Initial and Aftermarket Performance of Share Issue Privatization in the Egyptian Stock Market

Abstract

The phenomenon of underpricing initial public offerings (IPOs) is documented for 53 share issue privatizations (SIPs) in Egypt between 1994 and 1998. Over several intervals (up to five years), I find mixed results: SIPs sustain their positive performance and provide investors with positive abnormal returns over a one-year period, however; my results document negative abnormal returns over 3- and 5-year horizons. The initial excess returns are determined by ex-ante uncertainty and times offer subscribed, while the aftermarket abnormal returns over a one-year period are driven by ex-ante uncertainty and price-earning ratio. However, over 3- and 5-year periods, abnormal returns are significantly affected by initial excess returns, price-earning ratio and, to a lesser extent, times offer subscribed. The empirical findings of this study are consistent with IPO markets in which investors are over-optimistic towards the performance of these issues but grow more pessimistic over time.