The Certification Role of Insider Participation in PIPE Transactions

Abstract

In this paper we provide new insights into the motives underlying insider participation in Private Investments in Public Equity (PIPEs) by considering the association among insider participation, pricing and contractual terms. We find that board seats and weak pre-PIPE performance are important determinants of insider participation. We also find evidence supporting the certification motive for insider participation, which manifests itself in lower discounts to PIPE investors and improved future firm operating performance only when insiders participate. Announcement wealth effects are significantly higher when insiders participate than when they are absent both for single and repeated PIPE transactions.