Distribution of Underpricing in Privatization Auctions: Evidence from an Event Study

Tarcisio da Gra?a ()
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Tarcisio da Gra?a: Department of Economics of the University of Ottawa; Canadian Competition Bureau

Review of Economics & Finance, 2012, vol. 2, 1-19

Abstract: Winners of the Brazilian privatization auctions (BPAs) earned, on average, a 0.7 percent abnormal return on the days of the auctions. This translates into 13 percent underpricing. In contrast, using results from the literature as a reference, seasoned share issue privatizations register less underpricing and less excess underpricing. This raises doubts about the prevailing wisdom that auctions are the best method for governments seeking to maximize privatization revenues. Brazilian buyers did not profit. Underpricing for foreign buyers averaged 21 percent. Foreign participation may have been insufficient to extract full surplus. In cross-section, controlling for relative size, buyers¡¯ size does not explain gains among foreigners but mildly explains gains among nationals.

Keywords: Event study; Privatization (search for similar items in EconPapers)
JEL-codes: G14 G34 L33 (search for similar items in EconPapers)
Date: 2012
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