Why Do Listed Companies Choose Private Equity Placements?-Empirical Evidence from Chinese Stock Market

Since the non-tradable reform, the private equity placement becomes one of the best popular ways of equity refinancing in China´s listed companies. The market and supervision authorities in the multiple expectations place on the private equity placement as an important innovation of the equity refinancing. This paper based on information asymmetry hypothesis examines: Why do listed companies choose private equity placements? Whether information asymmetric hypothesis can explain the boom of the private equity placements of the listed companies, or not? Using a sample of 760 listed companies which have achieved the non-tradable reform during the period of 2006-2008.12 on Shanghai and Shenzhen stock exchanges, the results show that information asymmetry hypothesis does not explain the boom of the private equity placements of the listed companies. The listed company will choose higher possibility of the private equity placement to specific objects in order to raise funds when the stock price is undervalued. The listed company will choose higher possibility of the private equity placement when the listed company is a subsidiary company by the group controlled.