Abstract
In this chapter, I investigate how the offer discount is determined in a private placement in China. I find that China’s private placements are sold to investors at an average discount of 24.83 %. Such discount does not reflect the largest shareholder or institutional investors increased monitoring efforts after the placement. There is also no consistent evidence that information costs explain the discount. In private placements where the largest shareholder buys shares, however, the discount is as high as 43.16 %.
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Notes
- 1.
A significant asset restructuring is required by CSRC to be accompanied by suspension of trading. Whether an activity is significant is determined by CSRC, so I am not able to offer a clear definition of significance. Generally, a significant restructuring activity includes, for example, a coal-mining company buying a mine whose value is bigger than the buying company’s.
- 2.
In a previous draft of this book, I calculate discount using the stock price 10 days after board announcement, but not 10 days after final announcement. My previous approach fails to incorporate all information regarding a placement and yields an average discount level of 20 %. The new approach here yields a higher average discount level: 24.83 %.
References
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Song, P. (2014). Determinants of Private Placement Discount. In: Private Placement of Public Equity in China. SpringerBriefs in Finance. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-55093-5_4
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DOI: https://doi.org/10.1007/978-3-642-55093-5_4
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