Original scientific paper
https://doi.org/10.1080/1331677X.2018.1429293
Competitors’ stock price reactions in response to private equity placements: evidence from a transitional economy
M. M. Fonseka
; Department of Accounting & Finance, School of Management, Xi’an Jiaotong University, Xi’an, PR China;
R. L. Theja N. Rajapakse
; School of Management, Xi’an Jiaotong University, Xi’an, PR China
Gao-Liang Tian
; Department of Accounting & Finance, School of Management, Xi’an Jiaotong University, Xi’an, PR China;
Abstract
This paper examines whether information conveyed by private equity
placement decisions transfers to non-applying companies within the
same industry. In particular, it investigates the impact of a company’s
announcements of the application for, withdrawal, rejection, approval
and completion of private equity placement, while examining the
cross-sectional differences of the market performance of their industry
counterparts, both in the short- and long-term. It was found that an
intra-industry reaction exists; competitors experience a decrease in
stock prices in response to the announcement of the application
for, approval and completion of private equity placement and an
increase in stock prices around the announcement of the withdrawal
or rejection of applications. Further, it was found that competitors
experience a decrease in their long-term stock performance following
private placements. A higher discount on private equity placement
is detrimental for private equity (P.E.) issuing companies in the
long-term. This study, therefore, provides evidence of the existence
of a contagion effect in the long-term while a competitive effect
dominates in the short-term.
Keywords
Announcement effect; China; competitive effects; contagion effects; competitor firms; private equity placement regulations
Hrčak ID:
200691
URI
Publication date:
3.12.2018.
Visits: 767 *