Initial Public Offerings of State-Owned Enterprises: An International Study of Policy Risk

Posted: 3 Oct 2006

See all articles by Swee Sum Lam

Swee Sum Lam

National University of Singapore - NUS Business School

R.S.K. Tan

National University of Singapore

Glenn Wee

Citibank Group Private Bank

Abstract

Policy risk, and not information asymmetry, explains the cross-sectional underpricing of privatized initial public offerings. The issuer governments of high policy-risk issues tend to retain a large equity stake and underprice more, with underpricing increasing in retained equity. While the issuer government's retained equity is an observable signal for policy risk, we find that the quality of a country's bureaucratic machinery is a more intuitive and practical measure of policy risk. Policy risk also explains the absence of a systematic relation between the initial returns on privatized and private initial public offerings.

Keywords: privatization, initial public offerings, underpricing, policy risk, endogeneity

JEL Classification: G12, G18, G24, G28, G32, G38

Suggested Citation

Lam, Swee Sum and Tan, Ruth Seow Kuan and Wee, Tsao Min, Initial Public Offerings of State-Owned Enterprises: An International Study of Policy Risk. Journal of Financial and Quantitative Analysis, Forthcoming. Available at SSRN: https://ssrn.com/abstract=934327

Swee Sum Lam (Contact Author)

National University of Singapore - NUS Business School ( email )

1 Business Link
Singapore, 117592
Singapore
+65 6516 3037 (Phone)
+65 6779 2083 (Fax)

HOME PAGE: http://www.bschool.nus.edu

Ruth Seow Kuan Tan

National University of Singapore ( email )

1 Business Link
Singapore 117592, 117592
Singapore
65-65166265 (Phone)
65-67792083 (Fax)

Tsao Min Wee

Citibank Group Private Bank ( email )

23 Church Street
#08-01 Capital Square
Singapore 049481
Singapore
+65 6328 8982 (Phone)

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