The pricing of portuguese privatization second initial public offerings

Abstract

The paper studies the pricing of PSIPOs (“Privatization Second Initial Public Offerings”) PIPOs of companies that had been public in the past. A dataset comprising all the Portuguese companies nationalized in 1975 and privatized in the late eighties and nineties is used. Findings on short and long-run pricing of IPOs and PIPOs are summarized, and implications for the pricing of PSIPOs are discussed. Short and long-run returns are computed, using three alternative methods (buy and hold abnormal returns, wealth relatives and cumulative abnormal returns) in the long-run analysis. Short-run overpricing is identified, unlike the underpricing pattern revealed by most IPO research. This initial overpricing is essentially found to be corrected in the first trading month. In the long-run, no evidence of overpricing is found, again unlike the usual conclusion of the IPO literature, and more and line with empirical evidence on second IPOs. Results provide support to the conclusion that privatization IPOs tend to be less underpriced than standard IPOs, that firms coming back to the market for a second IPO tend to be less underpriced than pure IPOs, and provide a good rating for the performance of the Portuguese Republic pricing stocks in the Portuguese privatization program.