Do Retail Incentives Work in Privatizations?

38 Pages Posted: 28 Oct 2004

See all articles by Matti Keloharju

Matti Keloharju

Aalto University - School of Business; Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Samuli Knüpfer

BI Norwegian Business School; Research Institute of Industrial Economics (IFN)

Sami Torstila

Aalto University

Multiple version iconThere are 4 versions of this paper

Date Written: September 2004

Abstract

20 countries around the world have used incentive packages, including bonus shares and discounts, to attract retail investors to participate in privatizations. Using a unique dataset, we estimate the total cost of incentive packages at approximately $27 billion. The expiration of bonus share plans is associated with a six-day abnormal return of -1.1% and a long-term increase in volume. Incentives have been surprisingly effective in meeting stated privatization objectives. A dollar spent on retail incentives helps to attract about 21 times as many investors as a dollar spent on underpricing. Individual-level analysis shows that flipping is not only much reduced in the short-term, but also declines by at least 15% over a period of 1,000 trading days.

Keywords: Privatization, equity offerings, bonus shares, discounts, flipping

JEL Classification: D78, G14, G32, G38, L33

Suggested Citation

Keloharju, Matti and Knüpfer, Samuli and Torstila, Sami, Do Retail Incentives Work in Privatizations? (September 2004). CEPR Discussion Paper No. 4612. Available at SSRN: https://ssrn.com/abstract=611581

Matti Keloharju (Contact Author)

Aalto University - School of Business ( email )

P.O. Box 21210
AALTO, FI-00076
Finland
+358 40 353 8043 (Phone)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Samuli Knüpfer

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

HOME PAGE: http://www.samuliknupfer.com

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Sami Torstila

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland
+358 40 353 8069 (Phone)

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