Understanding the Positive Announcement Effects of Private Equity Placements: New Insights from Hong Kong Data

The literature has documented positive announcement effects for privately placed seasoned equity issues. This study shows positive announcement effects not only for private but also for public placements in Hong Kong. Our unique data offer new insights not obtainable from U.S. data as we examine the cross-sections of the announcement effects. Most importantly, we find that the announcement effect is more likely to be positive for smaller issuers, such as private placing firms and some public issuers where asymmetric information arises more from growth than from assets in place. This finding is consistent with the generalized Myers-Majluf model.★The authors wish to thank Jack Cooney, Espen Eckbo, Ned Elton, Cliff Holderness, Rene Stulz, Piet Sercu, Tom Vinaimont, John Wei, and participants at the 2003 Financial Management Association Annual Conference in Denver and at seminars at the Guanghua School of Management of Peking University and the Department of Finance of National Taiwan University for their helpful discussions and comments. Special thanks go to Marco Pagano (the editor) and an anonymous referee for advice and suggestions that have significantly improved the quality of this paper. Wu gratefully acknowledges financial support from the Research Grants Council of the Hong Kong SAR (Project No. CityU 1244/04H) and from the City University of Hong Kong (DAG project No. 7100183).