Private placements, market discounts and firm performance: the perspective of corporate life cycle analysis

This study looks into the role of corporate life cycle on market discounts and firm performance in private placements. Using the standard event study methodology with 1854 private placements, this study finds that issuing firms on average offer discounts to their investors. While growth firms obtain higher returns around the issuance of private placements, these growth firms generate poor long run post-announcement returns. The results suggest that investors may be over-optimistic to future prospects for growth firms. As old firms generally obtain higher returns in premium offers, the evidence suggests that managers of old firms would put more efforts in managing their firms after private placements. Overall, the evidence indicates that corporate life cycle can play a role to influence firm performance in private placements. The empirical findings shed lights on the importance of corporate life cycle on firm performance in private placements.