Private Placement Under the Control of Large Shareholders and Long-Run Stock-Price Performance

Abstract

We examine post-offering stock-price performance for a sample of firms that issue stock privately during the June 2006 to December 2007 period. We find that, the short-run abnormal returns are irrelevant to the object of issue, while there is strong evidence of a significant, negative correlation between the long-run abnormal returns and the object of issue. When the large shareholders participate in the offering, there is a lower long-run abnormal returns compared to the large shareholders not involved in the issuing. We further examine the relationship between the stock-price performance and the separation degree of interests between the big shareholders and minor shareholders. Our results show that the separation degree of interests also has a negative, significant correlation with the long-run abnormal returns. This evidence is consistent with the tunneling hypothesis.