Private Placements by Small Public Entities: Canadian Experience
In Canada, most of the private placements are offered by small and unprofitable entrepreneurial ventures -- for which the asymmetry of information and adverse selection problems are particularly acute. Private placements are a very important source of equity for these emerging businesses. In contrast with the public offering process, placements of shares are made in the exempt market with accredited or sophisticated investors. It is assumed that these investors would be knowledgeable enough to protect their own interests. The aim of this paper is to analyze the extent to which such private placements can be considered fair, i.e. if they provide investors with a fair rate of return and if accredited investors are indeed able to price these placements correctly in a context of large asymmetry of information. The answer is clearly negative. Au Canada, la majorité des placements privés sont émis par de petites entreprises en émergence, non rentables. Les problèmes d'asymétrie de l'information et d'anti-sélection sont particulièrement sévères. Les placements privés sont toutefois une source de financement très importante pour ces entreprises. Contrairement aux offres publiques, les placements privés sont émis dans le cadre du régime d'exemption, auprès d'investisseurs agréés dont on considère qu'ils ont les connaissances requises pour veiller à leurs intérêts financiers. L'objectif de l'étude est de déterminer dans quelle mesure les placements privés procurent un taux de rendement équitable aux investisseurs et si les investisseurs agréés sont en mesure d'apprécier correctement la valeur de ce type d'investissement. La réponse est négative.
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