Why Do Firms Issue Private Equity Repeatedly? On the Motives and Information Content of Multiple PIPE Offerings

Floros, Ioannis V.; Sapp, Travis

doi:10.2139/ssrn.1520103

Cited by 29 publications

(29 citation statements)

References 42 publications

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“…Many recent security issues are privately placed. In fact, Chen et al () and Floros and Sapp () show that the private placement market has surpassed the traditional seasoned equity market, both in terms of number of annual transactions and total annual issue volume. Issuing a security privately could have implications for announcement effects.…”

Section: Factors Explaining Wealth Effects Of Seosmentioning

confidence: 99%

Wealth Effects of Seasoned Equity Offerings: A Meta‐Analysis

2018

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We use meta‐analysis to review studies on announcement effects associated with seasoned equity offerings. Our sample includes 199 studies from 38 leading finance journals and Social Sciences Research Network working papers. The studies cover different countries, but the US is particularly well‐represented with 131 studies. We find a statistically significant mean cumulative abnormal return of −0.98%. Abnormal returns are more negative for equity issues by US companies and for non‐US rights issues and are less negative for private placements. In addition, wealth effects are more negative when the proceeds are used for debt reduction, when the SEO is issued shortly after IPO, and for issues by nondividend‐paying companies and industrial companies. We identify important avenues for future research.

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Section: Factors Explaining Wealth Effects Of Seosmentioning

confidence: 99%

Wealth Effects of Seasoned Equity Offerings: A Meta‐Analysis

2018

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“…Historically, hedge funds have been the primary investors in PIPEs in the U.S., but PE investors have recently become more active. According to Floros and Sapp (2012), PE investors accounted for 12% of PIPE investments by value in 2008, up from about 6% in 2004. However, not much is known yet about the investor base for this type of equity issue in other countries.…”

Section: Background On Pipes and Private Equity (Pe) Investorsmentioning

confidence: 99%

Equity raising by Asian firms: Choosing between PIPEs and SEOs

Dahiya

Klapper

Parthasarathy

et al. 2017

Journal of Corporate Finance

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Why do some firms raise equity capital from a small number of "private" investors (e.g. Private Investment in Public Equities-PIPE), while other firms do so from a large number of small investors (e.g. Seasoned Equity Offering-SEO)? Recent studies list market timing, asymmetric information, and financial distress as the primary motives that drive the choice of equity raising mechanism. However, these results are based exclusively on the experience of U.S.-based firms. This study examines 456 PIPE and 1,910 SEO transactions of firms based in nine Asian countries to assess if the results reported for the U.S.-based issuers are applicable to a wider set of firms. While market timing continues to be a significant driver of how firms choose between PIPE and SEO, unlike the U.S. issuers, there is little evidence that Asian firms in our sample make this choice based on either asymmetric information or financial distress. As with the U.S. firms, private investment provides significant certification for PIPE issuers. Finally, we find that both the operating performance as well as the stock price returns show little improvement for both PIPE as well as SEO issuers. Moreover, the difference between performance change of PIPE issuers is statistically indistinguishable from that of SEO issuers. This implies that PIPE investors do not provide meaningful benefits to the firms they invest in. Overall, our findings suggest that determinants for choosing specific equity issuance mechanism for international firms do not overlap completely with those for U.S.-based firms.

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“…We incorporate these variables in our Heckman (1979) sample selection bias correction. The literature also reveals return differences for PIPE firms that have: (i) hedge funds as lead investor (Brophy, Ouimet, and Sialm 2009;Chaplinsky and Haushalter 2010;Brown et al 2012); (ii) issues post-2002 (Bengtsson, Dai, and Henson 2014); (iii) multiple PIPE issues (Hillion andVermaelen 2004, Floros andSapp 2012); and (iv) issues across industry (Ellis and Twite 2008). We incorporate these variables in our analysis of abnormal returns for PIPE firms.…”

Section: Literature Reviewmentioning

confidence: 99%