Abstract

Using a unique sample of privatized firms over the period 1980 and 2002, we explore how the policy risk which is a distinctive feature of privatization is perceived by investors and whether the post issue outperformance of these firms is associated to investor pessimism. We find evidence that market-adjusted abnormal returns are negatively related to analysts forecast errors used as a proxy for investor expectations. This result suggests that contrary to traditional private firms investors seem to be pessimistic in their forecasts of privatized firms’ earnings projections in the beginning of the privatization procedure. However, they are more confident in the prospects of these firms over time consistent with the positive performance we find after privatization.

 

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