How do we know if 'Smart Money' is really smart? Market reactions when biotechnology firms disclose the identities of investors. (8th February 2010)

• Record Type: Journal Article
• Authors: Janney, Jay J.
• Is Part Of: International journal of technoentrepreneurship. Volume 2:Number 2(2009)
• Page Start: 186
• Page End: 205
• Publication Date: 2010-02-08
• Subjects: private placements -- biotechnology firms -- signalling -- reputation -- event study -- smart money -- investor identification -- firm value -- disclosed investors -- market reaction -- undisclosed investors; High technology industries -- Periodicals; Entrepreneurship -- Periodicals; 338.0405
• Languages: English
• ISSNs: 1746-5370

Abstract

Private placements of equity are generally viewed as signals because of the observable confidence 'smart investors' have to have in order to make the investment. We therefore ask the question if it is the transaction that creates the signal, or if it is knowledge of the investor that matters. Knowing investor identity permits others to assess the skill the investor has in assessing the value of the biotechnology firm. We examine 685 private placements and find disclosed investors have a much higher market reaction than do undisclosed investors.