Advanced Search
MyIDEAS: Login

Private Placement and Share Price Reaction: Evidence from the Australian Biotechnology and Health Care Sector

Contents:

Author Info

Registered author(s):

    Abstract

    This paper analyses Private Placements for the Australian biotechnology sector. Private placement is one of the favoured methods of secondary equity offering around the world. However, it is also the least studied corporate financing mechanism. A major issue around private placement is the impact of issuance to a selected group of institutional and/or high net worth sophisticated investors and the high direct costs of doing so. We first employ en event study methodology to separate out the large and small placement effects and short and long run effects. Given Australia’s weaker regulatory environment, we find significant negative cumulative abnormal return following private placements in the short term supporting the price pressure hypothesis with our main sample and with large private placement issues. Consistent with current empirical studies, mixed evidence regarding the directional impact was also observed as small issue exhibited positive price effects. We then hypothesize a model to measure and test the key factors identified in the literature. The model captures and explains strong medium term cumulative abnormal return effects and these effects are quite different between small and large placements.

    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.deakin.edu.au/buslaw/aef/workingpapers/papers/2007_05aef.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Accounting, Finance, Financial Planning and Insurance Series with number 2007_05.

    as in new window
    Length: 33 pages
    Date of creation: 21 Apr 2007
    Date of revision:
    Handle: RePEc:dkn:acctwp:aef_2007_05

    Contact details of provider:
    Postal: 221 Burwood Highway, Burwood 3125
    Phone: 61 3 9244 3815
    Web page: http://www.deakin.edu.au/buslaw/aef/index.php

    Related research

    Keywords: private placement; event study; price effect; price pressure;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. John, Kose & Lang, Larry H P, 1991. " Insider Trading around Dividend Announcements: Theory and Evidence," Journal of Finance, American Finance Association, vol. 46(4), pages 1361-89, September.
    2. Masulis, Ronald W. & Korwar, Ashok N., 1986. "Seasoned equity offerings : An empirical investigation," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 91-118.
    3. Malcolm Baker & Jeremy C. Stein & Jeffrey Wurgler, 2003. "When Does The Market Matter? Stock Prices And The Investment Of Equity-Dependent Firms," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 969-1005, August.
    4. Jun-Koo Kang & Yong-Cheol Kim & Rene M. Stulz, 1996. "The Underreaction Hypothesis and the New Issue Puzzle: Evidence from Japan," NBER Working Papers 5819, National Bureau of Economic Research, Inc.
    5. Tan, Ruth S. K. & Chng, P. L. & Tong, Y. H., 2002. "Private placements and rights issues in Singapore," Pacific-Basin Finance Journal, Elsevier, vol. 10(1), pages 29-54, January.
    6. Anderson, Hamish D. & Rose, Lawrence C. & Cahan, Steven F., 2006. "Differential shareholder wealth and volume effects surrounding private equity placements in New Zealand," Pacific-Basin Finance Journal, Elsevier, vol. 14(4), pages 367-394, September.
    7. Mikkelson, Wayne H. & Partch, M. Megan, 1986. "Valuation effects of security offerings and the issuance process," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 31-60.
    8. Wruck, Karen Hopper, 1989. "Equity ownership concentration and firm value : Evidence from private equity financings," Journal of Financial Economics, Elsevier, vol. 23(1), pages 3-28, June.
    9. Masulis, Ronald W, 1983. " The Impact of Capital Structure Change on Firm Value: Some Estimates," Journal of Finance, American Finance Association, vol. 38(1), pages 107-26, March.
    10. Bayless, Mark & Chaplinsky, Susan, 1996. " Is There a Window of Opportunity for Seasoned Equity Issuance?," Journal of Finance, American Finance Association, vol. 51(1), pages 253-78, March.
    11. Kahle, Kathleen M., 2000. "Insider trading and the long-run performance of new security issues," Journal of Corporate Finance, Elsevier, vol. 6(1), pages 25-53, March.
    12. Loughran, Tim & Ritter, Jay R, 1997. " The Operating Performance of Firms Conducting Seasoned Equity Offerings," Journal of Finance, American Finance Association, vol. 52(5), pages 1823-50, December.
    13. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    14. Hayne E. Leland and David H. Pyle., 1976. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Research Program in Finance Working Papers 41, University of California at Berkeley.
    15. John, Kose & Mishra, Banikanta, 1990. " Information Content of Insider Trading Around Corporate Announcements: The Case of Capital Expenditures," Journal of Finance, American Finance Association, vol. 45(3), pages 835-55, July.
    16. Dodd, Peter & Warner, Jerold B., 1983. "On corporate governance : A study of proxy contests," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 401-438, April.
    17. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
    18. Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 61-89.
    19. Loughran, Tim & Ritter, Jay R, 1995. " The New Issues Puzzle," Journal of Finance, American Finance Association, vol. 50(1), pages 23-51, March.
    20. Mayers, David, 1998. "Why firms issue convertible bonds: the matching of financial and real investment options," Journal of Financial Economics, Elsevier, vol. 47(1), pages 83-102, January.
    21. Galai, Dan & Masulis, Ronald W., 1976. "The option pricing model and the risk factor of stock," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 53-81.
    22. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-51, September.
    23. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
    24. Kato, Kiyoshi & Schallheim, James S., 1993. "Private equity financings in Japan and corporate grouping (keiretsu)," Pacific-Basin Finance Journal, Elsevier, vol. 1(3), pages 287-307, September.
    25. Heinkel, Robert L & Schwartz, Eduardo S, 1986. " Rights versus Underwritten Offerings: An Asymmetric Information Approach," Journal of Finance, American Finance Association, vol. 41(1), pages 1-18, March.
    26. Krishnamurthy, Srinivasan & Spindt, Paul & Subramaniam, Venkat & Woidtke, Tracie, 2005. "Does investor identity matter in equity issues? Evidence from private placements," Journal of Financial Intermediation, Elsevier, vol. 14(2), pages 210-238, April.
    27. Hertzel, Michael G & Smith, Richard L, 1993. " Market Discounts and Shareholder Gains for Placing Equity Privately," Journal of Finance, American Finance Association, vol. 48(2), pages 459-85, June.
    Full references (including those not matched with items on IDEAS)

    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:dkn:acctwp:aef_2007_05. 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: (Dr Xueli Tang).

    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.