DP4612 Do Retail Incentives Work in Privatizations?

Author(s):	Matti Keloharju, Samuli Knüpfer, Sami Torstila
Publication Date:	September 2004
Keyword(s):	bonus shares, discounts, equity offerings, flipping, privatization
JEL(s):	D78, G14, G32, G38, L33
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=4612

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.