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Initial Public Offerings of State-Owned Enterprises: An International Study of Policy Risk

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  • Lam, Swee-Sum
  • Tan, Ruth Seow-Kuan
  • Wee, Glenn Tsao-Min

Abstract

Policy risk, rather than information asymmetry, explains the cross-sectional underpricing of privatized initial public offerings. The issuer governments of high policy risk issues tend to retain a large equity stake and underprice more with underpricing increasing in retained equity. While the issuer government's retained equity is an observable signal for policy risk, we find that the quality of a country's bureaucratic machinery is a more intuitive and practical measure of policy risk. Policy risk also explains the absence of a systematic relation between the initial returns on privatized and private initial public offerings.

Suggested Citation

  • Lam, Swee-Sum & Tan, Ruth Seow-Kuan & Wee, Glenn Tsao-Min, 2007. "Initial Public Offerings of State-Owned Enterprises: An International Study of Policy Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(2), pages 313-337, June.
    • Handle: RePEc:cup:jfinqa:v:42:y:2007:i:02:p:313-337_00
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    Cited by:

    1. Chen, Charles J.P. & Du, Jun & Su, Xijia, 2014. "A game of accounting numbers in asset pricing: Evidence from the privatization of state-owned enterprises," Journal of Contemporary Accounting and Economics, Elsevier, vol. 10(2), pages 115-129.
    2. Vithessonthi, Chaiporn, 2014. "What explains the initial return of initial public offerings after the 1997 Asian financial crisis? Evidence from Thailand," Journal of Multinational Financial Management, Elsevier, vol. 27(C), pages 89-113.
    3. Boubakri, Narjess & Bouslimi, Lobna, 2010. "Analyst following of privatized firms around the world: The role of institutions and ownership structure," The International Journal of Accounting, Elsevier, vol. 45(4), pages 413-442, December.
    4. Liu, Hao & Zhang, Hao & Gao, Ya-Chun & Chen, Xu-Dong, 2022. "Firm age and beta: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 244-261.

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