The over-optimism of financial analysts and the long-run performance of firms following private placements of equity |
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| Authors: | Wen-Chun Lin Shao-Chi Chang Sheng-Syan Chen Tsai-Ling Liao |
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| Affiliation: | 1. Department of Finance, National Taipei College of Business, No. 321, Sec. 1, Jinan Road, Taipei, Taiwan;2. Department of Business Administration, College of Management, National Cheng Kung University, No. 1, University Road, Tainan, Taiwan;3. Department of Finance, College of Management, National Taiwan University, No. 85, Sec. 4, Roosevelt Road, Taipei, Taiwan;4. Department of Business Administration, College of Management, National Formosa University, No. 64, Wunhua Road, Huwei Township, Yunlin County, Taiwan |
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| Abstract: | We set out to determine whether the over-optimism of analysts has negative impacts on the subsequent long-run performance of firms following private placements of equity (PIPEs). Our results indicate that analysts do tend to make over-optimistic forecasts at the time of PIPEs, and that such over-optimistic forecasts can lead to investors erroneously overstating the value of placement firms, resulting in subsequent revisions of their valuations over time. We further infer that when firms announce their PIPEs, over-optimistic forecasts tend to lead to overstated valuations. The evidence shows that the long-run performance of PIPEs has a negative correlation with over-optimistic forecasts. |
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