Private Placements of Equity and Systematic Risk – Application of the Beta Decomposition Model

• Main Authors: Chung-Yi Lee, 李仲益
• Other Authors: 楊東曉
• Format: Others
• Language: zh-TW
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/ck73xf

碩士 === 國立中興大學 === 財務金融系所 === 102 === The existing literature finds that firms perform poorly after private placements, which is explained by investors overoptimism. This study uses the two-beta model: cash-flow beta and discount-rate beta, following Campbell and Vuolteenaho (2004) to investigate both issues. Cash-flow beta represents the risk of future investment opportunities, and discount-rate beta represents company’s sensitivity to market discount rate. The results show that firms with low cash-flow beta have poor long-run performance. This implies that with low sensitivity to cash flows are likely to perform poorly following private placements. Further, the negative relation between discount-rate beta and long-run performance indicate that investors are prone to be overoptimistic about high discount-rate beta firms.