Research Outline #2
Title of Article: The wealth effects of private stock placements under Regulation D
Author(s): Kasim Alli
Publication Year: 1993
I. Thesis: The wealth effects associated with unregistered private common stock placements under the Regulation D exemption are examined using a sample of exchange listed and over-the-counter firms
II. MAIN IDEA: Regulation D is the safe harbor rule for exempt security offerings
A. Private placement of common stocks under Regulation D are initially associated with significantly positive abnormal returns.
1. under sections 4(2) and 3(b) of the 1933 Securities Act, Reg D became effective and is now the main vehicle for private equity placements.
2. The main purpose of the section 4(2) is to assist small businesses in raising capital without the attendant costs associated with public offerings.
III. MAIN IDEA: There’s more abnormal returns with public offerings than with private ones
A. Negative Abnormal Returns
1. Generally caused by information asymmetry between issuers and investors.
2. public stock sales by public utilities are associated with highe abnormal returns (less negative) than such sales by industrial firms.
B. Private Placements
1. Because private placements are sold mainly to financial insitituions and other accredited investors, the level of information asymmetry could be less severe than with public placement.
Capstone 2020 