Abstract
During the last years of the decade of the 1980s, the Mexican government reduced its participation as an owner of productive facilities. After privatizing the national railway system, airlines, mining companies, etc., in 1990 it was time to fully privatize the banking industry. Banks had been expropriated eight years before, in September, 1982. However, between 1987 and 1990, fifteen state-owned banks had issued small amounts of stock to the market. So, on May 2nd of 1990, when President Carlos Salinas publicly announced that all government owned banks would soon be fully privatized, several commercial banks were already partially publicly traded. In retrospective, the full-privatization announcement represents a privileged opportunity to test the efficiency of the Mexican stock market at that time. Using Event Study Methodology, this work analyzes how significant was the response of the publicly traded banks’ stock price to the full privatization announcement, and quantifies its wealth-creation effects.
Highlights
Privatization of State Owned Enterprises (SOEs) gained relevance during the last two decades of the 20th Century
This paper takes a different approach to the subject by focusing on the privatization announcement of the Mexican banking sector, which represents an exceptional opportunity to study the efficiency of the Mexican Stock Exchange in what regards the speed and precision with which the news were priced by the stock market
Our study presents a series of tests on the efficiency of the Mexican Stock Exchange through the analysis of how publicly traded commercial banks’ stocks responded to the full-privatization announcement
Summary
Privatization of State Owned Enterprises (SOEs) gained relevance during the last two decades of the 20th Century. This paper takes a different approach to the subject by focusing on the privatization announcement of the Mexican banking sector, which represents an exceptional opportunity to study the efficiency of the Mexican Stock Exchange in what regards the speed and precision with which the news were priced by the stock market. Screening the magnitude and behavior of the abnormal returns of Mexican banks’ stock prices during an event window surrounding the privatization announcement offers interesting insights on the degree (or form) of efficiency at the Mexican Stock Exchange. A measure of the absolute magnitude of the returns generated during the announcement event window provides insights into the wealth creation (destruction) impact that relevant information releases can have in a representative Emerging Markets context
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