Information signaling and ownership transition - Value effects of share issue privatizations

Abstract

Privatizations are commonly associated with an increase in efficiency due to a stronger focus on profit maximization and less agency conflicts because the management does not have to serve political objectives anymore. This paper discusses whether SIPs generate positive announcement returns because of increased efficiency after the ownership transition. We apply a market model event-study methodology based on a sample of 134 SIPs in the 1979-2003 period. We identify significantly negative CAARs between -0.125% and -1.766% and find that firm and offering size, the proportion of secondary shares issued within the SIP as well as the market environment have a negative impact on announcement returns. In contrast, the negative CAARs are less distinctive for enterprises that had prior SIPs.