Divergence of Opinion and Long-Run Performance of Private Placements : Evidence from the Auction Market

In this paper, we propose and construct a direct measure of investors' divergence of opinionbased on auction bids data of the private placements in China. We find that the firms withhigher bids dispersion generate lower long-run stock returns after the issuance of privateplacements. This effect is economically significant and robust when controlling for mar-ket discount, earnings management, alternative dispersion measures, and self-selection bias.Moreover, this negative relation is stronger for stocks with more stringent short-sale con-straints. Our findings therefore provide strong evidence in support of the Miller (1977)'sovervaluation hypothesis