Why Do Public Firms Issue Private Equity

We examine the determinants of placing equity privately vs. publicly and analyze 5359 private investments in public equity (PIPEs) and seasoned equity offerings (SEOs) during 1997 to 2006. Using a p-score matched sample analysis we document that firms that are more likely to use PIPEs tend to be higher levered, unprofitable, less liquid, more opaque and cash restricted companies, compared to SEO issuers. Our long run performance analysis suggests that PIPE issuers underperform less severely than SEO firms one and two years after the offering, but are more likely to become takeover targets. The results from the empirical analysis are consistent with the information acquisition hypothesis for PIPE issues and the signaling hypothesis for SEO issues.