The Choice of Public vs. Private Placement of Equity: Evidence from the PIPE and SEO Markets

We examine the determinants of placing equity privately vs. publicly and analyze 7631 private investments in public equity (PIPEs) and seasoned e quity offerings (SEOs) during 1997 to 2006. Using a matched sample analysis we document that firms that are more likely to use PIPEs tend to be smaller, higher levered and more cash restric ted companies, compared to SEO issuers. Our event study shows that, although PIPE issues are co mpleted at significantly higher discount than SEO deals, PIPE (SEOs) announcements are perceived positively (negatively) by the market. The results from the empirical analysis are consistent with the information acquisition hypothesis for PIPE issues and the signaling hypothesis for SEO is sues. Finally, long run analysis suggests that PIPE issuers outperform SEO firms and are more likely to become takeover targets.