Corporate reputation, shareholders’ gains, and market discounts: evidence from the private equity placement in China

Abstract This paper extended the works of Wruck in 1989, and Hertzel and Smith in 1993 by incorporating the effects of corporate reputation on shareholders’ gains and market discounts in private equity placements (PEPs) taking data from the Chinese markets. Results demonstrate that corporate reputation significantly influences the shareholder’s gains in PEPs. Besides, factors such as market discounts, offering percentage, and connected transactions are positively related to the announcement effects whereas changes in ownership concentration negate the shareholders’ returns. By contrast, market discounts show a negative association with reputation status, indicating that reputation serves as a mitigating factor for resolving a firm’s undervaluation problem. These findings expect to help greatly to the managerial decision of PEP issuers in an emerging market.