| Summary: | 碩士 === 中原大學 === 會計研究所 === 96 === Abstract
Revised articles regarding “Company Law” and the “Securities and Exchange Act” were
passed in October 2001 and January 2002, respectively, in Taiwan, where the “Private
Placement” of securities was revised and augmented. In addition to allowing public companies
to raise funds via bonds under the original Company Law, their purpose and need are also taken
into account during the observation of current circumstances as well as changes in the capital
market, and the acquirement of different securities under private placement maximises the
benefit of fundraising for a company.
According to Article 43-6 of the Securities and Exchange Act, Private Placement of
Equity, states that a public company may carry out a private placement of securities
with designated judicial persons or natural persons who meet the conditions in order to
raise funds.
The objective of the research is to explore how the issuing of new shares to raise funds
under private placement by a company can be affected by financial characteristics that include:
financial structure, solvency, operating ability, earning power, cash flow, financial health and
other indices. How the announcement of the private placement of equity will affect the stock
return is dependent upon the perception of investors. For instance, the higher the amount
subscribed by natural persons the more likely the investors will perceive the announcement in a
negative light, thus causing the stock price to fall and resulting in negative cumulative abnormal
return. On the contrary, the higher the amount subscribed by judicial persons, coupled with good
financial characteristics, will cause the investors to regard the announcement as good news. The
stock price of the company will rise as a result, thus producing positive cumulative abnormal
return.
This research will construct an evidence-based model regarding the effect on stock prices by
the financial characteristics and announcement of private placement of equity, as well as the
effect of the announcement on stock prices. Research results show that the poorer the financial
characteristics of a company, the higher the chance of mismanagement in funds and
subsequently the risk of a financial crisis. Once the chance of a company having a financial
crisis is high, it is likely to be turned away from financial institutions as it seeks debt financing.
What is more, investors will be unwilling to subscribe based on the grounds such as poor
financial characteristics, which will in turn place the company in the predicament of a failed
fundraise.
In order to improve the financial standing of a company, more funds need to be raised. Once
the company is able to issue new shares under the private placement of equity, it should seize the opportunity to boost the value. As a result the newly issued shares will have higher value
and the hypothesis will be partly sustained. As a company announces a private placement of
equity, if the amount subscribed by judicial persons is higher, then it means the company has
gained professional and financially sound investors. Furthermore, if the financial characteristics
of the company are good, then the announcement of a private placement of equity will be good
news to investors and see an increase in the stock price, thus resulting in positive cumulative
abnormal return (CAR).
Key word: Private Placement of Equity、 Financial Characteristics、Stock Return
、Cumulative Abnormal Return 、event study methods
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