Competitors’ stock price reactions in response to private equity placements: evidence from a transitional economy^*

* The authors wish to thank the participants at the Seminars on Accounting and Finance at Xi’an Jiaotong University, Xi’an International Studies University, 20th ‘SFM conference’ in Taiwan, 11th ‘International Symposium on Empirical Accounting Research in China’ in Beijing, ‘American Accounting Association Annual Meeting’ in August 2013, Anaheim, CA, and the ‘Accounting and Finance Association of Australia and New Zealand’ Conference in July 2014, Auckland, New Zealand for their comments and insights on earlier versions of the paper.

Figures & data

Table 1. Summary of important C.S.R.C. regulations on P.E.P.s.

Year of enforcement	Regulation affected area	Description
Prior to 2006	Eligible for applying	• 3-year average R.O.E. ≥ 6%. • No current director, supervisors or executive was punished by the C.S.R.C. over the past 3 years or • publicly reprimanded by the stock exchange over the last year. • No guarantees, litigation, arbitration or other significant matters which seriously affect continuous operations of the company. • Operating earnings shall not have declined more than 50% in last issuance year if the firm had an issuance (including both equity and bond issuing) over the last 2 years. • No qualified, adverse or disclaimer opinion in audit reports over the previous 3 years. • Total cash or stock dividends of last 3 years should be more than 20% of average net distributable earnings of last 3 years. • No material omission, misrepresentation in financial reporting and falsification of financial accounts over the last 3 years. • No violations of securities law and regulations over the last 3 years.
Effect on 2006	Issue target (target group)	• Number: Less than 10 judicial persons, natural persons and other legal investment organisations who have subscribed.
	Amount of shares	• Directors should determine amount of non-public offering. If the amount of non-public offering shares is uncertain, the decision of board of directors shall specify the range of the amount (including upper and lower limit).
	Pricing Benchmark	• Benchmark date: Decision of board of directors or announcement date for decision of stockholders meeting. Price: The issuing prices shall not be lower than minimum prices. Minimum prices is average stock price of previous 20 trading days before pricing benchmark date. • Minimum price = Total trading value of previous 20 trading days before pricing benchmark/Total trading volume of previous 20 trading days
	Purposes	• The decision of board of directors shall specify the upper limit, the needed amount of fund for intended projects, the amount of capital investment, and the funding channel for non-public offering. If the fund is used to replenish working capital or pay back bank loans, the board of directors shall specify the amount of them; if fund is used to purchase assets, the board of directors shall specify the counter party, the target asset and pricing rules.
	Invitations for subscription	• Invitations sent to accepting investors who had submitted a subscribe letter of intent after the board announcement of the resolutions and the top 20 shareholders. Invitees should comprises (1) Not less than 20 securities investment fund management companies; (2) Not less than 10 securities companies; (3) Not less than five insurance institutional investors.
	Announcements	• The listed company received the result of whether the application of is approved or not by C.S.R.C., there should be a public announcement in the next trading day just after the result.

Notes: In 2006, the Chinese Security Regulatory Commission (C.S.R.C.) placed P.E.P.s on regulatory constraints for the first time in the Chinese capital market history. Prior to 2006, public equity offering regulation was affected on P.E.P. and there was a regulation for qualifying on S.E.O. However, new P.E.P. regulation does not have eligible requirements for applying P.E.P. As a result of that there is an increasing trend of issuing P.E.P.s from 2006 due to fewer regulatory requirements for private equity than public offerings. Source: Chinese Security Regulatory Commission (CSRC).

Table 2. Variables used in regression analyses.

Variable name	Type of variable	Definition	Data source
C.A.A.R.	Dependent	Cumulated Average Stock Return (C.A.A.R.), which is calculated stock return data	C.S.M.A.R. - Market Trading Database
R.E.T.	As above	Annual Stock Return	As above
A.R.	As above	Annual Abnormal Stock Return	As above
P.E.P._E	Independent	P.E.P._E is Private Equity Placement (P.E.P.) Event, 1 if P.E.P. event in the industry, otherwise 0	C.S.M.A.R. - Seasonal Equity Database
N_P.E.P.s	As above	The logarithm of number of Private Equity Placement of the industry	C.S.M.A.R. - Seasonal Equity Database
V_P.E.P.s	As above	The logarithm value of Private Equity Placement proceeds in the industry	C.S.M.A.R. - Seasonal Equity Database
Dis_P.E.P.s	As above	Average of Discounts in particular industry level in the industry	C.S.M.A.R. - Seasonal Equity Database
Age	Control	The logarithm of operating years of each firm at the beginning of the time	C.S.M.A.R. - Financials Database
Size	As above	The logarithm of the value of total assets in each firm at the beginning of the time	As above
Leverage	As above	The ratio of interest bearing liability to equity in each firm at the beginning of the time	As above
Beta	As above	Annual beta in each firm at the beginning of the year which calculates daily return data	C.S.M.A.R. - Market Trading Database
Z-score	As above	Altman Z-score in each firm at the beginning of the year. It is calculated by; Z = 0.012 X1a + 0.014 X2a + 0.033 X3a + 0.006 X4a + 0.999 X5a; where, X1a = Working Capital/Total Assets, X2a = Retained earnings/Total Assets, X3a = Earnings Before Interest and Tax/Total Assets, X4a = Market Value of Equity/Book Value of Total Debts, X5a = Sales/Total Assets, Z = Overall Index	C.S.M.A.R. - Financials Database
R.O.A.	As above	Return on Assets at the beginning of the time	As above
M.B.V.	As above	Market to book value ratio at the beginning of the time	As above
O.W.N.	As above	We use dummy variable, if 1 for controlling shareholder is State and 0 otherwise.	C.S.M.A.R. - Shareholder Database
H_INDEX	As above	Herfindahl Index measures firm size in relation to the industry and, thereby, indicates the amount of competition. We apply the three-digit Chinese S.I.C. code for this measure. Thus, the sum of the squares of the market shares of each individual firm ranges from 0 to 1.	C.S.M.A.R. - Financials Database
I.N.D.D.	As above	C.S.R.C. industry classification and we apply the three-digit Chinese SIC code	C.S.M.A.R. - Data series
YEARD	As above	Years from 2006 to 2010	C.S.M.A.R. - Financials Database

Source: Authors.

Figure 1. Distribution of P.E.P.s by year. Source: C.S.R.C. data, which was also used by Fonseka et al. (2014).

Figure 2. Distribution of P.E.P.s by industry. Source: C.S.R.C. data, which was also used by Fonseka et al. (2014).

Notes: The industry classification is based on the two-digit C.S.R.C. industry codes. Industries are as follows: A₀₁ Agriculture; A₀₃ Forestry; A₀₇ Fishery; B₀₁ Coal mining and dressing; B₀₅ Ferrous metal ore mining; B₀₇ Non-ferrous metal ore mining; B₅₀ Mining service; C₀₁ Food processing; C₀₃ Foodstuff manufacturing; C₀₅ Beverage manufacturing; C₁₁ Textile (Cotton Mills); C₁₃ Cloth production (Garments); C₁₄ Leather; C₂₁ Wood manufacture; C₂₅ Furniture; C₃₁ Paper; C₃₅ Printing; C₄₁ Oil processing and refining; C₄₇ Chemical fibres; C₄₈ Rubber; C₄₉ Plastic; C₅₁ Electronics components; C₅₅ Electrical Equipment (Appliances); C₆₁ Non-metal mineral products; C₆₅ Ferrous metal foundries; C₆₇ Non-ferrous metal foundries; C₆₉ Metal products; C₇₁ Common machines; C₇₃ Special equipment manufacturing; C₇₅ Traffic equipment manufacturing; C₇₆ Electric equipment; C₇₈ Instrument and office machine; C₈₁ Medicine manufacturing; C₈₅ Biological; D₀₁ Utility; E₀₁ Civil engineering construction; E₀₅ Building fitting up and decoration; F₀₃ Highway Transport; F₀₇ Shipping; F₀₉ Air transport; F₁₁ Transportion subsidiary service; G₈₁ Communications and related equipment; G₈₃ Computer and related equipment; G₈₅ Communications service; G₈₇ Computer application service; H₀₁ Wholesale of food and household products; H₀₃ Wholesale of energy, materials and equipment; H₁₁ Retail trade; I₀₁ Banking; I₂₁ Securities and futures; J₀₁ Real estate; K₃₄ Travel industry; K₃₇ Healthcare and nursing service; K₃₉ Leasing service; L₀₁ Publishing industry; M, Comprehensive.

Table 3. Descriptive statistics of independent variables of Competitor and P.E. issuing firms.

Variable	Competitor firms		P.E. issuing firms
	Average	(SD)	Average	(SD)
Age	13.085	(3.909)	12.611	(4.197)
Size	18.099	(1.491)	15.624	(0.992)
L.E.V.	1.016	(2.948)	1.283	(1.018)
F.D.	2.360	(3.012)	1.444	(0.739)
Beta	1.004	(0.430)	1.048	(0.156)
R.O.A.	0.421	(1.614)	0.398	(1.026)
R.O.E.	0.041	(2.432)	0.114	(0.076)
M.B.	0.896	(1.201)	2.894	(1.607)
O.W.N.-S.O.E. No.	1633	N/A	165	N/A
-Non-S.O.E. No.	911	N/A	110	N/A
H-Index	0.158	(0.089)	0.175	(0.107)
Proceeds	N/A	N/A	20.462	(1.019)
Discount	N/A	N/A	0.36	(0.758)
N	2544			275

Notes: Age represents the log value of number of operating years from establishment. Size is measured by the log of the total assets. L.E.V. is financial leverage and measured by the ratio of interest bearing liability to equity in each firm at the beginning of the year. F.D. is financial distress and calculated by Altman Z-score. Beta is the systematic market risk at the beginning of the year and is calculated using the past 36 months of daily returns. R.O.A. is Return on Assets at the beginning of the year. M.B.V. is Market to book value ratio at the beginning of the year. O.W.N. is ownership and is a dummy variable; 1 if controlling shareholder is State and 0 otherwise. H-Index is Herfindahl Index, which measures firm size in relation to the industry and, thereby, indicates the amount of competition. Proceeds is the logarithm value of Private Equity Placement proceeds of sample issuing firms. Discount is average of discounts in the sample firms. Source: Authors.

Table 4. Short-term abnormal returns for competitor and P.E. issuing firms for all P.E.P. events.

	Application				Approval			Completion			Rejection or Withdrawal
Days	C.A.A.R.		t-value	p-value	C.A.A.R.	t-value	p-value	C.A.A.R.	t-value	p-value	C.A.A.R.	t-value	p-value
(−3,1)		−0.24%	−4.46	0.001	−0.08%	−1.01	0.049	−0.16%	−1.51	0.021	0.97%	6.41	0.001
(−5,1)	−0.32%		−5.46	0.001	−0.03%	−0.41	0.089	−0.14%	−1.96	0.025	0.77%	4.42	0.001
(−5,5)	−0.50%		−6.77	0.001	−0.18%	−2.09	0.018	−0.15%	−1.51	0.066	0.59%	0.95	0.071
(−5,10)	−0.60%		−6.61	0.001	−0.36%	−3.35	0.001	−0.32%	−2.87	0.002	0.51%	0.77	0.218
(−10,10)	−0.79%		−7.45	0.001	−0.46%	−3.62	0.001	−0.43%	−3.37	0.001	−0.43%	−0.62	0.734
Panel B: P.E. issuing firms for all PEP events
(−3,1)	0.48%		1.81	0.035	0.98%	3.02	0.001	0.53%	1.52	0.065	0.47%	0.467	0.321
(−5,1)	0.58%		1.88	0.031	0.86%	2.42	0.008	0.39%	0.89	0.084	−0.48%	−0.367	0.643
(−5,5)	0.42%		0.98	0.063	0.72%	2.27	0.005	0.17%	0.31	0.623	−2.09%	−1.355	0.092
(−5,10)	1.04%		2.06	0.020	0.66%	2.27	0.004	−0.91%	−1.81	0.964	−1.36%	−0.674	0.252
(−10,10)	1.43%		2.48	0.007	−0.41%	−0.58	0.718	−1.05%	−1.53	0.937	−1.87%	−0.744	0.230

Notes: We report the C.A.A.R. of competitor firms in the industry around the C.S.R.C. announcement of application (filing), approval, rejection and withdrawal dates and completion dates of P.E.P. events in panel A. Abnormal returns are computed as the difference between the actual stock price return and the expected market model return over each window. We also report the C.A.A.R. of issuing firms in the industry around the C.S.R.C. announcement of application, approval, rejection and withdrawal dates and completion dates of P.E.P. events in Panel B. We report both the t-statistic and the corresponding p-values. We also use C.S.R.C. data and obtained a similar result for P.E. issuing firms as Fonseka et al. (2014). Source: Authors.

Table 5. The information transmission effects of Private Equity Placements on Industry Competitors’ C.A.A.R.

	Control	Model (1)	Model (2)	Model (3)
Variables	C.A.A.R.	C.A.A.R.	C.A.A.R.	C.A.A.R.
Constant	−0.428***	−0.220	−0.212	−0.284***
	(0.109)	(0.153)	(0.144)	(0.110)
Age	−0.001	−0.001	−0.001	−0.001*
	(0.001)	(0.001)	(0.001)	(0.001)
Size	0.013***	0.010**	0.010***	0.013***
	(0.004)	(0.004)	(0.004)	(0.004)
L.E.V.	0.001***	0.001***	0.001***	0.001***
	(0.002)	(0.002)	(0.002)	(0.002)
F.D.	0.001**	0.001**	0.001***	0.004***
	(0.001)	(0.001)	(0.001)	(0.002)
Beta	−0.001	−0.001	−0.005	−0.003
	(0.014)	(0.014)	(0.015)	(0.014)
R.O.A.	−0.003	−0.008	−0.003*	−0.006
	(0.002)	(0.009)	(0.002)	(0.009)
M.B.V.	−0.001***	−0.001***	−0.001***	−0.001***
	(0.001)	(0.001)	(0.001)	(0.001)
O.W.N.	0.002	−0.001	−0.001	−0.001
	(0.005)	(0.005)	(0.005)	(0.005)
H-Index	−0.006**	−0.004**	−0.004*	−0.007**
	(0.003)	(0.003)	(0.003)	(0.003)
N_P.E.P.s		−0.008***
		(0.008)
V_P.E.P.s			−0.011***
			(0.009)
Dis_P.E.P.s				−0.016***
				(0.018)
N	2544	2544	2544	2544
Adj. R^2	0.041	0.045	0.046	0.047

Notes: Robust standard errors clustered with industries and time are in parentheses. C.A.A.R. is Cumulated Average Abnormal Return in (−5, 5) event window used as dependent variable. Age represents the log value of number of operating years from establishment. Size is measured by the log of the total assets. L.E.V. is financial leverage and measured by the ratio of interest bearing liability to equity in each firm at the beginning of the year. F.D. is financial distress and calculated by Altman Z-score. Beta is the systematic market risk at the beginning of the year and is calculated using past 36 months of daily returns. R.O.A. is Return on Assets at the beginning of the year. M.B.V. is Market to book value ratio at the beginning of the year. O.W.N. is ownership and is a dummy variable; 1 if controlling shareholder is State and 0 otherwise. H-Index is Herfindahl Index, which measures firm size in relation to the industry and, thereby, indicates the amount of competition. N_P.E.P.s is the logarithm of number of private equity placements of the industry. V_P.E.P.s is the logarithm value of Private Equity Placement proceeds in the industry. Dis_P.E.P.s is average of discounts in a particular industry level. Source: Authors.

^*** Significance at 1%.

^** Significance at 5%..

^* Significance at 10%.

Table 6. Pearson correlation matrix of repressors.

Panel A: Correlation between control variables
	R.E.T.	A.R.	C.A.A.R.	Age	Size	L.E.V	F.I.N. D.I.S.	Beta	R.O.A.	M.B.V.	O.W.N.	H_INDEX	L.A.G. R.E.T.	L.A.G. A.R.
R.E.T.	1
A.R.		1
C.A.A.R.			1
Age	−0.102*	−0.002	−0.018	1
Size	−0.069*	−0.078*	0.048*	−0.030	1
L.E.V.	0.007	0.017	0.024	0.015	0.011	1
F.D.	0.004	0.021	0.02	−0.024	0.219*	0.001	1
Beta	−0.002	0.010	0.020	−0.096*	0.215*	0.029	0.067*	1
R.O.A.	−0.007	0.016	0.002	−0.027	0.149*	0.001	0.235*	0.065*	1
M.B.V.	0.006	0.007	0.003	0.009	0.017	0.749*	0.009	0.018	0.001	1
O.W.N.	−0.001	−0.037*	0.006	−0.114*	0.279*	0.011	0.037*	0.116*	0.026	0.025	1
H-INDEX	−0.012	−0.007	−0.006	−0.070*	0.191*	0.002	0.093*	0.205*	0.108*	−0.001	0.284*	1
L.A.G. R.E.T.	−0.432*	−0.032*		0.086*	0.003	−0.028	0.003	0.041*	0.007	−0.028	−0.028	0.045*	1
L.A.G. A.R.	−0.084*	−0.063*		0.041*	0.002	−0.026	0.018	0.049*	0.015	−0.037*	−0.022	0.041*	0.652*	1
Panel B: Correlation between test and dependent variables
Information transition variables			R.E.T.	A.R.	C.A.A.R.
Discounts			0.272*	0.018*	−0.013*
V_P.E.P.s			−0.018*	−0.008*	−0.005*
N_P.E.P.s			−0.034*	−0.009*	−0.001*

^* Significance at 5%.

Notes: R.E.T. and A.R. are annual stock returns and abnormal stock returns, respectively. C.A.A.R. is Cumulated Average Abnormal Return in (−5, 5) event window. Age represents the log value of number of operating years from establishment. Size is measured by the log of the total assets. L.E.V. is financial leverage measured by the ratio of interest bearing liability to equity in each firm at the beginning of the year. F.D. is financial distress calculated by Altman Z-score. Bta is the systematic market risk at the beginning of the year. R.O.A. is Return on Assets at the beginning of the year. M.B.V. is Market to book value ratio at the beginning of the year. O.W.N. is ownership and a dummy variable; 1 if controlling shareholder is State and 0 otherwise. H-Index is Herfindahl Index, which measures firm size in relation to the industry and, thereby, indicates the amount of competition. L.A.G. R.E.T. and L.A.G. A.R. are 1 year lagged annual stock returns and abnormal stock returns, respectively. N_P.E.P. is the logarithm of number of private equity placement of the industry. V_P.E.P.s is the logarithm value of Private Equity Placement proceeds in the industry. Dis_P.E.P.s is the average of discounts in a particular industry level. Source: Authors.

Table 7. The effects of information transmission of successfully completed P.E.P. events on industry competitors’ long-term return.

Dependent variable:	Control (1)	Model (4)	Control (2)	Model (5)
	R.E.T.	R.E.T.	A.R.	A.R.
Constant	2.862***	2.863***	1.441***	1.451***
	(0.315)	(0.324)	(0.316)	(0.319)
Age	0.021	0.034	0.020	0.029
	(0.040)	(0.041)	(0.041)	(0.041)
Size	−0.060***	−0.061***	−0.060***	−0.059***
	(0.014)	(0.014)	(0.014)	(0.014)
L.E.V.	0.001**	0.001**	0.001**	0.001**
	(0.003)	(0.003)	(0.003)	(0.003)
F.D.	0.001***	0.001***	0.001***	0.001***
	(0.001)	(0.001)	(0.001)	(0.001)
Beta	0.063**	0.109**	0.063**	0.065**
	(0.032)	(0.046)	(0.032)	(0.033)
R.O.A.	−0.001***	−0.001***	−0.001***	−0.001***
	(0.000)	(0.000)	(0.000)	(0.000)
M.B.V.	−0.001*	−0.001	−0.001*	−0.002**
	(0.001)	(0.001)	(0.001)	(0.001)
O.W.N.	−0.032	−0.028	−0.032	−0.028
	(0.028)	(0.029)	(0.028)	(0.029)
Lagged dependent variable	−0.089***	−0.090***	−0.092***	−0.092***
	(0.014)	(0.014)	(0.014)	(0.014)
H-Index	0.083***	0.085***	0.083***	0.082***
	(0.022)	(0.021)	(0.022)	(0.020)
P.E.P._ E		−0.032**		−0.038**
		(0.022)		(0.022)
N	2539	2539	2539	2539
Adj. R^2	0.596	0.603	0.063	0.066

Notes: Robust standard errors clustered with industries and time are in parentheses. R.E.T. and A.R. are annual stock returns and abnormal stock returns, respectively, and used as dependent variables. Age represents the log value of number of operating years from establishment. Size is measured by the log of the total assets. L.E.V. is financial leverage and measured by the ratio of interest bearing liability to equity in each firm at the beginning of the year. F.D. is financial distress and calculated by Altman Z-score. Beta is the systematic market risk at the beginning of the year and it is calculated using the past 36 months of daily returns. R.O.A. is return on assets at the beginning of the year. M.B.V. is Market to book value ratio at the beginning of the year. O.W.N. is ownership and is a dummy variable; 1 if controlling shareholder is State and 0 otherwise. H-Index is Herfindahl Index, which measures firm size in relation to the industry and, thereby, indicates the amount of competition. P.E.P._E is Private Equity Placement (P.E.P.) Event; 1 if P.E.P. event in the industry, otherwise 0. Source: Authors.

^*** Significance at 1%..

^** Significance at 5%..

^* Significance at 10%..

Table 8. The effects of detailed information transmission of successfully completed P.E.P. events on industry competitors’ long-term return.

Variables	Control (3)	Model (6)	Model(7)	Control (4)	Model (8)	Model (9)
	R.E.T.	R.E.T.	R.E.T.	A.R.	A.R.	A.R.
Constant	2.658***	2.824***	2.540**	3.080***	3.239***	3.001***
	(0.889)	(0.936)	(1.033)	(0.869)	(0.916)	(1.019)
Age	0.003	0.002	0.003	0.003	0.002	0.003
	(0.004)	(0.004)	(0.004)	(0.004)	(0.005)	(0.004)
Size	−0.169***	−0.177***	−0.156***	−0.169***	−0.177***	−0.156***
	(0.032)	(0.035)	(0.029)	(0.032)	(0.035)	(0.028)
L.E.V.	0.006*	0.006*	0.005*	0.006*	0.006*	0.005**
	(0.004)	(0.004)	(0.003)	(0.004)	(0.004)	(0.004)
F.D.	0.004***	0.009***	0.004***	0.001***	0.002*	0.004***
	(0.000)	(0.009)	(0.000)	(0.000)	(0.009)	(0.000)
Beta	0.089	0.084	0.102	0.087	0.081	0.100
	(0.099)	(0.108)	(0.092)	(0.099)	(0.108)	(0.092)
R.O.A.	−0.017	−0.013	−0.017	−0.023+	−0.016	−0.023+
	(0.012)	(0.064)	(0.011)	(0.012)	(0.064)	(0.012)
M.B.	−0.001	−0.001	−0.001	−0.001	−0.001	−0.001
	(0.002)	(0.002)	(0.002)	(0.002)	(0.002)	(0.002)
O.W.N.	−0.059	−0.055	−0.053	−0.060	−0.056	−0.053
	(0.037)	(0.039)	(0.038)	(0.038)	(0.039)	(0.037)
Lag dependent variable	−0.087***	−0.094***	−0.084***	−0.087***	−0.094***	−0.084***
	(0.018)	(0.020)	(0.019)	(0.018)	(0.020)	(0.019)
H-Index	0.083***	0.087***	0.082***	0.083***	0.087***	0.082***
	(0.022)	(0.021)	(0.020)	(0.022)	(0.021)	(0.020)
Dis_P.E.P.s		0.051**			0.014**
		(0.079)			(0.021)
V_P.E.P.s			−0.009***			−0.006***
			(0.013)			(0.011)
N	2539	2539	2539	2539	2539	2539
Adj. R^2	0.596	0.583	0.619	0.063	0.065	0.067

Notes: Robust standard errors clustered with industries and times are in parentheses. R.E.T. and A.R. are annual stock returns and abnormal stock returns, respectively, used as dependent variables. Age represents the log value of number of operating years from establishment. Size is measured by the log of the total assets. L.E.V. is financial leverage and measured by the ratio of interest bearing liability to equity in each firm at the beginning of the year. F.D. is financial distress and calculated by Altman Z-score. Beta is the systematic market risk at the beginning of the year and it is calculated using the past 36 months of daily returns. R.O.A. is Return on Assets at the beginning of the year. M.B.V. is Market to book value ratio at the beginning of the year. O.W.N. is ownership and is a dummy variable; 1 if controlling shareholder is State and 0 otherwise. H-Index is Herfindahl Index, which measures firm size in relation to the industry and thereby indicates the amount of competition. Dis_P.E.P.s is the average value of discounts in a particular industry level. V_P.E.P.s is the logarithm value of Private Equity Placement proceeds in the industry. Source: Authors.

^*** Significance at 1%.

^** Significance at 5%.

^* Significance at 10%.

Table 9. The information effects of successfully completed P.E.P. on .P.E.P issuing firms in long-term returns.

Variables	(1)	(2)	(3)	(4)	(5)	(6)
	RET	RET	RET	AR	AR	AR
Constant	1.826	1.420	0.949	1.394	1.004	0.512
	(1.366)	(1.381)	(1.403)	(1.381)	(1.382)	(1.424)
Age	0.019	0.016	0.013	0.018	0.015	0.012
	(0.023)	(0.022)	(0.024)	(0.023)	(0.022)	(0.024)
Size	−0.033	−0.018	−0.113	−0.033	−0.017	−0.114
	(0.059)	(0.0591)	(0.082)	(0.060)	(0.059)	(0.082)
L.E.V.	−0.200*	−0.193*	−0.191*	−0.201*	−0.194*	−0.192*
	(0.163)	(0.157)	(0.164)	(0.163)	(0.157)	(0.164)
F.D.	0.0015*	0.010*	0.016**	0.003**	0.011**	0.0151**
	(0.010)	(0.010)	(0.010)	(0.010)	(0.010)	(0.010)
Beta	0.219	0.185	0.242	0.215	0.182	0.238
	(0.318)	(0.313)	(0.314)	(0.318)	(0.314)	(0.315)
R.O.A.	0.195***	0.028**	0.242***	0.229***	0.060***	0.275***
	(0.048)	(0.012)	(0.047)	(0.042)	(0.015)	(0.045)
M.B.V.	0.002	−0.002	−0.004	0.003	−0.001	−0.004
	(0.025)	(0.024)	(0.025)	(0.025)	(0.024)	(0.026)
O.W.N.	0.076	0.084	0.070	0.074	0.081	0.068
	(0.138)	(0.139)	(0.138)	(0.138)	(0.139)	(0.138)
Lag dependent variable	−0.003	−0.013	−0.008	−0.005	−0.016	−0.010
	(0.057)	(0.058)	(0.056)	(0.057)	(0.058)	(0.055)
Discount		0.053***			0.049***
		(0.031)			(0.002)
Proceeds			0.134**			0.034**
			(0.089)			(0.009)
N	275	275	275	275	275	275
Adj. R^2	0.501	0.505	0.503	0.062	0.070	0.066

Notes: Robust standard errors clustered by firms and time are in parentheses. R.E.T. and A.R. are annual stock returns and abnormal stock returns, respectively, used as dependent variables. Age represents the log value of number of operating years from establishment. Size is measured by the log of the total assets. L.E.V. is financial leverage and measured by the ratio of interest bearing liability to equity in each firm at the beginning of the year. F.D. is financial distress and calculated by Altman Z-score. Beta is the systematic market risk at the beginning of the year and it is calculated using the past 36 months of daily returns. R.O.A. is Return on Assets at the beginning of the year. M.B.V. is Market to book value ratio at the beginning of the year. O.W.N. is ownership, which is a dummy variable; 1 if controlling shareholder is State and 0 otherwise. Discount is the market discount of private equity placement and it is computed by (Closing Price of 10th day after announcement - Placement Price)/Closing Price of 10th day after announcement. Proceeds is the logarithm value of Private Equity Placement. Source: Authors

^*** Significance at 1%.

^** Significance at 5%.

^* Significance at 10%.

Table

Variables	(1)	(2)	(3)	(4)
	R.E.T.	R.E.T.	A.R.	A.R.
Constant	0.726	0.720	0.794	0.804
	(0.965)	(0.981)	(0.991)	(1.052)
Age	0.016	0.013	0.015	0.012
	(0.025)	(0.026)	(0.026)	(0.025)
Size	−0.028	−0.012	−0.027	−0.014
	(0.068)	(0.069)	(0.067)	(0.064)
L.E.V.	−0.188**	−0.173*	−0.189*	−0.174*
	(0.123)	(0.116)	(0.123)	(0.118)
F.D.	0.0005***	0.005***	0.002***	0.002***
	(0.001)	(0.001)	(0.001)	(0.010)
B.E.T.A.	0.119	0.085	0.115	0.082
	(0.206)	(0.201)	(0.204)	(0.201)
R.O.A.	0.095***	0.008**	0.029***	0.006***
	(0.012)	(0.002)	(0.006)	(0.002)
M.B.V.	0.012	−0.007	0.003	−0.001
	(0.045)	(0.044)	(0.018)	(0.12)
O.W.N.	0.051	0.063	0.052	0.061
	(0.098)	(0.099)	(0.098)	(0.099)
Lag dependent variable	−0.003	−0.006	−0.002	−0.008
	(0.017)	(0.028)	(0.016)	(0.033)
P.E.P._E1		0.033***		0.039***
		(0.017)		(0.014)
N	756	756	756	756
Adj. R^2	0.301	0.315	0.042	0.052

Fonseka, M. M., Colombage, S. R. N., & Tian, G.-L. (2014). Effects of regulator's announcements, information asymmetry and ownership changes on private equity placements: Evidence from China. Journal of International Financial Markets, Institutions and Money, 29(1), 126–149.10.1016/j.intfin.2013.11.008

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