Privatization and Stock Market Liquidity

Bernardo Bortolotti (), Frank de Jong (), Giovanna Nicodano and Ibolya Schindele ()
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Frank de Jong: University of Amsterdam
Ibolya Schindele: Norwegian School of Management

No 23, SIFR Research Report Series from Institute for Financial Research

Abstract: Using panel data of 19 developed economies in the period 1985-2000, we show that share issue privatisation (SIP) strongly affects a fundamental aspect of financial development: market liquidity. First, we identify the channels through which a sustained SIP program boosts the liquidity of the overall market. Then, we explicitly test whether SIP has a positive spillover effect on the liquidity of private companies' shares. Liquidity appears to be sensitive to the amount of shares sold to retail investors, whose trading reduces the adverse selection component of the price impact. The cross-listing of shares exhibits an even stronger effect, suggesting that international offerings eliminate informational barriers and attract foreign investors to the domestic market, thereby reducing its risk premium.

Keywords: Privatization; Financial Market Development; International Finance (search for similar items in EconPapers)
JEL-codes: F30 G14 L33 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-his and nep-mfd
Date: 2004-04-15
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Published in Journal of Banking & Finance, 2007, pages 297-316.

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Related works:
Working Paper: Privatization and Stock Market Liquidity (2004)
Journal Article: Privatization and stock market liquidity (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:sifrwp:0023

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