Market Discounts and Shareholder Gains for Placing Equity Privately

Despite selling at substantial discounts, private placements of equity are associated with positive abnormal returns. We find evidence that discounts reflect information costs borne by private investors and abnormal returns reflect favorable information about firm value. Results are consistent with the role of private placements as a solution to the Myers and Majluf underinvestment problem and with the use of private placements to signal undervaluation. We also find some evidence of anticipated monitoring benefits from private sales of equity. For the smaller firms that comprise our sample, information effects appear to be relatively more important than ownership effects.     

Family ownership and performance in Korean conglomerates

We review the ownership structure of 15 Korean chaebols (conglomerates) using data from published combined financial statements to determine whether, as commonly believed, controlling family ownership in private firms is higher compared with public firms within the same chaebol. We then examine whether firms with high family ownership and lower outside investor participation shift wealth from firms with lower family ownership, which would support the assumption that private firms outperform public firms. Our results do not support either assumption. First, we show that the simple average of family ownership is lower for the private firms than the public firms within the same chaebol. Second, we find no relation between controlling family ownership and the performance of a firm.     

Managerial Placement and Entrenchment

Using data on companies that have implemented private placements in China from 2011 to 2016, we examine the discount on private placements, short-term stock returns, and long-term performance after the placements. Our goal is to determine whether the prevailing certification and entrenchment hypotheses can explain managerial placements. We find that the participation of managerial investors has a significant and negative impact on short-term stock returns. Such a negative effect can also be found on issuing companies’ long-term profitability. Moreover, managerial placements have a higher discount than nonmanagerial placements. Our findings suggest that managerial placement is consistent with the entrenchment hypothesis but not the certification hypothesis.     

Insider ownership, ownership concentration and investment performance: An international comparison

This article makes two important contributions to the literature on the incentive effects of insider ownership. First, it presents a clean method for separating the positive wealth effect of insider ownership from the negative entrenchment effect, which can be applied to samples of companies from the US and any other country. Second, it measures the effects of insider ownership using a measure of firm performance, namely a marginal q, which ensures that the causal relationship estimated runs from ownership to performance. The article applies this method to a large sample of publicly listed firms from the Anglo-Saxon and Civil law traditions and confirms that managerial entrenchment has an unambiguous negative effect on firm performance as measured by both Tobin's (average) q and our marginal q, and that the wealth effect of insider ownership is unambiguously positive for both measures. We also test for the effects of ownership concentration for other categories of owners and find that while institutional ownership improves the performance in the USA, financial institutions have a negative impact in other Anglo-Saxon countries and in Europe.     

如何激发民营企业创新--来自实际控制人财富集中度的视角北大核心

在我国实施创新驱动发展战略的背景下,本文从企业重大事项决策者实际控制人的视角,分析其财富集中度对民营上市公司创新的影响。结果显示,实际控制人财富集中度越高,企业创新水平越低。机制检验显示,实际控制人财富集中度会降低企业风险承担。这表明,实际控制人财富集中度越高,其对创新失败风险的容忍度越低,进而不利于企业创新。进一步研究显示,政府补助(机构投资者)可以发挥“风险缓冲”(“监督制衡”)的作用,削弱实际控制人财富集中度对企业创新的负面影响。本文还发现,财富集中的实际控制人更可能进行技术并购,以作为自主创新不足的替代。本文从实际控制人财富集中度的视角对企业创新的相关研究进行深化,并拓展了政府补助、机构投资者、技术并购在企业创新中发挥作用的相关研究;同时从实际控制人财富分散成本和风险、政府风险分担和机构投资者制衡约束等视角为推动民营企业创新的政策制定和公司治理改革提供参考。     

How does ownership concentration exacerbate information asymmetry among equity investors?

This study investigates the association between ownership concentration and information asymmetry between informed and uninformed investors, and explores several mechanisms that mitigate such a relation. Using a large sample of Korean firms whose ownership structure is highly concentrated, we find that the degree of information asymmetry increases with ownership concentration. We also find that ownership concentration is positively associated with information asymmetry via an increase in the relative amount of informed trading. This effect more than overcomes the unexpected decrease in the frequency of private information events. Furthermore, while neither institutional investors nor internal corporate governance systems help alleviate the negative effects of ownership concentration, analyst following reduces the information asymmetry associated with ownership concentration. Our findings are robust to endogeneity concerns, additional control variables, and an alternative use of empirical proxies.     

The Wealth Effects of Private Stock Placements under Regulation D

This paper examines the wealth effects associated with unregistered private common stock placements under the Regulation D exemption by a sample of exchange listed and over the counter firms. Unlike the negative abnormal returns associated with public equity offerings, private placements of common stocks under Regulation D are initially associated with significantly positive abnormal returns. However, these firms experience significant negative price effects in the two years following the private placements.     

The Impact of Stock Transfer Restrictions on the Private Placement Discount

The literature contains four explanations for the private placement discount. I find that all four contribute to the discount: loss of option value due to transfer restrictions, equity ownership concentration, information gathering, and overvaluation and expected underperformance post‐issue. An average‐strike put option model calculates marketability discounts that are consistent with empirical private placement discounts when observed discounts are adjusted for equity ownership concentration, information, and overvaluation effects. In contrast to the positive signaling effect of traditional private placement announcements, there is a negative signaling effect for private investments in public equity when the firm commits to register the shares promptly.     

Ownership concentration and corporate performance from a dynamic perspective: Does national governance quality matter?

In this paper, the relationship between ownership concentration and financial performance of companies in Singapore and Vietnam is investigated in a dynamic framework. By focusing on two different types of national governance systems (well-developed vs. under-developed), we observe how the relationship is moderated by the national governance quality. We find that the performance effect of concentrated ownership persists in these markets even after the dynamic nature of the ownership concentration–performance relationship is taken into consideration. Our finding supports the prediction of agency theory about the efficient monitoring effect of large shareholders in markets with highly concentrated ownership. In addition, we find that national governance quality does matter when explaining the ownership concentration–performance relationship. The positive effect of concentrated ownership on performance of firms operating in the under-developed national governance system (Vietnam) tends to be stronger than that in the well-established system (Singapore). This finding is consistent with the argument that ownership concentration is an efficient corporate governance mechanism which can substitute for weak national governance quality. Econometrically, our findings still hold even after controlling for dynamic endogeneity, simultaneity, and unobserved time-invariant heterogeneity, inherent in the corporate governance–performance relationship.     

Corporate governance and private placement issuance in Australia

In this study, we examine the effectiveness of corporate governance in mitigating dilution in the economic and voting interests of existing nonparticipating (retail) shareholders in private placements. Based on a sample of 2420 private placements in Australia from 2001 to 2012, we find support for this proposition through the influence of corporate governance on pricing negotiation and firms’ choice of issuing method in private placements. Specifically, firms with better corporate governance offer private placements with a smaller discount, and are more likely to include a share purchase plan, which protects nonparticipating shareholders from ownership dilution in the placement.     

How Do Institutional Investors Affect Corporate Performance? Evidence from Private Placements in China

Using data on private placements in China from 2007 to 2014, we show that abnormal returns of issuing companies’ stocks are significantly positive on the announcement day, but they become significantly negative during the event window [?20, +20]. Participation by institutional investors has a significant and negative impact on the short-term stock returns. This negative effect is also present in issuing companies’ long-term stock returns and profitability. Furthermore, we find that participation by institutional investors reduces dividend payments after private placements. Overall, our findings do not support the monitoring hypothesis of institutional investors’ role in corporate finance but are consistent with the management entrenchment hypothesis and shareholder pessimism hypothesis.     

The sources of shareholder wealth gains from going private transactions: The role of controlling shareholders

The present study investigates the sources of shareholder wealth gains – as measured by cumulative abnormal returns and premiums – from going private transactions (GPTs). Using data for 314 GPTs from 18 Western European countries, we find that the announcements of GPTs generate a cumulative average abnormal return of about 22% and that pre-transaction shareholders on average receive a raw premium of about 36%. We further find that these shareholder wealth gains increase with the degree of separation of cash-flow and control rights of the pre-transaction ultimate owner and decrease with its ownership interests and with the presence of a second large shareholder. Taken together, these findings support the view that GPTs are expected to mitigate the inefficiencies induced by pre-transaction agency problems between controlling and minority shareholders. Thus, shareholder wealth gains from GPTs reflect the potential additional value that will be created under private ownership.     

Does Ownership Identity Matter? A Meta‐analysis of Research on Firm Financial Performance in Relation to Government versus Private Ownership

We examine whether reported ownership–performance relations systematically differ for government versus private ownership by integrating the diverse empirical results for listed corporations in emerging markets. Our meta‐analysis confirms popular perceptions that, compared to private ownership, government ownership is associated with inferior performance. We find that, on average, the underlying ownership–performance relation is negative for government ownership and positive for private ownership, and the difference between these relations is significant. We also find that the positive private ownership–performance relation is stronger for institutional/foreign ownership compared to family/management ownership. Further analysis shows that negative (positive) government (private) ownership and performance relations have weakened (strengthened) over time. Our assessment of the sources of heterogeneity shows that reported relations are biased by estimation methods that fail to adequately control for endogeneity. Our results suggest that the nature of ownership–performance relations in emerging markets remains very dynamic and warrants ongoing research interest.     

Media ownership,concentration and corruption in bank lending

Building on the pioneering study by Beck, Demirguc-Kunt, and Levine (2006), this study examines the effects of media ownership and concentration on corruption in bank lending using a unique World Bank data set covering more than 5,000 firms across 59 countries. We find strong evidence that state ownership of media is associated with higher levels of bank corruption. We also find that media concentration increases corruption both directly and indirectly through its interaction with media state ownership. In addition, we find that media state ownership and media concentration both accentuate the positive link between official supervisory power and lending corruption and attenuate the negative link between the regulations that empower private monitoring and corruption in lending. Media state ownership or media concentration also accentuates the positive link between banking concentration and corruption in lending. Furthermore, the links between media structure and corruption are more pronounced when the borrowing firm is privately owned.     

MANAGERIAL OWNERSHIP CHANGE AND FIRM VALUE: EVIDENCE FROM DUAL-CLASS RECAPITALIZATIONS AND INSIDER TRADING

We explore the relation between managerial ownership and firm value by examining a sample of firms that announce dual-class recapitalizations and the insider trading activity that precedes these announcements. Insider trading activity, unlike recapitalization, requires managers to commit their personal wealth and therefore serves as an indicator of the motivation behind the recapitalization. The recapitalization, in effect, allows managers to magnify the increase in vote ownership that results from insider buying and offsets the decrease in vote ownership that results from insider selling. This study adds to our understanding of dual-class recapitalizations by linking the wealth effects and changes in ownership concentration with ***manager-shareholder agency issues that follow from recapitalization and insider trading activity. Results show a positive relation between the change in firm value and ownership for recapitalizations before the 1984 New York Stock Exchange moratorium on delisting dual-class firms when ownership was high and control was firmly established. Results show a negative relation for recapitalizations since 1984 when ownership levels were lower and voting control was not assured. These results support the notion that more recent recapitalizations entrench managers.     

The Wealth Effects of Reducing Private Placement Resale Restrictions

Recently, the US Securities and Exchange Commission reduced resale restrictions on Rule 144 private placements from 12 months to 6 months with the intention of lowering the cost of equity capital for issuing firms. In Canada, similar regulatory changes were adopted several years ago, providing a unique opportunity to test the wealth effects of reducing private placement resale restrictions. We find that shortening resale restrictions reduces the liquidity portion of offer price discounts, and thus lowers the cost of equity capital for issuing firms, but has no significant effect on announcement‐period abnormal returns after controlling for issuer type. However, there is a fundamental shift in the types of firms making private placements of common stock after the legislation‐induced easing of resale restrictions. Specifically, we find that smaller firms and firms with greater information asymmetry are less likely to issue privately placed common stock after the legislative change, suggesting that the easing of resale restrictions reduces the costly signal that helps to overcome the Myers and Majluf (1984) underinvestment problem.     

Determinants of intellectual capital disclosure in prospectuses of initial public offerings

Intellectual capital is recognised as the new economic era’s pivotal factor underlying value creation. Deficient and inconsistent intellectual capital reporting is escalating information asymmetry between informed and uninformed investors. This provides fertile ground for informed investors to extract higher abnormal returns and higher wealth transfers from uninformed investors, particularly during a firm’s initial public offering (IPO). This study investigates the association between intellectual capital disclosure levels in prospectuses of 444 IPOs listing on the Singapore Stock Exchange between 1997 and 2006, and three potential explanatory determinants: (1) ownership retention; (2) proprietary costs; and (3) corporate governance structure. Statistical analysis supports our conjecture of a positive association between intellectual capital disclosure and ownership retention. We also find, consistent with expectations, a negative influence of proprietary costs on the positive intellectual capital disclosure – ownership retention association. However, contrary to predictions, we do not find an IPO’s corporate governance structure significantly influences the negative interaction of proprietary costs on the ownership retention – proprietary cost association. Our findings have implications for various parties such as regulators who may impose unnecessary costs on issuers if they introduce mandatory disclosures whilst lacking an understanding of the factors influencing intellectual capital disclosures.     

The Valuation Effects of Private Placements of Convertible Debt

Share price reactions to announcements of 61 private placements of convertible debt securities are investigated and a significant positive average abnormal return of 1.80% is documented. This unique result contrasts with the negative average abnormal return associated with public sales of convertible debt securities. The positive effect on common shareholders' wealth appears to be related to the relative size of the private issue and unrelated to the degree to which the convertible bond is “out-of-the-money” at issuance.     

How does competition affect bank systemic risk?

Using bank level measures of competition and co-dependence, we show a robust negative relationship between bank competition and systemic risk. Whereas much of the extant literature has focused on the relationship between competition and the absolute level of risk of individual banks, in this paper we examine the correlation in the risk taking behavior of banks. We find that greater competition encourages banks to take on more diversified risks, making the banking system less fragile to shocks. Examining the impact of the institutional and regulatory environment on bank systemic risk shows that banking systems are more fragile in countries with weak supervision and private monitoring, greater government ownership of banks, and with public policies that restrict competition. We also find that the negative effect of lack of competition can be mitigated by a strong institutional environment that allows for efficient public and private monitoring of financial institutions.     

Do Leverage,Dividend Payout,and Ownership Concentration Influence Firms' Value Creation? An Analysis of Brazilian Firms

This study uses a sample of 213 Brazilian firms listed between 1995 and 2004 to examine the effect of the presence or absence of growth opportunities on the subsequent effect of leverage, dividend payout, and ownership concentration on firm value. First, we find that leverage plays a dual role: whereas it negatively affects the value of firms with growth opportunities (i.e., underinvestment theory), it positively affects the value of firms without growth opportunities (i.e., overinvestment theory). Second, we find that dividends play a disciplinary role in firms with fewer growth opportunities by reducing free cash flow under managerial control. Finally, the results show that ownership structure has a nonlinear effect—that is, ownership concentration initially improves the value of most firms. However, after a certain threshold, in firms with growth opportunities, the risk increases that large shareholders expropriate wealth at the expense of minority shareholders.