Wealth Effects of Private Equity Placements: Evidence from Singapore

Abstract

We examine institutional characteristics and the wealth effects of private equity placements in Singapore. Our findings show that private placements in Singapore generally result in a negative wealth effect and a reduction in ownership concentration. We find that at high levels of ownership concentration, the relation between abnormal returns and changes in ownership concentration is significantly negative. We also show that the market reacts less favorably to placements in which management ownership falls below 50%, but more favorably to issues to single investors. We do not find evidence suggesting that our results are due to an information effect.

Equity Issuance and Corporate Dividend Policy in Emerging Economy Context

“…The findings of this research, in contrast to previous studies [Chen et al 2002, Dewa and Izani 2010, Folta and Janney 2004, Gomes and Phillips 2005, Goh et al 1999, Lee and Kocher 2001, relate the conditions of undeveloped Ukrainian stock market. Its peculiarities cause certain limitations of our study that provide opportunities for additional research attention.…”

“…It is worth noting that all most important factors are expressed in categorical predictors. These factors are different to some extent from those made in previous studies for developed markets [Chen et al 2002, Gomes, Phillips 2005, Lee, Kocher 2001.…”

“…The previous studies provided an empirical evidence for the hypothesis related to the positive relationship between information asymmetry and equity private placement [Chen et al 2002, Dewa and Izani 2010, Folta and Janney 2004, Goh et al 1999. Taking into account the specifics of the Ukrainian stock market, as a criterion of information asymmetry degree in this study the equity capital to authorized capital ratio was used instead the book to market ratio.…”

“…Other factors that determine the probability of certain issuance type selection are degrees of information asymmetry and the rising cost of corporate rights according to the financial statements for the period prior to the additional issuance. Some studies provided empirical evidence for a significant positive correlation between the asymmetry of information (the book to market ratio) and the probability of private placement [Chen et al 2002, Dewa and Izani 2010, Folta and Janney 2004, Goh et al 1999. Given the fact that the shares of small public companies generally underestimated by the stock market, it is clear why these issuers give preference to the private equity placement.…”

“…Previous research provided empirical evidence that equity private placement is positively related to the level of firms information asymmetry (book to market ratio) and inversely related to the stock price run up-trend [ Chen et al 2002, Dewa and Izani 2010, Folta and Janney 2004, Goh et al 1999. As shares of the majority of Ukrainian joint-stock companies are not traded on the stock exchange, information relating to the stock price run up in the period preceding the equity issuance could not be obtained as well as data on book to market ratio.…”