Balance or Collusion? An Empirical Study on Ownership Balance Mechanism in Equity Private Placements of Chinese Listed Firms

We study how ownership structure affects agency problems in private placements and find evidence that the distraction of ownership structure is an effective way to reduce tunneling behaviors and protect minority shareholders in private placements. When majority shareholders subscribe securities in private placements, the offer price discount rises and more proceeds are used for capital operations. With the increase of equity balance, majority shareholders subscribe fewer securities in private placements, and even if they do subscribe, discount is lower and more funds are used for investment projects.