Pricing effects of private seasoned equity issues in New Zealand's laissez-faire regulatory environment.

Since the late 1980s New Zealand (NZ) has often been heralded for its free-market approach and laissez-faire attitude towards regulations in the financial market. We find that private placements issued at a premium to current market price exhibit a permanent positive impact on firm value. In contrast, those placed at a discount experience negative announcement returns and a significant run-down in returns following the announcement. There is a strong positive relationship between abnormal announcement returns and the price at which shares are placed which suggests placement price conveys important information regarding firm quality and value. We also find evidence of significant higher volumes which support market rumors that placement purchasers are immediately dumping shares purchased at a discount onto the market for an instant profit.