The economics of PIPEs, revisited

  • This paper examines rent sharing in private investments in public equity (PIPEs) between newly public firms and private investors. The evidence suggests highly asymmetric rent sharing. Newly public firms earn a negative return of up to −15% in the first post-PIPE year, while investors benefit due to the ability to dictate transaction terms. The results are economically relevant because newly public firms are, at least in recent years, more likely to tap private rather than public markets for follow-on financing shortly after the initial public offering (IPO), and because the results for newly public firms contrast with those for the broad PIPE market in Lim et al. (2021). The study also contributes to the PIPE literature by offering an integrative view of competing theories of the cross-section of post-PIPE stock returns. We simultaneously test proxies for corporate governance, asymmetric information, bargaining power, and managerial entrenchment. While all explanations have univariate predictive power for the post-PIPE performance, only the proxies for corporate governance and asymmetric information are robust in ceteris-paribus tests.

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Author:Paul P. MomtazORCiDGND
Parent Title (English):Small business economics
Publisher:Springer Science + Business Media B.V.
Place of publication:Dordrecht [u.a.]
Document Type:Article
Date of Publication (online):2022/06/21
Date of first Publication:2022/06/21
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2023/04/20
Tag:Initial public oferings (IPOs); Newly public frms; Private equity; Private investment in public equity (PIPE)
Page Number:25
First Page:59
Last Page:83
Open Access funding enabled and organized by Projekt DEAL.
This study was financially supported by the Price Center for Entrepreneurship & Innovation at UCLA.
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoCreative Commons - CC BY - Namensnennung 4.0 International