The abnormal performance of UK utility privatisations

This paper aims to re‐examine both the short‐ and long‐term performance of UK privatisations, with specific reference to the comparative performance of utility privatisations with non‐utility privatisations and private sector initial public offerings (IPOs).

The paper uses conventional event study methodology to examine the short‐ and long‐run comparative performance of IPOs. The long‐run analysis also adopts a buy‐and‐hold methodological approach.

The results reveal that short‐term under‐pricing is significantly higher in privatisations than in private sector firms, and specifically with the utility firms, and thus supports the hypothesis that governments tend to underprice privatisation issues more due to concerns over reassuring investors regarding potential future intervention. The long‐term results show that privatisations not only consistently out‐perform the benchmark index, but they also tend to out‐perform private sector firms. However, as with the short‐term analysis the results for the non‐utility firms are far less conclusive.

The paper illustrates that IPO performance of privatisations not only can differ from private sector issues, but the type of firm and the aims and objectives of the issuing government are a major factor in both the short‐ and long‐run performance of the firm.

The results highlight the practical issues involved in the relative pricing of privatisations dependent on the type of firm involved.

The explicit separation of privatisation issues by industry type and the comparison with a private sector sample split by both industry sector and by market size.