Abstract

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="mso-bidi-font-style: italic;"><span style="font-size: x-small;"><span style="font-family: Batang;">This study compares characteristics of firms using the private placement method of issuing common stock with those using the public offering method.<span style="mso-spacerun: yes;">  </span>Results show that private placement firms are smaller in size, have more growth opportunities, and have less financial slack than public offering firms.<span style="mso-spacerun: yes;">  </span>Their issuance decisions are likely to be driven by their needs for external capital, rather than motivated by overvaluation of their stocks.<span style="mso-spacerun: yes;">  </span>These findings are consistent with the information hypothesis, which states that undervalued firms with favorable prospects and little financial slack use the private placement method to resolve the information asymmetry problem when seeking external equity capital.<span style="mso-spacerun: yes;">  </span></span></span></span></p>

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