Price premium of private placement: evidence from India

Abstract

Purpose

This study identifies the factors responsible for obtaining price premium on privately placed equity in a developing market.

Design/methodology/approach

We examine a unique data set of a special case of private placement of equity, Qualified Institutional Placement (QIP) in India purchased at a premium. The study analyzed 188 equity issues offered between September 2006 and December 2014. On average, we find that QIP issues received a price premium of 4.38%. The study employed binary probit and ordinary least square regression models to analyze the probability and magnitude of the premium.

Findings

The study attributes the price premium of QIP to certification effect through group affiliation, signaling through promoters' ownership and monitoring effect through existing institutional investors. These factors influence the probability of premium for QIP issues. However, group affiliation and institutional ownership do not significantly influence the magnitude of the premium.

Originality/value

The private placement of equity is usually offered at a discount. Our findings contribute to the existing literature by evaluating the premium obtained on private placement as a unique scenario in emerging market supported through certification hypothesis, monitoring hypothesis and signaling.

Citation

Katti, S., Verma, N., Phani, B.V. and Ghosh, C. (2021), "Price premium of private placement: evidence from India", International Journal of Managerial Finance, Vol. 17 No. 5, pp. 757-782. https://doi.org/10.1108/IJMF-08-2019-0309