceux-ci réalisent, en moyenne, des rendements supérieurs à ceux des autres actionnaires. Ces rendements sont normaux compte tenu du niveau de risque. Dans une troisième étape, nous divisons l’échantillon en fonction des caractéristiques des émetteurs. Les seuls titres qui génèrent des rendements fortement négatifs sont ceux d’entreprises de croissance dont l’activité d’investissement est importante. Les investisseurs privés réalisent des rendements positifs lorsqu’ils choisissent des titres de valeur d’entreprises qui investissent peu mais ils surévaluent systématiquement les projets d’investissement des titres de croissance.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.cirano.qc.ca/pdf/publication/2010s-47.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by CIRANO in its series CIRANO Working Papers with number 2010s-47.

    as in new window
    Length:
    Date of creation: 01 Dec 2010
    Date of revision:
    Handle: RePEc:cir:cirwor:2010s-47

    Contact details of provider:
    Postal: 2020 rue University, 25e étage, Montréal, Quéc, H3A 2A5
    Phone: (514) 985-4000
    Fax: (514) 985-4039
    Email:
    Web page: http://www.cirano.qc.ca/
    More information through EDIRC

    Related research

    Keywords: Private placements; private investors ; Placements privés; investisseurs privés;

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:cir:cirwor:2010s-47. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.