Equity in capital raising? Empirical evidence from structured private placements

Packaged private placements (PPP) in Australia allow all eligible shareholders to purchase shares at the same price as offered to institutions in the private placement component of the offering. Announcement returns for PPPs are negative on average but are positive for offers with large placements to institutions. Returns also exhibit higher sensitivity to private placement size in PPPs than in traditional private placements, consistent with larger certification benefits accruing to PPP issuers. Retail shareholders experience 3.9 % ownership dilution in PPPs as compared to 8.6 % dilution in equivalent traditional private placements, and their participation is positively related to the size of the private placement component. Long run wealth related benefits associated with participation are present in all PPPs. Our results provide insights for regulators who wish to encourage companies to consider raising capital from small shareholders by utilizing offer structures that have been typically only accessible to sophisticated investors.