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DIVERGENCE OF OPINION AND LONG‐RUN PERFORMANCE OF PRIVATE PLACEMENTS: EVIDENCE FROM THE AUCTION MARKET
Author(s) -
Han Jianlei,
Pan Zheyao,
Zhang Guangli
Publication year - 2019
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12170
Subject(s) - earnings , economics , divergence (linguistics) , stock (firearms) , private information retrieval , dispersion (optics) , private placement , china , construct (python library) , econometrics , business , financial economics , monetary economics , finance , mechanical engineering , statistics , linguistics , philosophy , physics , mathematics , investment banking , optics , political science , law , computer science , engineering , programming language
In this article, we propose and construct a direct measure of investors’ divergence of opinion based on auction bids data from private placements in China. We find that firms with higher bids dispersion generate lower long‐run stock returns after the issuance of private placements. This effect is economically significant and robust when controlling for market discount, earnings management, alternative dispersion measures, and self‐selection bias. Moreover, this negative relation is stronger for stocks with more stringent short‐sale constraints. Our findings therefore provide strong evidence for the overvaluation hypothesis.