Death spiral PIPEs: a reconsideration of the evidence

Karen Benson; Martina Linnenluecke; David Morrison; Sviatoslav Rosov

doi:10.1111/acfi.12535

Death spiral PIPEs: a reconsideration of the evidence

Karen Benson, Martina Linnenluecke^*, David Morrison, Sviatoslav Rosov

^*Corresponding author for this work

Department of Applied Finance

Research output: Contribution to journal › Article › peer-review

Abstract

We challenge the view that PIPEs lead to unfavourable outcomes for issuing firms. We show that structured PIPEs do not have significant negative CARs when a matched firm benchmark is used for computing CARs and when sample selection bias is taken into account. Indeed, structured PIPEs have significantly higher positive skewness, indicating superior optionality, consistent with the real option argument. We also show that the 2002 intervention by the Securities and Exchange Corporation (SEC) has led to unintended consequences, with the substitution of ‘mom and pop’ investors for hedge fund investors in the structured PIPE market.

Original language	English
Pages (from-to)	4175-4194
Number of pages	20
Journal	Accounting & Finance
Volume	60
Issue number	4
Early online date	10 Sept 2019
DOIs	https://doi.org/10.1111/acfi.12535
Publication status	Published - Dec 2020

Keywords

Cumulative abnormal returns
Matched firm benchmark
Private investments in public equity
Securities and exchange commission
Structured PIPEs

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10.1111/acfi.12535

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abstract = "We challenge the view that PIPEs lead to unfavourable outcomes for issuing firms. We show that structured PIPEs do not have significant negative CARs when a matched firm benchmark is used for computing CARs and when sample selection bias is taken into account. Indeed, structured PIPEs have significantly higher positive skewness, indicating superior optionality, consistent with the real option argument. We also show that the 2002 intervention by the Securities and Exchange Corporation (SEC) has led to unintended consequences, with the substitution of {\textquoteleft}mom and pop{\textquoteright} investors for hedge fund investors in the structured PIPE market.",

keywords = "Cumulative abnormal returns, Matched firm benchmark, Private investments in public equity, Securities and exchange commission, Structured PIPEs",

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N2 - We challenge the view that PIPEs lead to unfavourable outcomes for issuing firms. We show that structured PIPEs do not have significant negative CARs when a matched firm benchmark is used for computing CARs and when sample selection bias is taken into account. Indeed, structured PIPEs have significantly higher positive skewness, indicating superior optionality, consistent with the real option argument. We also show that the 2002 intervention by the Securities and Exchange Corporation (SEC) has led to unintended consequences, with the substitution of ‘mom and pop’ investors for hedge fund investors in the structured PIPE market.

AB - We challenge the view that PIPEs lead to unfavourable outcomes for issuing firms. We show that structured PIPEs do not have significant negative CARs when a matched firm benchmark is used for computing CARs and when sample selection bias is taken into account. Indeed, structured PIPEs have significantly higher positive skewness, indicating superior optionality, consistent with the real option argument. We also show that the 2002 intervention by the Securities and Exchange Corporation (SEC) has led to unintended consequences, with the substitution of ‘mom and pop’ investors for hedge fund investors in the structured PIPE market.

KW - Cumulative abnormal returns

KW - Matched firm benchmark

KW - Private investments in public equity

KW - Securities and exchange commission

KW - Structured PIPEs

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Death spiral PIPEs: a reconsideration of the evidence

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Death spiral PIPEs: a reconsideration of the evidence

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