Share Issue Privatizations as Financial Means to Political and Economic Ends

Posted: 14 Sep 1999

See all articles by Steven L. Jones

Steven L. Jones

Indiana University - Kelley School of Business - Department of Finance

William L. Megginson

University of Oklahoma

Robert C. Nash

Wake Forest University

Jeffry M. Netter

Department of Finance; University of Georgia Law School

Date Written: November 1994

Abstract

This paper analyzes the use and terms of "share-issue privatizations (SIPs)" during the period 1961-1994. We present a theory of SIPs implying their terms are designed to build the political support necessary to privatize a state-owned enterprise (SOE). We then investigate the extent to which the terms of our sample SIPs deviate from terms observed in share offerings by publicly-held corporations. Our sample includes 168 SIPs made by 137 companies from 34 countries, with a total market value exceeding one-quarter trillion dollars. SIPs tend to be very large ($1.552 billion average), and typically restrict foreign ownership levels. Most SIPs explicitly favor employees and small investors in share allocations and pricing, and the degree of underpricing is related to share allocations. Furthermore, privatizing governments often retain veto power over firm decisions, though they design SIPs to establish an ownership structure that discourages state interference in ordinary business affairs. Overall, the terms of SIPs appear designed to meet both political and economic objectives.

JEL Classification: D23, G15, G24, L33, P21, P16

Suggested Citation

Jones, Steven L. and Megginson, William L. and Nash, Robert C. and Netter, Jeffry M., Share Issue Privatizations as Financial Means to Political and Economic Ends (November 1994). Available at SSRN: https://ssrn.com/abstract=5787

Steven L. Jones

Indiana University - Kelley School of Business - Department of Finance ( email )

801 W. Michigan Street
Bus/SPEA 4048
Indianapolis, IN 46202-5150
United States
317-278-7771 (Phone)

William L. Megginson (Contact Author)

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

Robert C. Nash

Wake Forest University ( email )

2601 Wake Forest Road
Winston-Salem, NC 27109
United States

Jeffry M. Netter

Department of Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States
706-542-4450 (Phone)

HOME PAGE: http://www.terry.uga.edu/directory/profile/jnetter/

University of Georgia Law School

225 Herty Drive
Athens, GA 30602
United States

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