Underpricing of New Equity Offerings by Privatized Firms: An International Test

NYU Salomon Center Working Paper No. S99-5

46 Pages Posted: 10 Feb 1999

See all articles by Richard M. Levich

Richard M. Levich

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Qi Huang

Hofstra University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: November 28, 1998

Abstract

In this paper, we study a large sample of 507 privatization offerings from 39 countries over the period 1979-1996. Our objectives are twofold. First, we document the extent of short-run underpricing of these privatization offerings and measure their variation across countries, industries, and years, as well as drawing comparisons to private company IPOs. Second, we test alternative explanations of the determinants of short-run underpricing drawing on various models of maximizing behavior by underwriters. Overall, we find support for elements of asymmetric information theory, investor sentiment theory and the reputation building hypothesis. Thus to a significant degree, the investment banking strategies believed to characterize IPOs of private companies in industrial countries may also play a role in the IPO strategies of state-owned-enterprises in both industrial and lesser developed economies. While other studies have presented evidence for a political explanation for the short-run underpricing effect, our evidence is consistent with proceeds or value maximization in privatization IPOs.

JEL Classification: G15, G24

Suggested Citation

Levich, Richard M. and Huang, Qi, Underpricing of New Equity Offerings by Privatized Firms: An International Test (November 28, 1998). NYU Salomon Center Working Paper No. S99-5. Available at SSRN: https://ssrn.com/abstract=145608 or http://dx.doi.org/10.2139/ssrn.145608

Richard M. Levich (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0422 (Phone)
212-995-4256 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Qi Huang

Hofstra University - Department of Finance ( email )

Hempstead, NY 11550
United States
516-463-5354 (Phone)
516-463-4834 (Fax)

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