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Information asymmetry and monitoring in equity private placements

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  • Liang, Hsiao-Chen
  • Jang, Woan-Yuh

Abstract

This paper systematically examines the factors that determine price discounts and announcement effects of equity private placements conducted by firms in Taiwan from 2002 to 2008. Different with most studies of private placements using available observations as a whole sample, our study separates the whole sample into subsamples by exchange-listed firms and OTC firms. The results for OTC firms corroborate the information hypothesis; the discounts serve as compensation for investor's costs of assessing firms, while abnormal returns reflect the information about firm quality. On the other hand, the empirical results show that some of our findings support an information explanation and some support a monitoring explanation in the case of exchange-listed firms. It seems that there are different motives behind the exchange-listed firms placing equity privately.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:quaeco:v:53:y:2013:i:4:p:460-475
    DOI: 10.1016/j.qref.2013.05.009
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    5. Otsubo, Minoru, 2017. "Why do firms underwrite private placement shares of other firms? Case of Japanese firms," Pacific-Basin Finance Journal, Elsevier, vol. 41(C), pages 75-92.
    6. 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.
    7. Holderness, Clifford G., 2018. "Equity issuances and agency costs: The telling story of shareholder approval around the world," Journal of Financial Economics, Elsevier, vol. 129(3), pages 415-439.
    8. SU Chenchen, 2022. "Tunneling Through Private Equity Placements: Evidence From Japan," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 17(1), pages 238-255, April.

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