| This dissertation investigates three characteristics pertaining to the privatization of government enterprises. First, the study examines the fractional-selling behavior of governments. Tests are conducted to analyze a signaling hypothesis construed by Perotti (1995), who argues that governments retain substantial shares of ownership as a signal of commitment to their privatization programs. However, the results of this study do not support such a conclusion. Additionally, other potential determinants of this behavior are examined. Whereas the region of the world and the stage of economic development do not show a significant relationship, the size of the offer does. Thus, it is argued that governments are indeed providing a signal, but it is a signal about the financial prospects of the firm, not any governmental policy intention.; The second characteristic investigated is the initial return of privatization offers. Overall, the collective results reveal a 33.4% return for such offers through the first trading day. Moreover, these returns are significantly larger than the initial returns of private-sector offerings in the same market, primarily due to the increase in political risk associated with privatization offers. Also, the evidence again fails to support Perotti's hypothesis in which he predicts that initial returns should decline over time as a government's reputation is established. Similarly, Perotti argues that emerging market governments must discount more than developed market governments due to increased political risk. Once again, though, the results show that such a relationship does not exist. Other potential determinants are also examined, including the fraction of shares sold and the overall size of the offer, but only the first variable shows a significant impact.; The third characteristic investigated is the long-term performance of privatization offers. The evidence shows a significant abnormal return of −52.1% during the first year after the initial trading day. These offers continue to exhibit poor performance, finishing with a significant −38.6% cumulative abnormal return after five years. Additionally, possible determinants of this performance are analyzed, but only the size of the offer appears to have an impact. It is argued that the larger, more valuable firms are better prepared and have better long-term prospects than the smaller enterprises. |
