The Role of Private Equity Investments in Public Firms : International Evidence

This paper compares the raising of external equity capital from private equity investors via private investments in public equity (PIPEs) and seasoned equity offerings (SEOs) using a sample of 456 PIPEs and 1,910 SEOs drawn from nine Asian countries. Consistent with the idea that insiders attempt to time the markets, firms issuing SEOs are preceded by a significantly higher run-up in stock price compared with those issuing PIPEs. This result is consistent with the undervaluation hypothesis that states that firms are more likely to issue PIPEs when they perceive their stock to be undervalued. In contrast to the United States where this undervaluation appears to be driven by financial distress and asymmetric information, the results show PIPE and SEO issuers to be statistically undistinguishable from each other. The announcement of a PIPE offering is on average associated with a significantly higher stock market reaction compared with an issue of a SEO, suggesting that private equity investors may play a certification or monitoring role. However, a comparison of PIPE issuers' operating performance and stock market returns in the pre-issue and the post-issue periods does not detect any significant improvements.

Bibliographic Details

Main Authors:	Dahiya, Sandeep, Klapper, Leora, Parthasarathy, Harini, Singer, Dorothe
Format:	Publications & Research biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2013-06
Subjects:	ACCOUNTING, AFFILIATED ORGANIZATIONS, AGENCY PROBLEMS, ALTERNATIVE FUNDING, AMOUNT OF CAPITAL, ANNUAL SALES, ASSET RATIO, ASSET VALUE, ASYMMETRIC INFORMATION, BALANCE SHEET, BALANCE SHEET INFORMATION, BENCHMARK, BOOK VALUE, CAPITAL FUNDS, CAPITAL STRUCTURE, CORPORATE FINANCE, CORPORATE GOVERNANCE, COUNTRY DUMMY, COUNTRY FIXED EFFECTS, CURRENCY, DEBT, DEBT-EQUITY, DEVELOPING COUNTRIES, DEVELOPMENT INTENSITY, DEVELOPMENT POLICY, DUMMY VARIABLE, DUMMY VARIABLES, EMERGING MARKETS, EQUIPMENT, EQUITIES, EQUITY CAPITAL, EQUITY FINANCING, EQUITY FINANCINGS, EQUITY HOLDERS, EQUITY INVESTMENTS, EQUITY ISSUANCE, EQUITY ISSUE, EQUITY ISSUES, EQUITY STAKES, EXCESS RETURN, FINANCIAL COMPANIES, FINANCIAL CRISIS, FINANCIAL DISTRESS, FINANCIAL ENGINEERING, FINANCIAL HEALTH, FINANCIAL STRESS, FINANCIAL STUDIES, FIRM PERFORMANCE, FUND MANAGERS, FUTURE PROSPECTS, GROUP OF INVESTORS, HEDGE FUND, HEDGE FUND INVESTORS, HEDGE FUNDS, HOLDING, HOME MARKET, IMPLICIT SUPPORT, INCOME, INFORMATION ASYMMETRY, INITIAL PUBLIC OFFERINGS, INSTITUTIONAL INVESTORS, INSURANCE, INSURANCE COMPANIES, INTERNATIONAL BANK, INTERNATIONAL DEVELOPMENT, INTERNATIONAL MARKETS, INVESTING, INVESTMENT AMOUNT, INVESTMENT BANKING, INVESTMENT DECISIONS, INVESTMENT OPPORTUNITIES, INVESTMENT PROFESSIONALS, INVESTMENT STRATEGY, INVESTMENT VEHICLES, INVESTOR BASE, IPO, ISSUANCE, ISSUANCES, LACK OF CREDIBILITY, LIMITED LIABILITY, LIMITED LIABILITY CORPORATION, LIQUID MARKET, LIQUIDITY, LLC, MARKET CAPITALIZATION, MARKET DISCOUNTS, MARKET MICROSTRUCTURE, MARKET PERFORMANCE, MARKET RETURN, MARKET RETURNS, MARKET STOCK, MERGERS, OFFER PRICE, OWNERSHIP CONCENTRATION, PENSION, PENSION FUNDS, PERFORMANCE DATA, PORTFOLIO, POTENTIAL INVESTORS, PRICE INCREASE, PRIVATE EQUITY, PRIVATE EQUITY INVESTORS, PRIVATE INVESTMENT, PRIVATE INVESTMENTS, PRIVATE INVESTORS, PRIVATE PLACEMENT, PRIVATE PLACEMENTS, PRIVATE SECTOR DEVELOPMENT, PROFITABILITY, PUBLIC COMPANIES, PUBLIC COMPANY, PUBLIC EQUITIES, PUBLIC EQUITY, PUBLIC MARKET, PUBLIC MARKETS, PUBLIC REGISTRATION, REAL ESTATE, REGISTRATION PROCESS, RESTRICTED SHARES, RETAIL, RETAIL INVESTORS, RETURN ON ASSETS, ROA, SALES, SECURITIES, SECURITIES ISSUANCE, SHARE OF EQUITY, SHARE PRICE, SHAREHOLDER, SHAREHOLDERS, SHARES OUTSTANDING, STOCK EXCHANGES, STOCK INDEX, STOCK MARKET, STOCK MARKET MOVEMENTS, STOCK MARKETS, STOCK PRICE, STOCK PRICES, STOCK RETURN, STOCK RETURNS, STOCKS, STRATEGIC INVESTOR, TANGIBLE ASSETS, TAX, TELECOMMUNICATIONS, TOTAL DEBT, TRADING, TRADING VOLUME, TRANCHE, TRANCHES, TRANSACTION, UNDERVALUATION, UNDERWRITER, VALUE OF ASSETS, VENTURE CAPITAL, VENTURE CAPITAL FUNDS, WEALTH,
Online Access:	http://documents.worldbank.org/curated/en/2013/06/17857660/role-private-equity-investments-public-firms-international-evidence http://hdl.handle.net/10986/21476
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