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Distribution of Underpricing in Privatization Auctions: Evidence from an Event Study

Author

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  • Tarcisio da Gra?a

    () (Department of Economics of the University of Ottawa; Canadian Competition Bureau)

Abstract

Winners of the Brazilian privatization auctions (BPAs) earned, on average, a 0.7 percent abnormal return on the days of the auctions. This translates into 13 percent underpricing. In contrast, using results from the literature as a reference, seasoned share issue privatizations register less underpricing and less excess underpricing. This raises doubts about the prevailing wisdom that auctions are the best method for governments seeking to maximize privatization revenues. Brazilian buyers did not profit. Underpricing for foreign buyers averaged 21 percent. Foreign participation may have been insufficient to extract full surplus. In cross-section, controlling for relative size, buyers¡¯ size does not explain gains among foreigners but mildly explains gains among nationals.

Suggested Citation

  • Tarcisio da Gra?a, 2012. "Distribution of Underpricing in Privatization Auctions: Evidence from an Event Study," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 1-19, August.
  • Handle: RePEc:bap:journl:120301
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Event study; Privatization;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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