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Privatization and Stock Market Liquidity

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Author Info

  • Bortolotti, Bernardo

    () (University of Turin and FEEM)

  • de Jong, Frank

    () (University of Amsterdam)

  • Nicodano, Giovanna

    () (University of Turin and FEEM)

  • Schindele, Ibolya

    () (Norwegian School of Management)

Abstract

Using panel data of 19 developed economies in the period 1985-2000, we show that share issue privatisation (SIP) strongly affects a fundamental aspect of financial development: market liquidity. First, we identify the channels through which a sustained SIP program boosts the liquidity of the overall market. Then, we explicitly test whether SIP has a positive spillover effect on the liquidity of private companies' shares. Liquidity appears to be sensitive to the amount of shares sold to retail investors, whose trading reduces the adverse selection component of the price impact. The cross-listing of shares exhibits an even stronger effect, suggesting that international offerings eliminate informational barriers and attract foreign investors to the domestic market, thereby reducing its risk premium.

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Bibliographic Info

Paper provided by Institute for Financial Research in its series SIFR Research Report Series with number 23.

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Length: 42 pages
Date of creation: 15 Apr 2004
Date of revision:
Publication status: Published in Journal of Banking & Finance, 2007, pages 297-316.
Handle: RePEc:hhs:sifrwp:0023

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Keywords: Privatization; Financial Market Development; International Finance;

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References

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  1. Bekaert, Geert & Harvey, Campbell R, 1995. " Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-44, June.
  2. Boozer, Michael A., 1997. "Econometric Analysis of Panel Data Badi H. Baltagi Wiley, 1995," Econometric Theory, Cambridge University Press, vol. 13(05), pages 747-754, October.
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Citations

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Cited by:
  1. Ulf Axelson & Sandeep Baliga, 2009. "Liquidity and Manipulation of Executive Compensation Schemes," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 22(10), pages 3907-3939, October.
  2. Giofré, Maela M., 2008. "Bias in foreign equity portfolios: households versus professional investors," MPRA Paper 13929, University Library of Munich, Germany.
  3. Narjess Boubakri & Jean-Claude Cosset & Nassima Debab & Pascale Valéry, 2011. "Privatization and Globalization: an Empirical Analysis," Cahiers de recherche 1130, CIRPEE.
  4. Dreber, Anna & Rand, David G. & Garcia, Justin R. & Wernerfelt, Nils & Lum, J. Koji & Zeckhauser, Richard, 2010. "Dopamine and Risk Preferences in Different Domains," SIFR Research Report Series 71, Institute for Financial Research.
  5. Hermalin, Benjamin E. & Weisbach, Michael S., 2010. "Information Disclosure and Corporate Governance," SIFR Research Report Series 76, Institute for Financial Research, revised 01 Jun 2011.
  6. Rydqvist, Kristian, 2010. "Tax Arbitrage with Risk and Effort Aversion - Swedish Lottery Bonds 1970-1990," SIFR Research Report Series 70, Institute for Financial Research.
  7. Axelson, Ulf & Strömberg, Per & Weisbach, Michael S., 2007. "Why are Buyouts Levered? The Financial Structure of Private Equity Funds," SIFR Research Report Series 49, Institute for Financial Research.
  8. de la Torre, Augusto & Gozzi, Juan Carlos & Schmukler, Sergio L., 2007. "Stock market development under globalization: Whither the gains from reforms?," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1731-1754, June.
  9. Fedyk, Yuriy & Walden, Johan, 2007. "High-Speed Natural Selection in Financial Markets with Large State Spaces," SIFR Research Report Series 52, Institute for Financial Research.
  10. Deumes, Rogier, 2008. "Corproate risk reporting: a content analysis of narrative risk disclosures in prospectuses," Open Access publications from Maastricht University urn:nbn:nl:ui:27-19783, Maastricht University.
  11. Ottavio Ricchi & Adolfo Di Carluccio & Cecilia Frale, 2004. "Do Privatizations Boost Household Shareholding? Evidence from Italy," Working Papers 2004.3, Fondazione Eni Enrico Mattei.

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