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Abnormal Returns in Privatization Public Offerings: The Case of Portuguese Firms

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  • Carla Vieira

    (Faculdade de Economia da Universidade do Porto)

  • Ana Paula Serra

    (CEMPRE, Faculdade de Economia da Universidade do Porto)

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    Abstract

    This paper provides evidence on abnormal returns of Portuguese privatization public offerings for the period from 1989 to 2001. Previous empirical studies report the existence of underpricing for privatized firms in the short-run and positive abnormal returns in the long run. This study explores the abnormal performance of a comprehensive sample of Portuguese privatization transactions and investigates the determinants of the observed price behavior. Our results are not supportive of the underpricing phenomenon except if we exclude the very extreme observations. The results show further that privatization IPOs underperform private sector IPOs. In the long run, we observe negative abnormal returns. While in early event months, privatization public offerings yield more negative returns than private sector offerings, this effect is reversed in longer horizon periods. Initial underpricing is thus reversed and investors seem to require higher returns in partial privatizations.

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    Bibliographic Info

    Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2005.43.

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    Date of creation: Mar 2005
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    Handle: RePEc:fem:femwpa:2005.43

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    Keywords: Privatization; IPOs;

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    References

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    1. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
    2. Ritter, Jay R, 1991. " The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March.
    3. Perotti, Enrico C, 1995. "Credible Privatization," American Economic Review, American Economic Association, vol. 85(4), pages 847-59, September.
    4. Jones, Steven L. & Megginson, William L. & Nash, Robert C. & Netter, Jeffry M., 1999. "Share issue privatizations as financial means to political and economic ends," Journal of Financial Economics, Elsevier, vol. 53(2), pages 217-253, August.
    5. Bulent Aybar, C., 2002. "The long-term performance of privatization-related ADR issues," Emerging Markets Review, Elsevier, vol. 3(2), pages 135-164, June.
    6. Enrico C. Perotti & Pieter van Oijen, 1999. "Privatization, Political Risk and Stock Market Development in Emerging Economies," William Davidson Institute Working Papers Series 243, William Davidson Institute at the University of Michigan.
    7. Anthony Boardman & Claude Laurin, 2000. "Factors affecting the stock price performance of share issued privatizations," Applied Economics, Taylor & Francis Journals, vol. 32(11), pages 1451-1464.
    8. Kothari, S. P. & Warner, Jerold B., 1997. "Measuring long-horizon security price performance," Journal of Financial Economics, Elsevier, vol. 43(3), pages 301-339, March.
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    Cited by:
    1. Maria Borges, 2007. "Underpricing of Initial Public Offerings: The Case of Portugal," International Advances in Economic Research, Springer, vol. 13(1), pages 65-80, February.

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