Investor protection and firm value: Evidence from PIPE offerings

• Using a sample of PIPEs, we study whether protections offered to investors affect firm value.
• We examine the issuers’ stock price reaction to PIPE issues and the long-run performance.
• Equity and preferred PIPE issues convey positive information about the firm.
• Issuers of equity and preferred PIPEs outperform their matching portfolios after the issue.
• Issuers of convertible debt PIPEs with floating or reset features underperform their matching portfolios.

We find that PIPE issues that do not provide any protections to investors convey positive information about the firm and result in positive announcement period returns. However, PIPE issues that provide protections do not convey any new information about the firm and hence do not result in significant positive or negative announcement period returns. PIPE issuers that offer no protections to investors outperform their matched portfolios for up to 9 months after the issue. PIPE issuers that offer protections underperform their matched portfolios for 18 to 36 months after the issue.