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Do Retail Incentives Work in Privatizations?

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  • Keloharju, Matti
  • Knüpfer, Samuli
  • Torstila, Sami
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    Abstract

    20 countries around the world have used incentive packages, including bonus shares and discounts, to attract retail investors to participate in privatizations. Using a unique dataset, we estimate the total cost of incentive packages at approximately $27 billion. The expiration of bonus share plans is associated with a six-day abnormal return of -1.1% and a long-term increase in volume. Incentives have been surprisingly effective in meeting stated privatization objectives. A dollar spent on retail incentives helps to attract about 21 times as many investors as a dollar spent on underpricing. Individual-level analysis shows that flipping is not only much reduced in the short term, but also declines by at least 15% over a period of 1,000 trading days.

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    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4612.

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    Date of creation: Sep 2004
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    Handle: RePEc:cpr:ceprdp:4612

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    Related research

    Keywords: bonus shares; discounts; equity offerings; flipping; privatization;

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    Cited by:
    1. Bortolotti, Bernardo & de Jong, Frank & Nicodano, Giovanna & Schindele, Ibolya, 2004. "Privatization and Stock Market Liquidity," CEPR Discussion Papers 4449, C.E.P.R. Discussion Papers.

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