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Institutional Investment Horizons and the Stock Performance of Private Equity Placements: Evidence from the Taiwanese Listed Firms

Author

Listed:
  • Lee-Young Cheng

    (Department of Finance, National Chung Cheng University, #168 University Rd., Min-Hsiung, Chia-Yi, 62102, Taiwan)

  • Ming-Chang Wang

    (Department of Business Administration, National Chung Cheng University, #168 University Rd., Min-Hsiung, Chia-Yi, 62102, Taiwan)

  • Kung-Chi Chen

    (Department of Finance, National Chung Cheng University, #168 University Rd., Min-Hsiung, Chia-Yi, 62102, Taiwan)

Abstract

This study examines how the investment horizon of the institutional shareholders of a firm affects the stock performance of private equity placements. The results show that firms with long-term institutional investors receive significantly positive abnormal returns around the offering announcement. Post-issue stock price underperformance is especially pronounced in firms held by short-term institutional investors. These findings suggest that private placement firms with long-term institutional investors acquire certification and monitoring-related benefits and thus reduce the information asymmetry and entrenchment costs between managers and external investors.

Suggested Citation

  • Lee-Young Cheng & Ming-Chang Wang & Kung-Chi Chen, 2014. "Institutional Investment Horizons and the Stock Performance of Private Equity Placements: Evidence from the Taiwanese Listed Firms," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 17(02), pages 1-30.
    • Handle: RePEc:wsi:rpbfmp:v:17:y:2014:i:02:n:s021909151450009x
    DOI: 10.1142/S021909151450009X
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    References listed on IDEAS

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    1. N. K. Chidambaran & John Kose, 1998. "Relationship Investing: Large Shareholder Monitoring with Managerial Cooperation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-044, New York University, Leonard N. Stern School of Business-.
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    Cited by:

    1. Laimutė Urbšienė & Andrius Bugajevas & Marekas Pipiras, 2016. "The Impact Of Investment Horizon On The Return And Risk Of Investments In Securities In Lithuania," Organizations and Markets in Emerging Economies, Faculty of Economics, Vilnius University, vol. 7(2).
    2. Kai-Shi Chuang, 2020. "Private placements, market discounts and firm performance: the perspective of corporate life cycle analysis," Review of Quantitative Finance and Accounting, Springer, vol. 54(2), pages 541-564, February.
    3. Onur Bayar & Yini Liu & Juan Mao, 2021. "How reverse merger firms raise capital in PIPEs: search costs and placement agent reputation," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 143-184, January.
    4. Otsubo, Minoru, 2017. "Why do firms underwrite private placement shares of other firms? Case of Japanese firms," Pacific-Basin Finance Journal, Elsevier, vol. 41(C), pages 75-92.

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    More about this item

    Keywords

    Private equity placement; investment horizon; post-issue performance; quantile regression; G32;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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