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Do Retail Incentives Work in Privatizations?

Author

Listed:
  • Matti Keloharju
  • Samuli Knüpfer
  • Sami Torstila

Abstract

Twenty countries around the world have used $27 billion in incentives such as bonus shares and discounts to attract retail investors to participate in privatizations and to discourage them from flipping their shares. Our results show that incentives have performed well, increasing retail investor participation much more cost effectively than underpricing. Flipping is not only much reduced in the short term but remains cumulatively at least 15% lower after 1000 trading days. The expiration of bonus share plans is associated with a 6-day abnormal return of -1.0% and a long-term increase in trading volume. , Oxford University Press.

Suggested Citation

  • Matti Keloharju & Samuli Knüpfer & Sami Torstila, 2008. "Do Retail Incentives Work in Privatizations?," The Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 2061-2095, September.
    • Handle: RePEc:oup:rfinst:v:21:y:2008:i:5:p:2061-2095
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    File URL: http://hdl.handle.net/10.1093/rfs/hhl033
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    Citations

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    Cited by:

    1. Markku Kaustia & Samuli Knüpfer & Sami Torstila, 2016. "Stock Ownership and Political Behavior: Evidence from Demutualizations," Management Science, INFORMS, vol. 62(4), pages 945-963, April.
    2. Guedhami, Omrane & Pittman, Jeffrey A. & Saffar, Walid, 2009. "Auditor choice in privatized firms: Empirical evidence on the role of state and foreign owners," Journal of Accounting and Economics, Elsevier, vol. 48(2-3), pages 151-171, December.
    3. Ben-Hassoun, Amira & Aloui, Chaker & Ben-Nasr, Hamdi, 2018. "Demand for audit quality in newly privatized firms in MENA region: Role of internal corporate governance mechanisms audit," Research in International Business and Finance, Elsevier, vol. 45(C), pages 334-348.
    4. Laura Cabeza García & Silvia Gómez Ansón, 2012. "What Drives the Operating Performance of Privatised Firms?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 59(1), pages 1-27, February.
    5. Stavros Thomadakis & Christos Nounis & Dimitrios Gounopoulos, 2012. "Long†term Performance of Greek IPOs," European Financial Management, European Financial Management Association, vol. 18(1), pages 117-141, January.
    6. Satta, Giovanni & Notteboom, Theo & Parola, Francesco & Persico, Luca, 2017. "Determinants of the long-term performance of initial public offerings (IPOs) in the port industry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 103(C), pages 135-153.
    7. Gu, Lulu & Reed, W. Robert, 2013. "Information asymmetry, market segmentation, and cross-listing: Implications for event study methodology," Journal of Asian Economics, Elsevier, vol. 28(C), pages 28-40.
    8. Bortolotti, Bernardo & de Jong, Frank & Nicodano, Giovanna & Schindele, Ibolya, 2007. "Privatization and stock market liquidity," Journal of Banking & Finance, Elsevier, vol. 31(2), pages 297-316, February.
    9. Lulu Gu & W. Robert Reed, 2011. "One For All or All For One? Using Multiple-listing Information in Event Studies," Working Papers in Economics 11/33, University of Canterbury, Department of Economics and Finance.
    10. Kaustia, Markku & Knüpfer, Samuli, 2012. "Peer performance and stock market entry," Journal of Financial Economics, Elsevier, vol. 104(2), pages 321-338.
    11. Paul B. McGuinness, 2016. "Post-IPO performance and its association with subscription cascades and issuers’ strategic-political importance," Review of Quantitative Finance and Accounting, Springer, vol. 46(2), pages 291-333, February.

    More about this item

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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