The Role of Financial Reporting Quality in Private Placements

We investigate the role of financial reporting quality (FRQ) in private placements by examining whether FRQ affects the outcomes of private investment in public equity (PIPE) offerings. We find that PIPE issuers with higher FRQ enjoy a lower PIPE discount. We also find that firms with higher FRQ have a greater fraction of shares purchased by non-hedge-fund investors and are imposed with fewer investor protection provisions in PIPE contracts. Further analysis shows more positive PIPE announcement returns for issuers with higher FRQ. A robust positive relation between FRQ and the issuing firm’s post-PIPE performance suggests better deal quality for higher FRQ issuers. Collectively, our findings suggest that FRQ reduces information asymmetry and signals lower agency costs in PIPE deals, leading to more favorable financing outcomes for issuers