• An Empirical Investigation of Short Interest Changes around Private Placements of Common Stocks

Abstract

Using sample data gathered directly from private placement contracts and SEC filings, this paper shows that short interest increases are significantly larger for placements sold to dominant institutional investors than for placements sold to dominant individual investors. Issuing firms that grant registration rights to investors experience significantly larger short interest increases than firms that do not grant these rights to investors. Firms with exchange-traded stock options experience significantly larger short interest increases than firms without exchange-traded stock options. This paper shows that short interest increases are positively related to past returns and negatively related to the book-to-market ratio.

Keywords: Private Placement Price Discounts, Registration Statement Filing Date, Registration Rights Statement, Short Interest, Calendar Time Portfolio Abnormal Returns.