The economics of PIPEs |
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| Institution: | 1. Department of Finance, Mihaylo College of Business and Economics, California State University Fullerton, Fullerton, CA 92834, United States;2. Finance Department, The Wharton School, University of Pennsylvania, Philadelphia, PA 19104, United States;3. Department of Finance, Fisher College of Business, Ohio State University, Columbus, OH 43210, United States;4. NBER, United States;5. ECGI, Belgium;1. D’Amore-McKim School of Business, Northeastern University, USA;2. Olin Business School, Washington University in St. Louis, USA;1. Bank of Canada, 234 Wellington St, Ottawa, ON K1A 0G9, Canada;2. Centre for Economic Policy Research, London, United Kingdom;1. ALBA Graduate Business School, The American College of Greece, 6-8 Xenias Str, 11528 Athens, Greece;2. Bank of Greece, 21 E. Venizelos Ave., 10250 Athens, Greece;3. University of Piraeus, Department of Banking and Financial Management, 80 Karaoli & Dimitriou str., 18534 Piraeus, Greece;4. Surrey Business School, University of Surrey, Guildford, Surrey, GU2 7XH, United Kingdom |
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| Abstract: | Private investments in public equities (PIPEs) are an important source of finance for public corporations. PIPE investor returns decline with holding periods, while time to exit depends on the issue's registration status and underlying liquidity. We estimate PIPE investor returns adjusting for these factors. Our analysis, which is the first to estimate returns to investors rather than issuers, indicates that the average PIPE investor holds the stock for 384 days and earns an abnormal return of 19.7%. More constrained firms tend to issue PIPEs to hedge funds and private equity funds in offerings that have higher expected returns and higher volatility. PIPE investors’ abnormal returns appear to reflect compensation for providing capital to financially constrained firms. |
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