Abstract
Private equity investors receive two-thirds of the announcement wealth gain at private equity offering announcements before netting out their costs and required risk premiums during 1983–1996. The existing investors, facing no marginal costs and a reduction in risk from a less financially leveraged company, have a free ride and gain one-third of the wealth effect. Announcement returns are highest to private investors when both the private and public equity issuance market climates are normal while the poorest occur in cold EPP markets. The average announcement period return to private investors is still reasonably large under all issuance climates.
TOPICS: Private equity, equity portfolio management, statistical methods, performance measurement
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