Do Privatization IPOs Outperform in the Long Run?


  • We wish to thank Ginka Borisova and Chuck Chahyadi for their research assistance with this project. We also benefited from comments offered by Tony Boardman, Narjess Boubakri, Maria Boutchkova, Carol Boyer, Bill Christie (the editor), Jean-Claude Cosset, Louis Ederington, Chitru Fernando, Jie Gan, Janya Golubeva, Paul Grout, Claude Laurin, Josh Lerner, Tim Loughran, Rob Nash, Jeff Netter, Jesus Salas, Qian Sun, George Tian, Wilson Tong, Junbo Wang, Stephen Wei, Pradeep Yadav, Wayne Yu, Ania Zalewska, an anonymous referee, and participants in the 2005 World Federation of Exchanges Emerging Markets Conference (Beijing), the 2005 Economics for Prosperity Conference (Johannesburg), the 2006 World Bank Annual Bank Conference on Development Economics (St. Petersburg), the 2006 Privatization of Infrastructure Facilities Conference in Abu Dhabi (UAE), the 2006 European Financial Management Association Meeting (Madrid), and seminar participants at Hong Kong Polytechnic University, the New York Stock Exchange, the University of Bath, the University of London (SOAS), the University of Oklahoma, and Xiamen University (Xiamen, China). Inmoo Lee acknowledges financial support from the National University of Singapore. This manuscript's final revisions were completed while Professor Megginson was the Fulbright Tocqueville Distinguished Chair in American Studies at the Université Paris-Dauphine.


This paper investigates the long-run stock returns of privatization initial public offering (IPO) firms using a sample of 241 privatization IPOs from 42 countries during the period 1981-2003. We compare one-, three-, and five-year holding period returns of privatization IPOs to those of the domestic stock market indices and to size and size- and book-to-market equity ratio (BM)-matched firms from the same countries. Consistent with previous studies, we find that privatization IPOs significantly outperform their domestic stock markets in the long run. However, they show less consistent abnormal long-term stock performance relative to their size or size- and BM-matched benchmark firms.