Bortolotti, Bernardo () (University of Turin and FEEM) de Jong, Frank () (University of Amsterdam) Nicodano, Giovanna () (University of Turin and FEEM) Schindele, Ibolya () (Norwegian School of Management)
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Using panel data of 19 developed economies in the period 1985-2000, we show that share issue privatisation (SIP) strongly affects a fundamental aspect of financial development: market liquidity. First, we identify the channels through which a sustained SIP program boosts the liquidity of the overall market. Then, we explicitly test whether SIP has a positive spillover effect on the liquidity of private companies' shares. Liquidity appears to be sensitive to the amount of shares sold to retail investors, whose trading reduces the adverse selection component of the price impact. The cross-listing of shares exhibits an even stronger effect, suggesting that international offerings eliminate informational barriers and attract foreign investors to the domestic market, thereby reducing its risk premium.
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Paper provided by Institute for Financial Research in its series SIFR Research Report Series with number
23.
Length: 42 pages Date of creation: 15 Apr 2004 Date of revision: Publication status: Published in Journal of Banking & Finance, 2007, pages 297-316. Handle: RePEc:hhs:sifrwp:0023
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Find related papers by JEL classification: F30 - International Economics - - International Finance - - - General G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
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