The Pricing of Portuguese Privatisation Second Initial Public Offerings

Rui Alpalhão

doi:10.1155/2014/652712

Abstract

The paper studies the pricing of PSIPOs (privatization second initial public offerings) PIPOs of companies that had been public in the past. A dataset comprising all the Portuguese companies nationalized in 1975 and privatized in the late eighties and nineties is used. Findings on short- and long-run pricing of IPOs and PIPOs are summarized, and implications for the pricing of PSIPOs are discussed. Short- and long-run returns are computed, using three alternative methods (buy and hold abnormal returns, wealth relatives, and cumulative abnormal returns) in the long-run analysis. Short-run overpricing is identified, unlike the underpricing pattern revealed by most IPO research. This initial overpricing is essentially found to be corrected in the first trading month. In the long-run, no evidence of overpricing is found, again unlike the usual conclusion of the IPO literature, and more in line with empirical evidence on second IPOs. Results provide support to the conclusion that privatization IPOs tend to be less underpriced than standard IPOs and that firms coming back to the market for a second IPO tend to be less underpriced than pure IPOs and provide a good rating for the performance of the Portuguese Republic pricing stocks in the Portuguese privatization program.

Highlights

Initial public offerings (IPOs) are the first public offering of shares by a company
The privatization wave that swept the financial markets from the seventies on created a special category of IPO, the PIPO, IPOs where the offering firm is held by the State
This paper studies the price performance of these twice special offerings, privatization second initial public offerings, or PSIPOs

Summary

Introduction

Initial public offerings (IPOs) are the first public offering of shares by a company. An IPO occurs, by definition, once in the life cycle of a company, it is possible that a firm reenters the public equity markets after an IPO and a subsequent delisting. In these cases, a “second” IPO takes place, termed a SIPO (second initial public offering). The privatization wave that swept the financial markets from the seventies on created a special category of IPO, the PIPO (privatization initial public offerings), IPOs where the offering firm is held by the State. Organization is as follows: Section 2 covers short-run underpricing, Section 3 discusses long-run returns, Section 4 addresses methodology, results are presented in Section 5, and Section 6 concludes

Methods

Results

Conclusion