Does the truth rest with the minority? Divergent views on nonfinancial firms' financial investments from the private equity market |
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| Institution: | 1. School of Accounting, Zhongnan University of Economics and Law, 182 Nanhu Avenue, Wuhan, China;3. School of Accountancy, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai, China;4. Research Center of Finance, Shanghai Business School, 123 Fengpu Avenue, Shanghai, China;1. School of Finance, Xinjiang University of Finance and Economics, 449 Middle Beijing Road, Urumqi 830012, PR China;2. Belt & Road Finance Institute, Central University of Finance and Economics, 39 South College Road, Haidian District, Beijing 100081, PR China;3. International Business College, South China Normal University, 55 Zhongshan Road, Tianhe District, Guangzhou 510631, PR China;1. Department of Mathematics and School of Economics and Management, University of Bologna, Bologna, Italy;2. Department of Economics, Society and Politics, University of Urbino Carlo Bo, Italy;3. Department of Economics, University of Bamberg, Germany;1. School of Economics and Management, Jiangxi University of Science and Technology, Ganzhou, China;2. Department of Planning and Finance, Wenzhou Medical University, Wenzhou, China;3. School of Mathematical Sciences, Wenzhou-Kean University, Wenzhou, China;1. Faculty of Business, City University of Macau, Macau, China;2. School of Business, Macau University of Science and Technology, Macau, China |
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| Abstract: | We investigate how the seasoned equity market evaluates nonfinancial firms that recently bought wealth management products (WMPs). Using a sample of Chinese firms, we find that the stock market reacts less positively to private equity placements (PEPs) by firms that recently purchased WMPs (i.e., quasi-deposits) than to those that did not. Further analysis suggests that compared with retail investors, sophisticated (i.e., institutional and high-net-worth) investors pay a higher price for the shares of these WMP-buying firms. After PEPs, we find that the long-term operating performance and firm value of WMP-buying firms are higher than those of non-buying firms. Overall, the findings suggest that: (i) engaging in shadow banking activities (buying WMPs) does not mean a firm is distracted, and (ii) sophisticated investors are less concerned than retail investors about a firm's shadow banking activities. |
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