Private placement and share price reaction: evidence from the Australian biotechnology and health care sector

This paper analyses Private Placements for the Australian biotechnology sector. Private placement is one of the favoured methods of secondary equity offering around the world. However, it is also the least studied corporate financing mechanism. A major issue around private placement is the impact of issuance to a selected group of institutional and/or high net worth sophisticated investors and the high direct costs of doing so. We first employ en event study methodology to separate out the large and small placement effects and short and long run effects. Given Australia’s weaker regulatory environment, we find significant negative cumulative abnormal return following private placements in the short term supporting the price pressure hypothesis with our main sample and with large private placement issues. Consistent with current empirical studies, mixed evidence regarding the directional impact was also observed as small issue exhibited positive price effects. We then hypothesize a model to measure and test the key factors identified in the literature. The model captures and explains strong medium term cumulative abnormal return effects and these effects are quite different between small and large placements.