Do Privatization IPO Firms Outperform in the Long-Run?

Privatising National Oil Companies: Assessing the Impact on Firm Performance

“…Within the first year, there is some evidence of stock underperformance of privatisation offers relative to country indices, but this is neither consistent across benchmarks (there is an outperformance relative to the industry index, suggesting that the industry as a whole underperformed in these particular years relative to country indices) nor across time (over the longer run oil and gas SIPs substantially outperform both their respective country indices and the industry index). It is in fact striking that the absolute share return as well as the abnormal returns over country and industry 32 This long-run positive abnormal share performance of privatisation IPOs has been interpreted as being consistent with the evidence of improved performance at these firms (Choi et al 2006). However, interpretations of share price performance are inherently difficult, since they do not usually reflect performance changes per se, but rather performance changes relative to market expectations.…”

“…Calculating abnormal share returns for our sample of oil and gas privatisations is therefore a suitable check whether pre-privatisation performance improvements are temporary accounting constructs only. In contrast to studies on IPOs of private companies, previous studies on the share performance of privatised companies suggest that these stocks outperform in the long-run (Choi et al 2006). 32 We calculate buy-and-hold abnormal returns ('BHAR', see Barber and Lyon (1997)) over one-, three-and five-year periods, i.e.…”