Premium
Wealth transfer through private placements: Evidence from China
Author(s) -
Lin Jing,
Zheng Steven X.,
Zhou Mingshan
Publication year - 2020
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12215
Subject(s) - business , china , expiration , issuer , private equity , private placement , equity (law) , finance , monetary economics , cash , initial public offering , economics , medicine , investment banking , political science , respiratory system , law
We examine private issuance of public equity (PIPE) in China, and our results suggest that PIPE investors benefit from the price manipulation before and after issuance. These investors tend to cash out after lockup expiration and make large profits. We also find evidence that the trading of PIPE investors after lockup expiration is informed. Tests about the abnormal returns in the 3 years after lockup expiration suggest that at least part of the benefits PIPE investors receive come from wealth transfer from outside investors. Overall, PIPE issuers in China seem to use an opaque mechanism to compensate PIPE investors.