We would like to thank seminar participants at the University of Laval and the University of Geneva for comments on earlier versions of this paper. The Social Science and Humanities Research Council of Canada (SSHRC) funded this research.
Government Underpricing of Share-Issue Privatizations
Article first published online: 3 SEP 2004
Annals of Public and Cooperative Economics
Volume 75, Issue 3, pages 399–429, September 2004
How to Cite
Laurin, C., Boardman, A. E. and Vining, A. R. (2004), Government Underpricing of Share-Issue Privatizations. Annals of Public and Cooperative Economics, 75: 399–429. doi: 10.1111/j.1467-8292.2004.00257.x
Résumé en fin d’article; Zusammenfassung am Ende des Artikels; resumen al fin del artículo.
- Issue published online: 3 SEP 2004
- Article first published online: 3 SEP 2004
- Received April 2003; final revision accepted January 2004
Abstract***: The purposes of the paper are to determine whether governments underprice shares in fixed-price share-issue privatizations (SIPs) and, if so, what their motivations are for doing so. This paper develops three models of SIP underpricing: one based on revenue goals, one based on political goals and an inclusive model which supposes that the level of underpricing depends on both government revenue goals and political goals. These models are estimated using an international sample of 104 SIPs from 25 countries. We find that, on average, SIPs are underpriced by approximately the same amount as private sector initial public offerings (IPOs). This is not consistent with the sole goal of revenue maximization because SIPs should not require the same degree of underpricing as IPOs. The inclusive regression fits the data well and indicates that both revenue and political goals affect the level of SIP underpricing.