Analysis of privatization through public offerings
This thesis investigates the hypothesis that governments structure privatization offerings to ensure full subscription and a broad distribution of shareownership. Our literature survey of IPO markets suggests that governments face IPO markets characterized by both information asymmetry and demand uncertainty. Operating in this environment, governments design complex allocation schemes that ration shares among individual investors to achieve broad share distribution and rely on institutional investors to fully subscribe the offering. We test our hypotheses on the 40 companies privatized during the U.K. program. We show that the allocation schemes designed by the U.K. government resulted in offerings that were segmented into retail and institutional tranches and that there was heavy rationing in the retail tranche. Empirical evidence on the allocations and returns for various investor categories support our hypotheses on full subscription and broad distribution of shareownership. If small applicants had invested 1000 pounds in every offering they would have made a return of 130 pounds in the first day of trading. Very large institutions that bid for at least 0.5 percent of the offering were also clearly favored and made a 29 percent return. We also examine the effects of these allotment schemes on the long-run performance of privatized stocks and compare it to the long-run performance of IPO stocks in the United Kingdom. The results indicate that privatized stocks do not exhibit any abnormal performance in the initial 36 month period after the offering. However, the 176 offer for sale IPOs do exhibit long-run underperformance. Lastly, we provide some anecdotal evidence on privatization offerings in France, Malaysia, and Spain. These data seem to suggest that these offerings were also segmented into retail and institutional tranches and that the retail tranche was heavily oversubscribed. Thus our hypotheses on government behavior appear to be valid across privatization programs.
|Year of publication:||
|Authors:||Sinha, Punita Kumar|
|Type of publication:||Other|
Dissertations available from ProQuest
Saved in favorites
Similar items by subject
Find similar items by using search terms and synonyms from our Thesaurus for Economics (STW).