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

Listed author(s):
  • Carla Vieira

    (Faculdade de Economia da Universidade do Porto)

  • Ana Paula Serra

    (CEMPRE, Faculdade de Economia da Universidade do Porto)

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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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
Handle: RePEc:fem:femwpa:2005.43
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  1. Perotti, Enrico C. & van Oijen, Pieter, 2001. "Privatization, political risk and stock market development in emerging economies," Journal of International Money and Finance, Elsevier, vol. 20(1), pages 43-69, February.
  2. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
  3. Baron, David P, 1982. " A Model of the Demand for Investment Banking Advising and Distribution Services for New Issues," Journal of Finance, American Finance Association, vol. 37(4), pages 955-976, September.
  4. Paul H. Malatesta & Kathryn L. DeWenter, 2001. "State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity," American Economic Review, American Economic Association, vol. 91(1), pages 320-334, March.
  5. 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.
  6. 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.
  7. Bulent Aybar, C., 2002. "The long-term performance of privatization-related ADR issues," Emerging Markets Review, Elsevier, vol. 3(2), pages 135-164, June.
  8. William L. Megginson & Robert C. Nash & Jeffry Netter & Adam L. Schwartz, 2000. "The Long-Run Return to Investors in Share Issue Privatizations," Financial Management, Financial Management Association, vol. 29(1), Spring.
  9. 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.
  10. Bruno Biais & Enrico Perotti, 2002. "Machiavellian Privatization," American Economic Review, American Economic Association, vol. 92(1), pages 240-258, March.
  11. Perotti, Enrico C, 1995. "Credible Privatization," American Economic Review, American Economic Association, vol. 85(4), pages 847-859, September.
  12. Ana Paula Serra, 2002. "Event Study Tests: A brief survey," FEP Working Papers 117, Universidade do Porto, Faculdade de Economia do Porto.
  13. 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.
  14. 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.
  15. Jenkinson, Tim & Ljungqvist, Alexander, 2001. "Going Public: The Theory and Evidence on How Companies Raise Equity Finance," OUP Catalogue, Oxford University Press, edition 2, number 9780198295990, April.
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