An Empirical Study of the Announcement Effect of Private Placement and Influencing Factors

Abstract

Due to the special characteristics of the issuance targets and pricing methods of private placement, it has become a means for listed companies to transfer benefits, which is often accompanied by the phenomenon of abnormal returns. This phenomenon is contrary to the needs of the benign development of the financing market, and often hides insider trading, transfer of benefits and other issues behind it. Therefore, this paper studies the influencing factors of the abnormal returns of private placement in the Chinese market and explore the underlying reasons. This report examines the market reaction to the announcement of private placement of listed companies through the standard event study method. The empirical results show that the average cumulative 10-day abnormal return of the company's stock in the 10-day window before the announcement date of the private placement proposal is 1.8197%, and the average abnormal return on the announcement date is 2.6%, i.e., there is a significant positive announcement effect of the private placements of Chinese listed companies. The multiple regression model analysis reveals that book-to-market ratio, price-to-book ratio, and controlling shareholders have a significant effect on the cumulative abnormal return.