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Initial Public Offerings of State-Owned Enterprises: An International Study of Policy Risk

Published online by Cambridge University Press:  06 April 2009

Swee-Sum Lam ,
Ruth Seow-Kuan Tan  and
Glenn Tsao-Min Wee
Swee-Sum Lam
Affiliation:
bizlamss@nus.edu.sg, National University of Singapore, Business School, 1 Business Link, Singapore, 117592
Ruth Seow-Kuan Tan
Affiliation:
biztansk@nus.edu.sg, National University of Singapore, Business School, 1 Business Link, Singapore, 117592
Glenn Tsao-Min Wee
Affiliation:
glenn.wee@citigroup.com, Citigroup Private Bank, 23 Church Street, #08–01 Capital Square, Singapore, 049481.
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Abstract

Policy risk, rather than information asymmetry, explains the cross-sectional underpricing of privatized initial public offerings. The issuer governments of high policy risk issues tend to retain a large equity stake and underprice more with underpricing increasing in retained equity. While the issuer government's retained equity is an observable signal for policy risk, we find that the quality of a country's bureaucratic machinery is a more intuitive and practical measure of policy risk. Policy risk also explains the absence of a systematic relation between the initial returns on privatized and private initial public offerings.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 42 , Issue 2 , June 2007 , pp. 313 - 337
Copyright
Copyright © School of Business Administration, University of Washington 2007

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