The Long-Run Stock Performance of Privatization IPOs

This paper compares the long-run buy-and-hold returns of privatization initial public offerings (IPOs) to those of the domestic stock markets of respective countries using a sample of 241 privatization IPOs from 41 countries. The evidence indicates that the privatization IPOs significantly outperform their domestic stock markets if the returns are equally-weighted while value-weighted returns show a sharp reduction in performance. However, there are substantial variations in the long-run performance of privatization IPOs across industries, issuing countries, issue period, and the origin of commercial law of the country. This paper also analyzes the cross-sectional determinants of the long-run buy-and-hold returns of privatization shares. The results indicate that the long-run performance of privatization IPOs is significantly related to the proxies of policy uncertainty, consistent with the signaling models of Perotti (1995). Such effects appear to be overwhelming in the earlier post-IPO period, while the traditional market factors become more important as the policy uncertainty disappears over time. The institutional features of the country such as accounting standards, origin of commercial law, and corporate governance scheme also affect the return performance of privatization issues.