Abstract:

Privateplacement is the most important approach to refinance equity in China’s capital market. As a transition economy， China has many state-owned enterprises （SOEs） in the capital market； these SOEs are more likely to obtain seasoned equity offering by virtue of their natural political connections. Besides， it is common that Chinese listed companies have the controlling shareholders， hence CEOs of listed companies would like to consider more interests of major shareholders in decision-making. The volatility changes during one year before and after the private placement of Chinese listed companies is empirically examined. An inverted U-shaped volatility timing effect can be observed from empirical results， represented as the expropriation of major shareholders in Chinese listed companies. Then， the robustness tests are proceeded by using board meeting day as the benchmark day of the private placement， setting the beginning year of studying period as 2006， applying fixed-effect panel model， adopting the data during threespecial sample periods， respectively. As expected， the results of robustness tests can support our main conclusions. Furthermore， the results of heterogeneity tests show that the volatility timing effect of private placements is stronger for non-SOEs， young companies， companies with high shares proportion of controlling shareholder， and those with high ratio of intangible assets， which confirms the more severe encroachment of major shareholders in these types of listed companies. Finally， the economic consequences of the volatility timing effect for private placements in Chinese listed companies is analyzed. The empirical results prove that there is a pricing discount before the private placements， but the stock prices rise significantly after the private placements. Investment in private placement companies yields an average 37.32% arbitrage premiumafter one year， compared with investing in stock from public offerings. Therefore， our empirical findings not only enrich the theories of private placement， but also contribute to practice. The policy references are provided to improve China’s private placement market， as well as some investment guidance for investors in quantitative selection of assets and trading timings.

Key words: private placement, volatility, timing effect, tunneling