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Investor Overoptimism And Private Equity Placements

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  • Dalia Marciukaityte
  • Samuel H. Szewczyk
  • Raj Varma

Abstract

We reexamine investor tendency to overweight recent experiences when predicting future performance of firms by examining a sample of firms making private equity placements. Our findings are consistent with the projection argument that investors use the recent experiences of other firms to predict the success of placing firms. Specifically, we find that the placements preceded by a larger number of recently very successful firms are associated with the significantly more favorable market reaction to the placement announcement and significantly poorer post-placement stock price performance. 2005 The Southern Finance Association and the Southwestern Finance Association.

Suggested Citation

  • Dalia Marciukaityte & Samuel H. Szewczyk & Raj Varma, 2005. "Investor Overoptimism And Private Equity Placements," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 28(4), pages 591-608.
  • Handle: RePEc:bla:jfnres:v:28:y:2005:i:4:p:591-608
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    Cited by:

    1. Cécile Carpentier & Jean-François L'Her & Stephan Smith & Jean-Marc Suret, 2007. "Risk, Timing and Overoptimism in Private Placements and Public Offerings," CIRANO Working Papers 2007s-27, CIRANO.
    2. Chen, An-Sing & Cheng, Lee-Young & Cheng, Kuang-Fu & Chih, Shu-Wei, 2010. "Earnings management, market discounts and the performance of private equity placements," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1922-1932, August.
    3. Dahiya, Sandeep & Klapper, Leora & Parthasarathy, Harini & Singer, Dorothe, 2013. "The role of private equity investments in public firms : international evidence," Policy Research Working Paper Series 6484, The World Bank.
    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.
    5. Chen, Linda H. & Dyl, Edward A. & Jiang, George J. & Juneja, Januj A., 2015. "Risk, illiquidity or marketability: What matters for the discounts on private equity placements?," Journal of Banking & Finance, Elsevier, vol. 57(C), pages 41-50.
    6. Han, Jianlei & Pan, Zheyao & Zhang, Guangli, 2017. "Divergence of opinion and long-run performance of private placements: evidence from the auction market," Working Papers 2017-09, University of Tasmania, Tasmanian School of Business and Economics.
    7. Cécile Carpentier & Jean-François L’Her & Jean-Marc Suret, 2013. "Private investment in small public entities," Small Business Economics, Springer, vol. 41(1), pages 149-168, June.
    8. Ferreira, Eurico J. & Brooks, LeRoy D., 2007. "Evidence on private equity offering announcements: Strong and weak firms' pooling versus separation," Journal of Economics and Business, Elsevier, vol. 59(2), pages 89-110.
    9. Cécile Carpentier & Jean-Marc Suret, 2009. "Private Placements by Small Public Entities: Canadian Experience," CIRANO Working Papers 2009s-12, CIRANO.
    10. repec:eee:corfin:v:45:y:2017:i:c:p:64-83 is not listed on IDEAS

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