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The Withdrawal of the State from Economic Activity: An Austrian Capital Market Perspective

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  • Helmenstein, Christian

    (Department of Economics, Institute for Advanced Studies, Vienna)

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    Abstract

    In this paper we investigate the success of recent privatization in Austria from a capital market perspective. The empirical analysis draws upon the concept of initial public offerings indexes to document the medium-run aftermarket performance of initial public offerings (IPOs). Due to certain peculiarities, governmental IPOs outperform non-governmental IPOs in terms of cumulative average returns. Among the approaches discussed, the theory of property rights, together with the economic theory of politics, appears to be particularly appealing in explaining this phenomenon. If market participants adjust their investment decisions accordingly, the superior performance of governmental IPOs must, however, be expected to vanish during later stages of a privatization program. The withdrawal of the state from the ownership of enterprises has repercussions on the expansion of existing private companies due to rising capital costs. Privatization programs thus temporarily inhibit the substitution of inside equity by outside equity in private companies.

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    File URL: http://www.ihs.ac.at/publications/eco/es-19.pdf
    File Function: First version, 1995
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    Bibliographic Info

    Paper provided by Institute for Advanced Studies in its series Economics Series with number 19.

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    Length: 18 pages
    Date of creation: Dec 1995
    Date of revision:
    Handle: RePEc:ihs:ihsesp:19

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    Postal: Institute for Advanced Studies - Library, Stumpergasse 56, A-1060 Vienna, Austria

    Related research

    Keywords: Initial Public Offerings; Privatization; Stock Market Index; Performance Analysis;

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    References

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    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
    2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
    3. William F. Sharpe, 1965. "Mutual Fund Performance," The Journal of Business, University of Chicago Press, vol. 39, pages 119.
    4. Niskanen, William A, 1975. "Bureaucrats and Politicians," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 617-43, December.
    5. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    6. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    7. Haefke, Christian & Helmenstein, Christian, 1996. "Neural Networks in the Capital Markets: An Application to Index Forecasting," Computational Economics, Society for Computational Economics, vol. 9(1), pages 37-50, February.
    8. John Vickers & George Yarrow, 1991. "Economic Perspectives on Privatization," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 111-132, Spring.
    9. Haefke, Christian & Helmenstein, Christian, 1995. "Forecasting Austrian IPOs: An Application of Linear and Neural Network Error-Correction Models," Economics Series 18, Institute for Advanced Studies.
    10. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    11. 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.
    12. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212.
    13. Ritter, Jay R., 1987. "The costs of going public," Journal of Financial Economics, Elsevier, vol. 19(2), pages 269-281, December.
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