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Shareholder litigation and short selling ahead of private equity placements

Author

Listed:
  • Onur Bayar
  • Yini Liu
  • Juan Mao

Abstract

We examine the impact of shareholder litigation on short selling ahead of private investments in public equity (PIPEs). We find that PIPE issuers that incurred securities class action lawsuits prior to the PIPE are shorted more heavily ahead of the PIPE issue. The case status at the PIPE date, the severity of the lawsuit, and the timing of the private placement after the litigation event also affect the extent of short selling activity ahead of PIPEs. Consistent with hedging incentives, the effects of prior shareholder litigation on short selling are more pronounced in PIPEs where lead investors are hedge funds and in traditional PIPEs.

Suggested Citation

  • Onur Bayar & Yini Liu & Juan Mao, 2023. "Shareholder litigation and short selling ahead of private equity placements," The Financial Review, Eastern Finance Association, vol. 58(4), pages 833-858, November.
    • Handle: RePEc:bla:finrev:v:58:y:2023:i:4:p:833-858
    DOI: 10.1111/fire.12347
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    References listed on IDEAS

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