Working Paper: CEPR ID: DP4612
Authors: Matti Keloharju; Samuli Knüpfer; Sami Torstila
Abstract: 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.
Keywords: bonus shares; discounts; equity offerings; flipping; privatization
JEL Codes: D78; G14; G32; G38; L33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Underpricing (D49) | log number of investors (G24) |
| Retail incentives (L14) | investors attracted (G24) |
| Expiration of bonus share plans (G35) | abnormal return (G14) |
| Expiration of bonus share plans (G35) | trading volume (G15) |
| Retail incentives (L14) | log number of investors (G24) |
| Bonus tranche (Y60) | flipping activity (G14) |