A Study on BOE’s Private Placement Risk and the Tunneling Behavior of Stakeholders

Abstract

The issue of private placement risks and tunneling behavior associated with Chinese enterprise stakeholders is a matter of greater concern in academic and industry. On the basis of Agency Theory and Asymmetric Information Theory, the study adopts the case-study method—taking BOE(Beijing Over East) to investigate the refinancing risk and tunneling behavior in 2014. The BOE case is a very typical case in the field of a private placement of Chinese companies. The findings indicate that the risk from private placement varies among different types of stakeholders (large stockholders, minority stockholders, new investors, management, etc.). Also, the tunneling behavior mainly manifests as earnings management, private placement pricing, subscription method, management subscription, and so on. Suggestions for this study are as follows: First, choose a financing and development mode that fits the company, maintain steady funding sources, and set a high-quality offering target. Second, respond by consolidating the company's strengths and improve its all-around abilities, such as innovation, competitiveness, and profit capability. Third, choose the right timing to issue the private placement. Fourth, take every opportunity to improve the confidence of the market and the related investors.