Do Privatization IPO Firms Outperform in the Long-Run?
38 Pages Posted: 28 Feb 2005
Date Written: November 7, 2006
This paper investigates the long-run stock returns of privatization initial public offering (IPO) firms using a sample of 241 privatization IPOs from 42 countries during the period 1981-2003. We compare one- three-, and five-year holding period returns of the privatization IPOs to those of the domestic stock market indices and to those of size and size-and-book-to-market equity ratio (BM)-matched firms of respective countries. Consistent with previous studies, privatization IPOs significantly outperform their domestic stock markets in the long-run. However, they do not show any significant abnormal long-term stock performance relative to their size- or size-and-BM-matched benchmark firms. The results in the paper suggest that previous results on the long-run stock performance of privatization IPOs should be interpreted with caution. In addition, being different from private companies' IPOs, the market seems to value privatization IPO firms without much systematic bias after the IPO. This is consistent with privatization IPOs having less information asymmetry problems compared to private IPOs.
Keywords: Privatization, IPO, CAR, BHAR, Matched firm
JEL Classification: G32
Suggested Citation: Suggested Citation