THE PRIVATE PLACEMENT OF BANK EQUITY

This paper investigates the role of private placements of common stock as a source of bank capital. Our results show that information asymme try problems that typically attend new offers of bank equity are mitig ated in the private placement process. Moreover buyers of privately pl aced common stock seem to provide a quality certification of capital d eficient bank holding companies. Our evidence is also consistent with the notion that buyers of privately placed common stock provide a moni toring service that aligns the interest of the bank's managers and sha reholders. Finally, we find no evidence that private placements are pr edominately motivated by incumbent management's attempts to sell equit y to a friendly buyer at the expense of the bank's current shareholder s.