Private Placements: Is it really a Norwegian Phenomenon? An empirical study of private placements on Euronext Oslo and Nasdaq Stockholm’s main list during the period 2017 to 2022

Abstract

This thesis is split into two main sections. The first part investigates seasoned equity offerings (SEOs) on Euronext Oslo and Nasdaq Stockholm’s main list during the period 2017 to 2022, as well as characteristics of and differences between the two equity markets. The second part examines the short-term market reaction to private placements in Norway and Sweden in the same period. Our findings show that private placements are the dominant follow-on offering in both Norway and Sweden, accounting for 86% and 58% of all equity capital raised on the two respective exchanges. With a sample of 336 private placements, our results unveil a statistically significant negative share price reaction to private placement announcements in Norway and an insignificant and less negative share price reaction in Sweden. This is contrary to previous studies and prevailing private placement hypotheses such as the monitoring and certification hypothesis. These two hypotheses argue that private placements directed to active and informed investors decrease agency costs and provide a value certification, respectively, hence the market should react positively. Our results can be better explained by economic intuition and the mechanical share price depreciation that follows private placements issued at a discount. This thesis contributes to existing literature in three ways. First, it investigates a more recent period. Second, it examines whether the announcement returns in both markets align with the implied share price depreciation. Third, we investigate whether the informational effects from private placements differ in the two markets. We find that for every 1% increase in the implied share price depreciation, the Norwegian and Swedish issuers experience a reduction in announcement returns of 0.62%, on average. The Norwegian and Swedish market react less than expected, meaning that the private placements signal positive information, countering the mechanical share price reduction that stems from the dilution and discount. This finding implies that firms experience lower indirect flotation costs than expected. Lastly, we find that the informational effect from private placements is more positive in Sweden compared to Norway, showing that nonparticipating shareholders in Sweden experience a less adverse effect on their shareholder returns compared to Norway. One plausible explanation for this finding is that a larger share of active and strategic investors participating in the Swedish private placements reduce agency costs, provide value certification, and might add value to the firms.