Tunneling or Signaling? An Analysis on Big Shareholder Participation and SEO Discount

Abstract

Abstract: This paper investigates the role of big shareholder in SEO pricing under different pricing mechanisms. For SEOs using fixed-price mechanism, the SEO discount is higher when big shareholders get involved and this relation is more pronounced for firms in a poor environment of corporate governance. In contrast, the discount for SEOs employing auction pricing mechanism is lower when big shareholders participate and this relation is stronger for more opaque firms. These results imply that big shareholders tunnel through suppressing offer price only under fixed-price mechanism. In auction pricing mechanism, big shareholder participation releases good signal and thus decreases SEO discount.

Key words: SEO discount, tunneling, fixed-price pricing mechanism, auction pricing mechanism

Wang Huacheng, Liu Jinzhao, Gao Shenghao, Qing Xiaoquan. Tunneling or Signaling? An Analysis on Big Shareholder Participation and SEO Discount[J]. Management Review, 2020, 32(9): 266-279.

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