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ABSTRACT
This article investigates the return behavior of privatization initial public offerings (PIPOs) in Europe over both the short- and long-run horizons. Using data from a sample of 162 PIPOs over the period 1986-2008, we show that European PIPOs outperform, in terms of risk-adjusted abnormal returns, a benchmark market index and a portfolio composed of 162 European private IPOs, regardless of the horizon of analysis. Our results are important for both investors and policymakers with respect to their investment and privatization decisions, and also allow a better understanding of the financial performance behavior of the privatized state-owned enterprises.
Keywords: Privatization IPOs; PIPO; Short- And Long-Run Performance; CAR; BHAR
1. INTRODUCTION
Privatization, characterized by the possible entry of private capital to different degrees, is a striking phenomenon of the global economy since early 1970's. It grows more rapidly in the industrialized countries than in the developing and transitional countries. According Kikeri et al. (1992), more than 80 countries have actively been engaged in the privatization programs between 1980 and 1992 with more than 8500 privatized public firms of which 2000 firms operated in countries having borrowed from the World Bank. Bortolotti and Milella (2008) show that 4000 privatizations have been successfully carried out all around the world over a short period from 1997 till 2004, and that they brought to governments not less than US$ 1350 billion dollars. The Western Europe is the most important region in terms of operations totaling half of the global receipts. The market seems to keep its dynamics despite the global financial crisis 2007-2009 and the year 2008 is ranked seventh over the last 20 years with more than US$ 76 billion of receipts (Choi et al., 2010).
Privatization is motivated by various reasons, but the most important ones include the inefficiency of public enterprises and budget constraints, particularly during periods of economic recession. It is seen as a solution to a better allocation of resources and to improve the performance of public enterprises through reducing the political interference in the decision-making process, increasing incentives to the management level as well as imposing financial discipline. A better understanding of the impacts of privatization should greatly facilitate the conduct of sound economic policies. As privatization methods, previous studies have noted that...