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RFS Advance Access published online on July 27, 2006
Review of Financial Studies, doi:10.1093/rfs/hhl033
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© The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Article

Do Retail Incentives Work In Privatizations?

Matti Keloharju 1 *, Samuli Knüpfer 1, and Sami Torstila 1
1 Helsinki School of Economics, Runeberginkatu 22-24, PO Box 1210, FI-00101 Helsinki, Finland

* To whom correspondence should be addressed.
Matti Keloharju, E-mail: matti.keloharju{at}hse.fi


  Abstract

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 1,000 trading days. The expiration of bonus share plans is associated with a six-day abnormal return of -1.0% and a long-term increase in trading volume.


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