Description:
•Wealth effect of Chinese PE announcements can be seen on application, approval, and completion.•No significant price response on announcements of withdrawal or rejection of applications.•Market discount, proceeds from private placements, and private-institutional buying systematically influence market reaction.•Influence of announcement effect differs across changes in ownership of investor categories.•Results are consistent with the information and ownership structure hypotheses. In response to the China Securities Regulatory Commission's regulation of private equity placements (PEP) in 2006, this study investigates the impact of the announcements of PEP applications, withdrawals, rejections, approvals, and completions on the returns of the firms that issue private equity (PE) and the factors that influence market reactions to these announcements. The results show that issuing firms experience stock price responses only to the announcements of PE applications, approvals, and completions. The announcement effect is positively related to the market discount, proceeds from private placements, and private institutional buying and ownership changes; and negatively related to government or government institutional buying and changes in the ownership of management buyers.
Description:
In contrast with many other countries, Chinese listed firms must obtain approval to make private-equity placements (PEPs) from the Chinese Security Regulatory Commission (CSRC), a state bureau that regulates capital market financing. We analyse the role of political connection (PC) and ownership structures when accessing private equity (PE) market, while investigating the mechanisms through which political ties operate within the regulatory process of PEPs. The findings suggest that PCs do not contribute to the firm's decision to apply for PEPs, but firms with state-ownership demonstrate a higher propensity to apply for PEPs. PC and state-ownership appear to help firms to obtain approval from the CSRC, and these firms are treated more favourably than their rivals without such connections. Politically connected firms spend less time in managing bureaucracy, but PC and state-ownership negatively affect proceeds from the PE market in China. Firms with politically connected directors with professional business backgrounds tend to spend less time managing the CSRC, and these professionals positively affect proceeds from the PE market in China. This study provides important insights for policy-makers, investors, PE issuing firms and security market regulators.