Competitors’ stock price reactions in response to private equity placements: evidence from a transitional economy
Journal Title: Economic Research-Ekonomska Istraživanja - Year 2018, Vol 31, Issue 1
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.
Authors and Affiliations
M. M. Fonseka, R. L. Theja N. Rajapakse, Gao-Liang Tian
Keywords
Related Articles
- EP ID EP538184
- DOI 10.1080/1331677X.2018.1429293
- Views 44
- Downloads 0
The accuracy of alternative stock valuation methods – the case of the Warsaw Stock Exchange
The main aim of this article is to examine the accuracy of different methods of share valuation used by Polish analysts in reports prepared in order to issue recommendations for companies listed on the Warsaw Stock Excha...
The danger of long-term unemployment and measures for its reduction: the case of Croatia*
Long-term unemployment (when a person is jobless for more than 12months) can have serious negative consequences for the individual, society and its economic system. People who are unemployed for a long-term period find i...
Drivers of entrepreneurial intentions among business students in Macedonia
Studies find that entrepreneurial intentions determine the likelihood of starting a business whereas the Theory of Planned Behaviour suggests that intentions capture the motivational aspect of behaviour and are dependent...
The links between firm-level productivity and modes of international expansion of firms from the Lodz Voivodeship
The paper investigates the link between firm-level productivity and internationalisation (through exports, imports and foreign direct investment (F.D.I.)) in the Lodz Voivodeship, Poland. The Olley–Pakes algorithm was us...
Estimation of market prices of risks in the G.A.R.C.H. diffusion model
In this paper we propose an estimation procedure which uses joint data on the underlying asset and option prices to extract market prices of return and volatility risks in the context of the G.A.R.C.H. diffusion model. T...