Discussion Paper Details

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Title: Do Retail Incentives Work in Privatizations?

Author(s): Matti Keloharju, Samuli Knüpfer and Sami Torstila

Publication Date: September 2004

Keyword(s): bonus shares, discounts, equity offerings, flipping and privatization

Programme Area(s): Financial Economics

Abstract: 20 countries around the world have used incentive packages, including bonus shares and discounts, to attract retail investors to participate in privatizations. Using a unique dataset, we estimate the total cost of incentive packages at approximately $27 billion. The expiration of bonus share plans is associated with a six-day abnormal return of -1.1% and a long-term increase in volume. Incentives have been surprisingly effective in meeting stated privatization objectives. A dollar spent on retail incentives helps to attract about 21 times as many investors as a dollar spent on underpricing. Individual-level analysis shows that flipping is not only much reduced in the short term, but also declines by at least 15% over a period of 1,000 trading days.

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Bibliographic Reference

Keloharju, M, Knüpfer, S and Torstila, S. 2004. 'Do Retail Incentives Work in Privatizations?'. London, Centre for Economic Policy Research.