More Households in the Stock Market Through Privatizations? Evidence from Italy

It is believed that privatizations substantially influenced both stock market structure and households’ portfolio decisions throughout the 1990s. However, through which channels did that materialize? Using both Bank of Italy SHIW data and a unique set of surveys made on the occasion of Public Offerings (POs) of state owned companies during 1995-99, we test whether privatizations attracted new households to share investment by increasing potential investors’ knowledge of stock risk/return characteristics via accompanying advertising campaigns. We show that advertising increased households’ awareness of each incoming PO, and so fostered their propensity to subscribe to it. Furthermore, such propensity also grew as households became better informed about past privatizations and perceived an improvement in the institutional setting of financial market, largely related to privatizations. Thus, privatizations expanded households’ share participation in Italy.