Staged privatization: A market process with multistage lockups

Most privatizations around the world take the form of staged privatization with multistage lockups and step-by-step unlocking of shares. A lockup prevents the shares of a company from being sold to the public for a specified or unspecified period of time. This paper presents a theory and provides empirical evidence for staged privatization under market forces. The theory is based on a specification of a lockup effect on demand, where the existence of this lockup effect is shown by our empirical analysis. With this theory, we can analyze how various factors, such as the lockup effect, demand elasticity, growth potential and business fluctuations, affect staged privatization, in particular, the equilibrium speed of privatization. Our paper is the first to analyze a market-oriented, multistage privatization process, instead of a fully government-controlled or centrally planned process. Interestingly, staged privatization resembles initial public offerings (IPOs). Hence, our study can shed light on IPOs from a unique angle. Our empirical analysis provides evidence in support of our theoretical findings.