Confidence building and politics in privatization: some evidence from Spain

This paper analyzes privatization on the stock market and has two main findings. First, SIPs’ underpricing is consistent with the confidence-building hypothesis derived from political risk under asymmetric information. Larger initial returns occurred in the early stages of privatization, which is consistent with the hypothesis that governments use underpricing to be credible privatizators. Second, evidence gives support to the hypothesis that explicit political motives influence the design of privatization, which is affected by the political majority.