IDEAS home Printed from https://ideas.repec.org/a/oup/rfinst/v23y2010i7p2789-2820.html
   My bibliography  Save this article

Financing under Extreme Risk: Contract Terms and Returns to Private Investments in Public Equity

Author

Listed:
  • Susan Chaplinsky

Abstract

We study financial contracting using transactions from the private investments in public equity market. Our tests show that the use of terms that are contingent on an issuer's future performance increases with issuer risk. Among issuers with poorer stock performance, higher cash burn rates, and more uncertain investment prospects, purchase discount-only contracts are uncommon and contracts with contingent terms are frequently used. Our evidence also supports arguments that issuer bargaining power with investors erodes as financing alternatives grow more limited. In particular, terms that can transfer control to investors are most commonly used by issuers in the weakest financial condition. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Suggested Citation

  • Susan Chaplinsky, 2010. "Financing under Extreme Risk: Contract Terms and Returns to Private Investments in Public Equity," Review of Financial Studies, Society for Financial Studies, vol. 23(7), pages 2789-2820, July.
  • Handle: RePEc:oup:rfinst:v:23:y:2010:i:7:p:2789-2820
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rfs/hhq035
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chen, Sheng-Syan & Hsu, Ching-Yu & Huang, Chia-Wei, 2016. "The white squire defense: Evidence from private investments in public equity," Journal of Banking & Finance, Elsevier, vol. 64(C), pages 16-35.
    2. Ola Bengtsson & Na Dai, 2014. "Financial Contracts in PIPE Offerings: The Role of Expert Placement Agents," Financial Management, Financial Management Association International, vol. 43(4), pages 795-832, December.
    3. repec:wsi:qjfxxx:v:07:y:2017:i:01:n:s2010139216500208 is not listed on IDEAS
    4. repec:eee:jobuve:v:8:y:2017:i:c:p:114-122 is not listed on IDEAS
    5. repec:bla:acctfi:v:56:y:2016:i:4:p:1149-1185 is not listed on IDEAS
    6. Chakraborty, Indraneel & Gantchev, Nickolay, 2013. "Does shareholder coordination matter? Evidence from private placements," Journal of Financial Economics, Elsevier, vol. 108(1), pages 213-230.
    7. Billett, Matthew T. & Elkamhi, Redouane & Floros, Ioannis V., 2015. "The influence of investor identity and contract terms on firm value: Evidence from PIPEs," Journal of Financial Intermediation, Elsevier, vol. 24(4), pages 564-589.
    8. 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.
    9. Park, James L., 2015. "Equity returns of distressed equity issuers," Finance Research Letters, Elsevier, vol. 14(C), pages 93-103.
    10. repec:eee:corfin:v:45:y:2017:i:c:p:64-83 is not listed on IDEAS
    11. Seth Armitage & Dionysia Dionysiou & Angelica Gonzalez, 2014. "Are the Discounts in Seasoned Equity Offers Due to Inelastic Demand?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(5-6), pages 743-772, June.
    12. Jongha Lim & Michael W. Schwert & Michael S. Weisbach, 2017. "The Economics of PIPEs," NBER Working Papers 23967, National Bureau of Economic Research, Inc.
    13. Emna JABALLAH & Wided YOUSFI & Mohamed Ali ZARAI, 2014. "Quality of financial reports: Evidence from the Tunisian firms," E3 Journal of Business Management and Economics., E3 Journals, vol. 5(2), pages 030-038.
    14. repec:eee:jfinec:v:124:y:2017:i:3:p:580-598 is not listed on IDEAS
    15. Kose John & Joe Shangguan & Ravi Mateti, 2015. "Financing activities after accounting restatements: an examination of SEOs and PIPEs," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(1), pages 139-160, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:23:y:2010:i:7:p:2789-2820. 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: (Oxford University Press) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/sfsssea.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.