Market Feedback, Investor Compensation and Decisions of Subsequent Private Placement: Based on the Analysis of Mediating Effects

Abstract

Whether the private placement by listed companies can be successfully accomplished not only depends on the issuance characteristics and market environment but also is closely related to the expected returns of investors. When a listed company makes a decision on multiple private placements, it shall not only take into account the investor compensation effect of the current private placement but also make reference to the impact of the market performance of the previous issuance on the determination of the investors’ returns. In combination with a large number of research results and under the assumption of rational expectation and from the perspective of mediating effects, this paper takes the analysis of investors’ returns as the breakthrough point, uses market feedback and investor compensation (usually reflected in the discount rate of issuance) as the direct effect variable and mediating effect variable, and constructs a mediating effect model of market feedback, investor compensation and decisions of subsequent private placement. The conclusion shows that the market performance of the previous private placement has a positive feedback effect on the subsequent private placement decisions, and there exists a phenomenon that issuers cater to investors’ expected returns through the mediating path of investor compensation.