Government Underpricing of Share-Issue Privatizations

32 Pages Posted: 19 Sep 2004

See all articles by Claude Laurin

Claude Laurin

HEC Montreal - Department of Accounting Studies

Anthony E. Boardman

University of British Columbia (UBC) - Division of Strategy and Business Economics

Aidan Vining

Simon Fraser University

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.

Suggested Citation

Laurin, Claude and Boardman, Anthony E. and Vining, Aidan, Government Underpricing of Share-Issue Privatizations. Available at SSRN: https://ssrn.com/abstract=591395

Claude Laurin

HEC Montreal - Department of Accounting Studies ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal H3T 2A7, Quebec
Canada
514-340-6536 (Phone)
514-340-5633 (Fax)

Anthony E. Boardman (Contact Author)

University of British Columbia (UBC) - Division of Strategy and Business Economics ( email )

2053 Main Mall
Vancouver, British Columbia
Canada

Aidan Vining

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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