FEEM working papers "Note di lavoro" series
2002 .112

Intra-Industry Effects of Privatization Announcements: Evidence from Developed and Developing Countries


Authors: Isaac Otchere
Series: Economy and Society
Editor: Fausto Panunzi
Type: Journal
Keywords: Privatization,rival firms' reaction,developed and emerging capital markets,price pressure
JEL n.: G21,G32,G14,L33
JEL: Journal of Empirical Finance

Abstract

We examine the stock price reaction of rival firms to privatization announcements to infer information about industry effects of privatization. We find that the rival firms reacted negatively to privatization announcements, thus suggesting that the announcement effects reflect competitive considerations rather than positive industry-wide effects. In comparison, we find that the adverse reaction of the rival firms to privatization announcements in developing countries is stronger than that in the developed countries. Interestingly also, we find that full privatization announcements generate larger negative abnormal returns for rival firms than partial privatization announcements where the firm gains only partial autonomy from the government. We present some, albeit weak evidence that the rival firms' reaction to privatization announcement is increasing in the degree of government ownership of the privatized firm. Thus as the proportion of government ownership reduces, subsequent partial privatization elicits stronger market reaction from rival firms. We further demonstrate that the negative abnormal returns earned by shareholders of the rival firms' are not due to price pressure effects.

Download file
Download PDF file

FEEM Newsletter

Subscribe to stay connected.

Your personal data will be processed by Fondazione Eni Enrico Mattei. – data Controller – with the aim of emailing the FEEM newsletter. The use of Your email address is necessary for the implementation of the newsletter service. You are invited to read the Privacy Policy in order to obtain additional information about the protection of Your rights.

This Website uses technical cookies and cookie analytics, as well as “third party” profiling cookies.
If you close this banner or you decide to continue navigating on this Website, you express consent to the use of cookies. If you need additional information or you wish to express selective choices on the use of cookies, please refer to the   Cookie PolicyI agree