Market Reaction to the Withdrawal of Private Investments in Public Equity

We examine the market reaction to firms that withdrew previously announced private investments in public equity (PIPE) in China and find significant negative abnormal returns for the withdrawal announcement. We analyze the effect of withdrawal reasons, and find that compared to withdrawals due to unfavorable market conditions, the market reaction is more negative if the firms passively withdrew PIPEs due to the disapproval by the General Meeting of Shareholders or the Chinese Securities Regulatory Commission. The unfavorable effect of passive reason on the market reaction to withdrawal is more pronounced in PIPEs for investment projects than in those with other purposes.