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Shareholder gains from equity private placements: Evidence from the Stockholm Stock Exchange

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  • Molin, Johan

    (Department of Finance)

Abstract

This paper examines the stock price reactions to equity private placements and rights issues on the stockholm Stock Exchange and analyzes private placement discounts. The combined results reinforce the preliminary support for Wruck's (1989) monitoring hypothesis and the Hertzel and smith (1993) information hypothesis; the announcement effects are significantly positive for private placements and insignificant for rights issues. Cross- sectional analysis suggests that a substantial part of the variation in private placement discounts and market reactions to private placement announcements can be explained by a combination of increased monitoring and closer alignment of manager and owner interests as implied by agency theory. The paper also presents evidence on significant information effects. These appear not to be generated by sophisticated signaling mechanisms, but rather by responses to the more trivial signals inherent in the announcements of resolutions of acute financial problems.

Suggested Citation

  • Molin, Johan, 1996. "Shareholder gains from equity private placements: Evidence from the Stockholm Stock Exchange," SSE/EFI Working Paper Series in Economics and Finance 101, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0101
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    References listed on IDEAS

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    Cited by:

    1. Sazali Abidin & Krishna Reddy & Liehui Chen, 2012. "Determinants of ownership structure and performance of seasoned equity offerings," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 8(4), pages 304-331, September.
    2. Hamish D. Anderson, 2006. "Discounted Private Placements in New Zealand: Exploitation or Fair Compensation?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 9(04), pages 533-548.

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    More about this item

    Keywords

    Seasoned equity offerings; new issues; private placements; rights issues;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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