PIPEs, firm investment, and viability

Using 2342 PIPEs, we investigate the intended use of funds and its relation to firm characteristics and issue outcomes. We find that a slight majority of issues are for investment purposes with the rest being for purposes related to enhancing firm viability. The offer discounts to the private investors and the market’s reaction to the announcement are more related to investment quality for the invest firms and to recovery value for the viability firms. Through an examination of follow-on financing activities, we find broad evidence that PIPEs play an important function and not simply as a stopgap source of finance.