Private Placements of Equity and Firm Value: Value Enhancing or Value Destroying?

2020 ◽  
pp. 1-31
Author(s):  
Jun-Koo Kang ◽  
James L. Park
Keyword(s):  
Firm Value ◽  
Managerial Entrenchment ◽  
Long Run ◽  
Announcement Returns ◽  
Heterogeneous Nature ◽  
Private Placements

Abstract This paper reassesses two conflicting hypotheses on the valuation impacts of private placements of equity (PPEs), the monitoring/certification hypothesis and the managerial entrenchment hypothesis, by focusing on the shareholder approval, active buyer, and premium pricing features of PPEs. We find that PPEs with these features have significant positive announcement returns and insignificant mean long-run returns, while the corresponding announcement and long-run returns for PPEs without such features are significantly negative. Firms with value-enhancing PPE features are better governed and use proceeds more efficiently. Thus, the heterogeneous nature of PPEs helps reconcile the puzzling return patterns and conflicting hypotheses regarding PPEs.

The over-optimism of financial analysts and the long-run performance of firms following private placements of equity

2013 ◽  
Vol 10 (2) ◽  
pp. 82-92 ◽  
Author(s):  
Wen-Chun Lin ◽  
Shao-Chi Chang ◽  
Sheng-Syan Chen ◽  
Tsai-Ling Liao
Keyword(s):  
Financial Analysts ◽  
Long Run ◽  
Private Placements

scholarly journals Long-run Stock Performance of Equity-Issuing Firms: The Case of Private Placements in Singapore

2002 ◽  
Vol 05 (03) ◽  
pp. 417-438 ◽  
Author(s):  
Sheng-Syan Chen ◽  
Kim Wai Ho ◽  
Cheng-Few Lee ◽  
Gillian H. H. Yeo
Keyword(s):  
Earnings Management ◽  
Small Firms ◽  
Ownership Concentration ◽  
Positive Relation ◽  
Stock Performance ◽  
Listed Firms ◽  
Long Run ◽  
Private Placements ◽  
Growth Prospects ◽  
Book To Market Ratio

We find that Singapore listed firms which have conducted private placements subsequently experience long-run stock underperformance. The long-run underperformance is more severe for small firms and firms with a higher book-to-market ratio. This suggests that small firms and firms with poorer growth prospects are more likely to time the issue when the stock is temporarily overvalued. Further more, we find a positive relation between the long-run stock performance and the change in ownership concentration of the issuing firms, which is consistent with the alignment-of-interests hypothesis. We do not find evidence supporting the earnings-management hypothesis.

Determinants of capital structure; a sector-level analysis for Indian manufacturing firms

2020 ◽  
Vol 69 (5) ◽  
pp. 1033-1060 ◽  
Author(s):  
Ajaya Kumar Panda ◽  
Swagatika Nanda
Keyword(s):  
Capital Structure ◽  
Firm Value ◽  
Regression Models ◽  
Panel Cointegration ◽  
Manufacturing Firms ◽  
Content Type ◽  
Long Run ◽  
Equilibrium Relationship ◽  
Long Run Equilibrium ◽  
Non Parametric

PurposeThe purpose of this paper is to empirically analyze the determinants of capital structure and their long-run equilibrium relationships with firm-specific and macroeconomic indicators for Indian manufacturing firms.Design/methodology/approachThe study is conducted using the panel semi-parametric and non-parametric regression models to identify the key determinants of capital structure. Panel cointegration models are also employed for analyzing the long-run equilibrium association of capital structure with its determinants.FindingsThe study finds that each manufacturing sector has unique determinants of capital structure. The debt level is significantly affected by asset tangibility, growth opportunity, effective tax rate, non-debt tax shield, cash flow, profitability, firm size, foreign investment, government borrowing, economic growth, and interest rate. All these firm-specific and macroeconomic variables have strong long-run equilibrium relationship with capital structure as a whole.Practical Implication of the StudyThe study analyzes the determinants of capital structure for eight manufacturing sectors of India, which helps firm managers and policy-makers to identify appropriate factors that maximize firm value. The sector-specific features of firms may lead to a new path with regard to corporate governance and ownership structure to enhance stakeholder's satisfaction.Originality/valueThe use of semi-parametric and non-parametric panel regression models to analyze the determinants of capital structure, and the use of panel cointegration approach to explore the long-run equilibrium relationship between the determinants and its factors are the unique contributions of the present research.

Long-run Performance Following Private Placements of Equity

1999 ◽  
Author(s):  
Michael G. Hertzel ◽  
Michael L. Lemmon ◽  
James S. Linck ◽  
Lynn L. Rees
Keyword(s):  
Long Run ◽  
Private Placements

scholarly journals Leapfrogging Under A Sequential Investment Strategy

2018 ◽  
Vol 34 (3) ◽  
pp. 437-446
Author(s):  
Hyung Rok Yim
Keyword(s):  
Firm Value ◽  
Large Scale ◽  
Production Efficiency ◽  
Economies Of Scale ◽  
Investment Strategy ◽  
Technology Shocks ◽  
Long Run ◽  
Korean Parents ◽  
Production Technologies

A common FDI pattern observed across Korean parents investing in China is that they invest sequentially. Revoking that Korean parents are intended to achieve production efficiency in China, the economies of scale of a sequential investment strategy is relatively lower compared to a large scale one-shot investment; however, the latest production technologies can be applied to sequentially established subsidiaries, which can open a strategic pathway to leapfrog other competitors in the long run. A game model is constructed to demonstrate that as longer the Korean parents are expected to stay in China, they are better off by pursuing a sequential investment strategy. Unfortunately, this result does not mean that they can leapfrog competitors through sequential investment strategy. This can happen only when they begin with larger resource endowments. The model predicts that, under the lack of resources in establishing Chinese subsidiaries, Korean firms’ leapfrogging through sequential investment strategy can occur if technology shocks occur to follow-up investments after an initial investment is done. A scenario approach is performed to prove this prediction empirically. It turns out that the firm value of those Korean parents that pursue sequential investment strategy increases the most when the longer they operate in China and when their research and development investments are higher at the same time. Also, as they stay longer in China, they are intended to make more sequential investments.

Fuels sales through retail chains and their store traffics and revenue

2019 ◽  
Vol 31 (1) ◽  
pp. 2-13
Author(s):  
Hojin Jung ◽  
Kyoung-min Kwon ◽  
Gun Jea Yu
Keyword(s):  
Empirical Evidence ◽  
Firm Value ◽  
Negative Impact ◽  
Consumer Welfare ◽  
Chain Store ◽  
Marketing Practice ◽  
Content Type ◽  
Retail Chain ◽  
Long Run ◽  
Short Run

PurposeUsing panel data on gasoline and grocery transactions in Korea, the purpose of this paper is to empirically explore the effect of a retail chain store’s establishment of on-site fuel sales. The empirical analyses present strong empirical evidence that the sale of fuel had statistically and economically significant effect on retail store traffic and revenue in the short run. However, the effect did not remain significant in the longer run. To explain the dramatic decrease in the effect of the fuel sale, the authors consider the enhanced competition in the local gasoline retail industry and examine cross-sectional price variations at the station level. The results suggest that the increased competition led to the reduction in the price dispersion across stations and thereby to an increase in consumer welfare.Design/methodology/approachUsing a linear specification that has traditionally been used to model retail chain data, the authors developed a series of difference-in-differences models. This technique is ideal for estimating the effect of a treatment in the presence of possible selection bias and has been widely employed in many social-science studies on policy intervention.FindingsIn a certain environment, introducing fuel sales did not increase retail chain store traffic or revenue in the long run, despite having statistically and economically significant effects in the short run. The results document empirical evidence of myopic management in a common marketing practice, which often leads to a negative impact on the firm value in the long run.Research limitations/implicationsThe span of data and sample size were limited to meet the company’s data protection policy.Practical implicationsConsidering that many of developed countries are characterized by a gasoline retail environment similar to that which is investigated in this paper, the authors believe that the implications of the results are particularly valid for practitioners and policy makers.Social implicationsThe findings document empirical evidence of myopic management in a common marketing practice, which often leads to a negative impact on the firm value in the long run. Marketing researchers should make efforts in establishing metrics to help identify myopic management decision.Originality/valueThis paper addresses an interesting and practical issue related to the effects of the introduction of gasoline sales by a supercenter store on its store traffic.

Long-Run Performance Following Private Placements of Equity

CFA Digest ◽  
2003 ◽  
Vol 33 (2) ◽  
pp. 95-96
Author(s):  
Stephen M. Horan
Keyword(s):  
Long Run ◽  
Private Placements

Excessive managerial entrenchment, corporate governance, and firm performance

2019 ◽  
Author(s):  
◽  
Christelle Antounian
Keyword(s):  
Firm Performance ◽  
Firm Value ◽  
Ceo Compensation ◽  
Inverse Correlation ◽  
Poor Performance ◽  
Ceo Turnover ◽  
Managerial Entrenchment ◽  
Board Monitoring ◽  
The Difference ◽  
The Impact

This paper investigates the impact of excessive managerial entrenchment on the CEO turnover-performance sensitivity, CEO compensation, and firm value. We measure the degree of managerial entrenchment based on the E-index presented by Bebchuck et al. (2006). Our main focus is on firms’ excess managerial entrenchment, which is calculated by finding the difference between firm’s E-index and its industry median in a given year. Our findings suggest that an increase in excess CEO entrenchment reduces the likelihood of CEO turnover due to poor performance. We also show a positive correlation between excessive entrenchment and CEO compensation as managers gain more power and authority when they are entrenched. On the other hand, excess CEO entrenchment has an inverse correlation with firm value. We propose that excessive managerial entrenchment has a converse impact on board monitoring and firm performance. Also, we suggest that a sound corporate protects the shareholders’ interests as it prevents CEOs from over entrenchment.

Does debt heterogeneity impact firm value? Evidence from an emerging context

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Amit Tripathy ◽  
Shigufta Hena Uzma
Keyword(s):  
Firm Value ◽  
Negative Impact ◽  
Generalized Method Of Moments ◽  
Dynamic Panel Data ◽  
Debt Financing ◽  
Bank Debt ◽  
Content Type ◽  
Indian Context ◽  
Long Run ◽  
The Impact

PurposeThe present paper attempts to explain the impact of debt diversification and various debt financing sources on firm value. The paper also aims to address the long-run causality of various factors affecting firm value.Design/methodology/approachThe study employs a dynamic panel data model for a sample of 233 listed firms from 2010 to 2019. Two-step generalized method of moments (GMM) is devised to study the impact of firm-specific factors on firm value.FindingsThe study establishes a negative impact of debt diversification on firm value. Further, the results also signal how the choice of debt instruments has a heterogeneous effect on firm value. Non-bank debt leads to a discount in firm value, while bank debt has no effect on firm value. The long-run determinants of firm value are debt ratio, tangibility and liquidity.Research limitations/implicationsThe findings of the study would aid the mangers in making informed decisions regarding the debt financing structure. Too much reliance on non-bank debt instruments leads to a negative impact on firm value. Therefore careful evaluation is necessary before accessing multiple debt sources.Originality/valueDebt heterogeneity is globally established; however, its presence in the Indian context has not been validated extensively. The study not only validates the existence of debt diversification but also investigates how individual debt instruments affect firm value that is yet to be examined in the Indian context.

Discounted Private Placements in New Zealand: Exploitation or Fair Compensation?

2006 ◽  
Vol 09 (04) ◽  
pp. 533-548 ◽  
Author(s):  
Hamish D. Anderson
Keyword(s):  
New Zealand ◽  
Firm Value ◽  
Disclosure Regulation ◽  
Private Placement ◽  
Investment Banker ◽  
Private Placements ◽  
Fair Compensation

Market commentators have suggested that New Zealand's lax private placement and disclosure regulation allows private placement purchasers to immediately sell discounted shares without disclosing these transactions to the market. However, New Zealand firms with the deepest discounts tend to have higher risks, lower returns and higher costs associated with evaluating firm value. Therefore, the possibility that deep discounts may simply represent adequate compensation for the extra risk and cost private placement purchasers incur cannot be ruled out. In this respect private placement purchasers in New Zealand take on the role and risks associated with investment banker and underwriter.

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