“Premium PIPEs: Why Do Investors Frequently Pay More than the Prevailing Market Price?”

Poster for talk by Ioannis (Yianni) V. Floros

“Premium PIPEs: Why Do Investors Frequently Pay More than the Prevailing Market Price?”

Ioannis (Yianni) V. Floros
Dean’s Research Fellow and Associate Professor of Finance, University of Wisconsin-Milwaukee

Friday, March 24th,
10:00 am - 12:00 pm
Physics & Astronomy Building Room 34

We document that private investments in public equity (PIPEs) are frequently issued at a price above the prevailing market price. Although largely ignored by prior literature, premium PIPEs constitute 24.5% of common stock PIPE issuances during our sample period from 2001 to 2015.

They are prevalent across issuer industry and investor type and are not explained by the size of the offering or the liquidity of the issuer. Average abnormal announcement returns are 9.4% greater for premium PIPEs than discount PIPEs. Long-term abnormal returns are also significantly higher for premium PIPEs. Our results are consistent with investors’ willingness to pay a premium credibly signalling issuer undervaluation resulting from private information or evolving strategic/monitoring relationships. The results are not consistent with investors paying a premium in return for contractual features, such as warrants or board seats, then used to expropriate excess value from issuers.

Ioannis (Yianni) V. Floros is the Dean’s Research Fellow and Associate Professor of Finance at the University of Wisconsin-Milwaukee. He is currently the Head of the finance area. Dr. Floros conducts research primarily in empirical corporate finance and specifically in going public decisions, securities offerings, disclosure, and financial contracting. His academic research is published among others in the Journal of Financial Economics, the Journal of Financial and Quantitative Analysis, the Review of Accounting Studies and the Journal of Financial Intermediation.

In 2012-2013, Dr. Floros was a Visiting Academic Fellow at the U.S. Securities and Exchange Commission and participated in the formation of the economic baseline in rules related to the JOBS Act and the Dodd-Frank Act. Dr. Floros currently conducts economic analysis for Expansion Funding Partners LLC and has also worked for Accenture S.A. as a senior financial consultant.

Dr. Floros holds a B.Sc. degree in Economics from the University of Piraeus, an M.Sc. degree in Economics and Finance from Warwick Business School and a Ph.D. degree in Business Administration from University of Pittsburgh.