Equity private placement is the newest method of corporate financing strategy. The private\nequity financing under SEC Rule 144A is exploding and yet not much is known about the\nmotivation behind private equity placement by public firms. Considering that privately placed\nfirms have no bonding benefit, private equity investors would discount their capital by the\namount of expected consumption of private benefits. Therefore, the issuers are unable to\nlower the cost of capital nor increase managerial perquisites. One possible motivation for\nprivate placement then is that firms offering the private DR increase their private benefits\nwith the capital raised subsequently. Our approach is new to literature by incorporating both\nbenefit (conceal private information) and cost (informational monopoly) associated with\nprivate equity financing.
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