The anchoring effect in the private placement pricing: Evidence from China

Private placement has become the most important way of Chinese listed companies refinance after the non-tradable share reform in 2006 in terms of the number or size of additional financing. An interesting phenomenon has been found in that there is only a tiny difference of 2.49% between the discount rate mean of the initial 5 listed companies and that of all others. In this paper, the anchoring phenomenon of behavioral psychology was examined and used to explain this interesting phenomenon. The results show that the discount rate pricing of private placements is mainly affected by an anchoring effect. The managers determine the issue price and do not fully adjust on the basis of the average discount rate of private placement of the initial 5 listed companies and all the preceding listed companies.