Performance of initial public offerings and privatized offers : Evidence from a developing country

Purpose – The purpose of this paper is to investigate returns of initial public offerings (IPOs) in an emerging market and differences in the returns of privatized and non‐privatized offerings. Design/methodology/approach – Market‐adjusted return is computed as daily cumulative excess returns for six‐ and 12‐month periods. Long‐run performance is measured by calculating market‐adjusted buy and hold return assuming that shareholders pursue strategies of 1, 2 and 3 years. Findings – The paper finds that underpricing exists even in emerging markets and at a higher level than in developed countries. Average returns are over 55 per cent and is comparable with that of Malaysia, Mexico, Poland and Thailand. POs generally outperform the market, with the privatized IPOs offering superior excess returns than the non‐privatized IPOs. Excess returns diminish by the end of three years. The pattern of the returns seen in this case is different to similar studies elsewhere, where excess returns are observed over four to five years after the initial listing. Research limitations/implications – The number of IPOs investigated here is comparatively small. However, because the sample consists of a mix of privatized vs non‐privatized companies, the results provide useful insights on factors that may drive the unusual returns. While underpricing is common in most IPOs, the state when privatizing enterprises seem to be offering investors excessive returns. Originality/value – This paper provides researchers and policymakers some insights into the workings of capital markets in emerging economies.