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
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- EP ID EP538184
- DOI 10.1080/1331677X.2018.1429293
- Views 55
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