RFS Advance Access originally published online on July 27, 2006
Review of Financial Studies 2008 21(5):2061-2095; doi:10.1093/rfs/hhl033
Do Retail Incentives Work in Privatizations?
Helsinki School of Economics and CEPR
Helsinki School of Economics
Helsinki School of Economics
Address correspondence to: Matti Keloharju, Helsinki School of Economics, Runeberginkatu 22–24, PO Box 1210, FI-00101 Helsinki, Finland, or e-mail: matti.keloharju{at}hse.fi.
JEL Classification: D78, G14, G32, G38, L33
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Abstract |
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Twenty countries around the world have used $27 billion in incentives such as bonus shares and discounts to attract retail investors to participate in privatizations and to discourage them from flipping their shares. Our results show that incentives have performed well, increasing retail investor participation much more cost effectively than underpricing. Flipping is not only much reduced in the short term but remains cumulatively at least 15% lower after 1000 trading days. The expiration of bonus share plans is associated with a 6-day abnormal return of –1.0% and a long-term increase in trading volume.
We thank Markku Kaustia, Mikko Leppämäki, Terry Odean (the editor), Jay Ritter (the referee), Kristian Rydqvist, Tomi Seppälä, and Tuomo Vuolteenaho for comments and suggestions, as well as participants at the 2004 European Finance Association Meetings, 2005 Western Finance Association Meetings, Bank of Finland, European Central Bank, University of Helsinki, Helsinki Finance Summer Seminar and at the Helsinki School of Economics and Swedish School of Economics joint seminar. We are grateful to Noora Alestalo and Kalle Rinne for excellent research assistance, Harri Toivonen for help with the data, and Jussi Korhonen for translation from Greek. We thank Susana Álvarez Otero, Wolfgang Aussenegg, Orsolya Bartha, Andreas Breitenfellner, Olimpia Cuomo, Jos De Groot, Agnieszka Dluska, Giancarlo Giudici, Maimo Henriksson, Tibor László, Peter Lindell, Erszébet Lukács, Kaija Niemelä, Gerlinde Pretzl, Nuna Rocha Leite, Peter Roosenboom, Ville Sailas, Lutz Sperlich, Pasi Tolmunen, Nicole Turon, Jean-Guy Venezian, and Wilhelm Wilting for helping us obtain data on privatization terms in various countries. We thank the Finnish Central Securities Depository for providing us data and Markku Kaustia, Juhani Linnainmaa, Lauri Pietarinen, and Elias Rantapuska for participating in its analysis. We also thank the many companies that responded to our requests for prospectuses or information. We acknowledge financial support from the Academy of Finland, the Finnish Foundation for Share Promotion, and the Jenny and Antti Wihuri Foundation.