We present an asymmetric information model to examine private placements of equity. Our main conclusion is that allowing private placements to owner-managers can mitigate, if not eliminate, the underinvestment problem. Our model predicts that announcement period returns for private placements...

We present an asymmetric information model to examine private placements issued to owner-managers. Our main conclusion is that allowing private placements to insiders can mit- igate, if not eliminate, the underinvestment problem. Our model predicts that announcement period returns for private...