IDEAS home Printed from https://ideas.repec.org/a/sae/emeeco/v6y2014i2p181-202.html
   My bibliography  Save this article

Public Sector Disinvestment in India

Author

Listed:
  • Sanjay Sehgal
  • Muneesh Kumar
  • Priyanshi Gupta

Abstract

This study examines the stock market performance of Indian state-owned public sector units (PSUs), which were privatized through initial public offerings (IPOs) and further public offerings (FPOs). The analysis of stock price reaction is conducted for different event dates related to these offerings, that is, public notice date (PND), issue announcement date (IAD), price band/actual issue date (PAD), and the offer price date (OFD). The study also compares the price reaction for IPO and FPO issues. Furthermore, as the public sector equity offerings are generally sold at a discount, we also empirically analyze the degree of underpricing of such offerings. The study uses event methodology for 18 PSUs that made FPOs between 2002 and early 2013. The results report positive abnormal returns (ARs) (i.e., excess returns over and above the expected returns) after the primary offerings (IPO) of the equity. Furthermore, it was observed that in the case of first-stage further offerings (FPO-1), positive ARs are observed prior to the public notification of such offering followed by negative price reaction until the date declaration of offer price. For second-stage further public offerings (FPO-2), negative ARs (i.e., when actual returns are less than expected returns) after the public notification continue even after the date of stock offering. The price discounts on PSU issues exhibit a declining trend from IPO to successive stages of FPOs. Based on the empirical analysis, we recommend that the disinvestment should be spread over three stages of offerings, that is, primary issue (IPO), first-stage further offerings (FPO-1), and second-stage further offerings (FPO-2). In addition, selection of investment bankers and market timing needs special consideration. Furthermore, the regulatory surveillance needs to be strengthened to check the presence of ARs even before the event dates.

Suggested Citation

  • Sanjay Sehgal & Muneesh Kumar & Priyanshi Gupta, 2014. "Public Sector Disinvestment in India," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 6(2), pages 181-202, May.
    • Handle: RePEc:sae:emeeco:v:6:y:2014:i:2:p:181-202
    DOI: 10.1177/0974910114525539
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0974910114525539
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0974910114525539?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Bortolotti, Bernardo & de Jong, Frank & Nicodano, Giovanna & Schindele, Ibolya, 2007. "Privatization and stock market liquidity," Journal of Banking & Finance, Elsevier, vol. 31(2), pages 297-316, February.
    2. Beatty, Randolph P. & Ritter, Jay R., 1986. "Investment banking, reputation, and the underpricing of initial public offerings," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 213-232.
    3. Office of Health Economics, 2007. "The Economics of Health Care," For School 001490, Office of Health Economics.
    4. Lin, Frank & Gannon, Gerard, 2007. "Private placement and share price reaction: evidence from the Australian biotechnology and health care sector," Working Papers aef_2007_05, Deakin University, Department of Economics.
    5. Bel, Gema, 1998. "Privatization on the stock market: Sale at one go or sale in tranches?," Economics Letters, Elsevier, vol. 58(1), pages 113-117, January.
    6. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Suneel Maheshwari & Vasudha Gupta & Deepak Raghava Naik, 2022. "Development of Risk Index and Risk Governance Index: Application in Indian Public Sector Undertakings," JRFM, MDPI, vol. 15(5), pages 1-19, May.
    2. Gupta, Vishal & Kulkarni, Swanand & Khatri, Naresh, 2018. "Leadership and Management of Public Sector Undertakings in an Emerging Economy," IIMA Working Papers WP 2018-01-04, Indian Institute of Management Ahmedabad, Research and Publication Department.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Farinos, Jose E. & Garcia, C. Jose & Ibanez, Ana Ma, 2007. "Operating and stock market performance of state-owned enterprise privatizations: The Spanish experience," International Review of Financial Analysis, Elsevier, vol. 16(4), pages 367-389.
    2. Elizabeth Demers & Philip Joos, 2007. "IPO Failure Risk," Journal of Accounting Research, Wiley Blackwell, vol. 45(2), pages 333-371, May.
    3. Re‐Jin Guo & Baruch Lev & Charles Shi, 2006. "Explaining the Short‐ and Long‐Term IPO Anomalies in the US by R&D," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(3‐4), pages 550-579, April.
    4. Dorsman, André & Gounopoulos, Dimitrios, 2013. "European Sovereign Debt Crisis and the performance of Dutch IPOs," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 308-319.
    5. Jay R. Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," Journal of Finance, American Finance Association, vol. 57(4), pages 1795-1828, August.
    6. Paul B. McGuinness, 2016. "Post-IPO performance and its association with subscription cascades and issuers’ strategic-political importance," Review of Quantitative Finance and Accounting, Springer, vol. 46(2), pages 291-333, February.
    7. Benzoni, Luca & Schenone, Carola, 2010. "Conflict of interest and certification in the U.S. IPO market," Journal of Financial Intermediation, Elsevier, vol. 19(2), pages 235-254, April.
    8. Su, Chen & Bangassa, Kenbata, 2011. "The impact of underwriter reputation on initial returns and long-run performance of Chinese IPOs," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 760-791.
    9. Hahl, Teemu & Vähämaa, Sami & Äijö, Janne, 2014. "Value versus growth in IPOs: New evidence from Finland," Research in International Business and Finance, Elsevier, vol. 31(C), pages 17-31.
    10. Killins, Robert N., 2019. "An investigation of the short-term performance of the Canadian IPO market," Research in International Business and Finance, Elsevier, vol. 47(C), pages 102-113.
    11. Dang, Man & Puwanenthiren, Premkanth & Truong, Cameron & Henry, Darren & Vo, Xuan Vinh, 2022. "Audit quality and seasoned equity offerings methods," International Review of Financial Analysis, Elsevier, vol. 83(C).
    12. Hyoung-Goo Kang & Kyounghun Bae & Jung Ah Shin & Seongmin Jeon, 2021. "Will data on internet queries predict the performance in the marketplace: an empirical study on online searches and IPO stock returns," Electronic Commerce Research, Springer, vol. 21(1), pages 101-124, March.
    13. Butler, Alexander W. & Keefe, Michael O'Connor & Kieschnick, Robert, 2014. "Robust determinants of IPO underpricing and their implications for IPO research," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 367-383.
    14. Panos N. Patatoukas & Richard G. Sloan & Annika Yu Wang, 2022. "Valuation Uncertainty and Short-Sales Constraints: Evidence from the IPO Aftermarket," Management Science, INFORMS, vol. 68(1), pages 608-634, January.
    15. Natalia Matanova & Tanja Steigner & Bingsheng Yi & Qiancheng Zheng, 2019. "Going concern opinions and IPO pricing accuracy," Review of Quantitative Finance and Accounting, Springer, vol. 53(1), pages 195-238, July.
    16. Hsuan‐Chi Chen & Keng‐Yu Ho & Yu‐Jen Hsiao & Cheng‐Huan Wu, 2010. "The Diversification Effects of Initial Public Offerings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(1‐2), pages 171-205, January.
    17. Feng, Xunan & Johansson, Anders C. & Wei, Dengxi, 2023. "Judging a book by its cover: Analysts and attention-driven price patterns in China's IPO market," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    18. Bel, Germa, 2003. "Confidence building and politics in privatization: some evidence from Spain," Economics Letters, Elsevier, vol. 78(1), pages 9-16, January.
    19. Hoechle, Daniel & Karthaus, Larissa & Schmid, Markus, 2017. "The Long-Term Performance of IPO’s, Revisited," Working Papers on Finance 1706, University of St. Gallen, School of Finance.
    20. Rama Seth & S. R. Vishwanatha & Durga Prasad, 2019. "Allocation to Anchor Investors, Underpricing, and the After‐Market Performance of IPOs," Financial Management, Financial Management Association International, vol. 48(1), pages 159-186, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:emeeco:v:6:y:2014:i:2:p:181-202. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.emergingmarketsforum.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.