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Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

CHAPTER SIX

PRICE PERFORMANCE IN THE PRIMARY MARKET

OF THE EGYPTIAN PIPOs

6.0 INTRODUCTION

markets where the investment banker plays an important role in these markets. Until

conducting the present study, the Egyptian Capital Market (ECM) has differed from

the developed capital markets in not having an investment-banker system. The ECM,

by the investment banker per se, then it should not be found in the ECM.

phenomenon in the Egyptian PIPOs market. In carrying out this objective, two

section, we present two return series. The first is the series of market adjusted

returns. The second series of returns attempts to control for risk of unseasoned new

issues using a method similar to the RATS (returns across time and securities)

procedure of Ibbotson (1975). In section 6.2, factors to which the underpricing has

proved to be attributed are examined. Finally, summary and conclusion are provided

in section 6.3.

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Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

6.1 EXAMINING THE INITIAL PERFORMANCE OF THE EGYPTIAN PIPOS

6.1.1 INTRODUCTION

The main objective of this section is to measure the initial price performance

of the PIPOs, offered to the public by Egyptian privatised companies, from the

offering date to the date of the first listing on the exchange. This objective is to

underpricing noted in this study with other studies will provide signals on the

efficiency in setting the offer price of a new PIPO. Moreover, examining the degree

of the initial returns, this study may suggest justifications to explain the degree of

underpricing found in the Egyptian PIPOs and discuss its implication to the market.

determine the approach of analysis and the model(s) through which the performance

is measured. Generally, empirical studies in finance involve the use of two broad

coefficients.”

measuring the price performance in the primary market. Empirically, the price

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Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

performance of an issue can only be considered abnormal, relative to a particular

previous researchers in measuring such abnormal returns in the IPOs studies. The

two models are the market-adjusted returns and risk-adjusted returns. These models

along with the data to be employed in this study are outlined as follows.

The initial public offerings to be used for achieving the objective of this

public and listed on the Stock Exchange for the first time during the period from

January 1994 to December 1996 [See Appendix D-1 and D-2]. Table 3-3 and figure

market trading for the period of interest. Thus, this time period allows a relatively

for analysis from this period. Concerning the business activities of issuing

companies, the sample includes only the industrial based firms, which have been

privatised during the period of study, where the required published information and

the records from CMA are only available for such firms. For the 32 offerings, four

companies were privatised during 1994, nine during 1995, and nineteen during 1996.

In order to analyse the performance of IPOs in the initial market, the market-

adjusted and risk-adjusted methods are employed in this study. In the market

adjusted returns model the returns of new issues are adjusted to the market returns

over the same time period. The assumption within this model is that ex ante expected

returns are equal across securities for a particular time interval, but not necessarily

constant overtime. Moreover, this model takes into account market-wide movements

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Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

which occur at the time of the event being studied. The ex post abnormal return on

any security is given by the difference between its return and that on the market

portfolio.

In applying this model, we first calculate a raw stock‟s return for each of our

32 firms as:

where Rit is the return of stock i in period t, Pi,t is the price of stock i at time t, and

Pi,t-1 is the price of stock i at time t-1 (i.e. the first day return is computed as the

closing price to the offering price while other returns are computed as the daily

closing price to the first day closing price). Appendix D-3 shows the results of eq.

6.1 for the full sample of study. Then, the return on the General market index of the

Egyptian stock exchange during the same time period is calculated as follows:

where Rmt is the market return in time period t, Pmt is the market index value at time

t, Pm,t-1 is the market index value on the time t-1. [See Appendix D-4]. Accordingly,

the market-adjusted abnormal return for each IPO on time t is computed as:

The market-adjusted returns model defined in eq. (6.3) is consistent with the asset

pricing model if all securities have a systematic risk of unity. Thus, an assumption

for using this price performance measure is that the systematic risk of each security

in the sample is one. In such a case, the expected value of the difference between Rit

initial public offerings is well documented in the literature and seems to be a frequent

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Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

phenomenon across major capital markets. Accordingly, it is hypothesised that the

PIPOs in Egypt provide a significantly high rate of returns in such period, indicating

that these issues have been underpriced. In order to test this hypothesis, the mean

excess returns for all the sample stocks are calculated as follows:

1 n

AR t AR it

n i 1

(6. 4)

Where n is the number of stocks in the sample and AR t is the average excess return

sectional t-statistic was used to test the statistical significance of the AR t ‟s, (i.e. to

test the null hypothesis that AR t = 0, assuming that ARit‟s are normally distributed

and that AR t is normal). And these average excess returns were cumulated from time

C AR t AR (6. 5)

t 1

The cumulative abnormal returns (residuals) technique focus on the average market

model residuals of the securities in the sample around the event period. While the

cumulative abnormal return method is by far the most popular method used in

security price study, there are some problems attached to it. For example, it does not

allow for changes in beta over time. In some cases there are reasons to suggest that

the market) are also calculated using the procedure employed by Ritter (1990),

Levies (1993), and Aggarwal, Leal and Hernandez (1993). As seen in Equations 6.6,

6.7 and 6.8, WR is the wealth relative; Rit is the return of the stock i on day t from

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Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

the offer day; Rmt is the market return during the same time period. The total number

of the PIPOs in the sample is presented by N. A wealth relative above one implies

that PIPOs outperformed the market in that period. A wealth relative below one

N

1

Rit

N

(P

i 1

it Pi,t 1) (6. 6)

N

1

Rmt

N

(P

i 1

mt Pm,t 1) (6. 7)

1 Rit

WRit (6. 8)

1 Rmt

Obviously, the market adjusted returns model lacks the introduction of risk

measurement in the analysis. Using the Market and Risk Adjusted Returns method,

PIPOs. In the risk-adjusted method, the mean excess returns would be measured

that it should be modified in order to employ its idea to be used in the present study.

(1964) and Lintner (1965). This theory of equilibrium is criticised by Blume (1971)

who argues that it is based upon numerous assumptions which obviously do not hold

in the real world. The justification of Blume‟s critique is that a theoretical model

should not be judged by the accuracy of its assumptions but rather by the accuracy of

its predictions.

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Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

The empirical work of Friend and Blume (1970) suggests that the predictions

of this model are seriously biased and that this bias is primarily attributable to the

inaccuracy of one key assumption, namely that the borrowing and lending rates are

equal and the same for all investors. Consequently, although Sharpe‟s and Lintner‟s

weaker and considerably less robust justification than provided by the portfolio

systematic risk in the present study. However, it is claimed that estimating systematic

risk is difficult because the systematic risk of each investment is based on the

Combining portfolio approach and the idea of returns across time and

securities, the RATS model specification, adapted from Clarkson and Thompson

= the regression coefficient for the independent variable, Rmt = the market return

in time period t [calculated as in eq.(6-2)], and I = residual for the ith observation.

Having applied the above mentioned procedures, the empirical results of the

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Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

6.1.3 EMPIRICAL RESULTS OF THE INITIAL PERFORMANCE

Table 6-1 presents summary statistics on the initial price performance for 32

Egyptian PIPOs. This table reports Market-Adjusted returns measured from the offer

price to the price at the end of the first trading day. The mean initial return on day 1

for the full sample is 15.033 %. This number is significantly different from zero at

the 5 % level (t-statistic = 4.138). Twenty-seven out of 32 firms (or 84.4 percent of

the total) have positive initial returns. The median initial return is 12.797 percent.

Our results are consistent with other studies, [see Tables 6-1 and 6-2], a large

positive average excess return accrued to the holders of PIPOs on the first day of

trading.

According to the results in Table 6-3, there appears to be some minor revision

of the initial performance immediately after listing. However, the AR t for day 2 is

percent. Consistent with previous empirical evidence, the mean daily returns are not

significantly different from zero in any systematic manner for the majority of the first

ten days, except the initial return. Moreover, as we expected, wealth relative results

show outperformance in the first day of trading and stability after the second day of

trading.

Furthermore, a binomial test is used to test the null hypothesis that the data

are from a binomial distribution with a specified probability of falling into the first of

two categories. The binomial test rejects at the 0.05 level the hypothesis that the

199

Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

that the mean excess return on the first day of trading equals zero is rejected,

Table 6-1 Summary Statistics on the Price Performance of IPOs in the Period 1994-96

N Mean t-statistic positive Zero Negative Median

No.(%) No.(%) No.(%)

Market-adjusted returns from offer price to closing price at the

end of the first trading day

Our study 32 15.03 % 4.14a 27 0 5 12.8 %

(84.4%) (15.6%)

Muscarella and 38 7.12 % 3.69 a 28 0 10 2.73%

Vetsuypens (1989) (73.7%) (16.3%)

a

Significant at the 0.05 level.

Studies in the first Day of Trading

The study Return

U.S.A

McDonald and Fisher (1972) 0.285

Reilly (1973) 0.096

Bear and Curley (1975) 0.129

Reilly (1977) 0.109

Block and Stanley (1980) 0.060

Aggarwal and Rivoli (1990) 0.011

Australia: Finn and Higham (1988) 0.292

Egypt: This study 0.150

*0 = the offering date & 1 = the first day of trading .

Daily Returns and Wealth Relative

Return from AR t t( AR t ) C AR t Wealth

Relative

Offering to 1 0.150 4.138* 0.150 1.15

Day 1 to day 2 -0.011 -0.560 0.139 0.98

Day 1 to day 3 0.007 0.355 0.146 1.00

Day 1 to day 4 0.027 1.452 0.173 1.02

Day 1 to day 5 0.001 0.035 0.174 1.00

Day 1 to day 6 0.005 0.232 0.179 1.00

Day 1 to day 7 0.043 1.824 0.222 1.04

Day 1 to day 8 0.016 0.466 0.238 1.01

Day 1 to day 9 0.019 0.842 0.257 1.01

Day 1 to day 10 0.025 1.069 0.272 1.02

AR t and C AR t are calculated using equations (4 and 5).

200

Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

6.1.3.2 Results of the Risk-Adjusted Performance

Table 6-4 shows the estimated value of for each of the first ten days of

listing. The initial performance in day 1 was 16.8 percent, compared to 15 percent for

the market adjusted daily returns. Thus, the introduction of risk made only a little

difference in the initial returns of new issues in Egypt. In addition, there appears to

empirical evidence the mean daily returns are not significantly different from zero in

any systematic manner for the first ten days, except for the initial return.

Therefore, the null hypothesis that the mean excess returns on the first day of

trading equal zero is rejected, however this is not the case for the subsequent nine

days. The main indication of the risk-adjusted returns model is that the Egyptian

Return from Mean excess return Mean Beta

() t()

( i ) t ( i )

a

Offering to 1 0.168 4.452 0.126 0.289

Day 1 to day 2 -0.022 -1.639 0.014 0.061

Day 1 to day 3 -0.004 -0.287 0.063 0.281

Day 1 to day 4 0.017 1.182 0.178 0.766

Day 1 to day 5 -0.009 -0.560 0.131 0.490

Day 1 to day 6 -0.005 -0.310 0.091 0.353

Day 1 to day 7 0.030 1.567 0.113 0.370

Day 1 to day 8 0.007 0.407 0.186 0.626

Day 1 to day 9 0.008 0.449 0.119 0.392

Day 1 to day 10 0.016 0.772 0.221 0.648

*Risk and returns from offer price to closing price at the end of the first trading day.

a

Significant at the 0.05 level.

Moreover, it is assumed that the mean systematic risk of the PIPOs is higher

than the market risk. Thus, the null hypothesis is that the mean systematic risk of the

PIPOs is equal to the market Beta ( i = 1). The results of this test are summarised in

Table 6-4, which shows that the mean systematic risk of the PIPOs in the primary

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Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

market is not statistically significant for the following nine days. The mean beta of

PIPOs measured from the offering to the end of trading on the first day of listing is

0.13. The calculated t-statistic is 0.289. The critical value of the t-distribution at the

0.05 level for 30 degrees of freedom is 1.70. Consequently, the null hypothesis that

the mean Beta of the PIPOs is equal to the market beta cannot be rejected. It should

be noted that this is the estimate of the average risk for the sample as a whole. Betas

6.2.1 INTRODUCTION

The above results show large and widespread initial returns to new issues in

markets, the Egyptian Capital Market (ECM) differs from the developed capital

underpricing is enforced by the investment banker per se, then it should not be

disproved in this market, we turn now to examining factors with which the

factors are:

1. Ex ante uncertainty.

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Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

For the first factor, in private IPOs as well as privatisation sales, issuers are

clearly uncertain about the true market value of an IPO. If they were not, they would

not face any risk placing all shares and consequently would not need investment

of investment banks some uncertainty about the true price of an IPO in the

assume that the Egyptian government deliberately underprice the privatisation sales

in relation to this risk. As it is reported in the literature review chapter, the most

convenient hypothesis is that of Beatty and Ritter (1986, p.216) which states:

„the greater is the ex ante uncertainty about the value of an issue, the greater

Ritter (1984) and Beatty and Ritter (1986) proposed a variation of Rock‟s model in

which they tested several proxies for the ex ante uncertainty of an unseasoned new

issue. Ritter (1984) found a „monotinic‟ increase in initial return in portfolios formed

of any trading data prior to the issue. In case of the expected underpricing the

observed initial return is taken as a proxy. In order to measure the ex ante uncertainty

of the true after market value the early secondary market variability of returns may

serve as a proxy. The basic idea of using aftermarket return variability is as Uhlir

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Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

„the greater the uncertainty about the true aftermarket value the longer it will

take participants in the market to establish the „correct‟ price in the secondary

market.‟

This should effect trading since the early prices are subject to major correction

Following Ritter (1984), Beatty and Ritter (1986) and Uhlir (1989), we use the

standard deviation of the rates of return in the aftermarket as a proxy for this

variability or (ex ante uncertainty). Immediately after the first trading day the

following 10 days are taken to calculate the standard deviation of daily returns (See

Appendix D-6).

For the second factor, as discussed in the literature review, Rock‟s (1986)

new issues. Rock (1986) used the length of selling time of new issues as a proxy of

informed demand. Thus, the hypothesis of this relationship is that the longer the

length of selling time of new issue, the higher is the underpricing (See Appendix D-

7).

Finally, studies by Finn and Higham (1988) and Reinganum (1981) and

others have shown a negative relation between the firm size and the risk-adjusted rate

of return. Logue (1973) found a negative relation between initial performance and

total dollar value of the issue and argued that the larger the size of the issue, the more

relative bargaining power the issuer has and hence the less the initial underpricing by

the underwriter. Likewise, we investigate the relationship between the value of the

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Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

Having considered the factors to which the observed underpricing may be attributed,

data and methodology employed to test such relationships are outlined as follows.

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Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

6.2.2 DATA AND METHODOLOGY

where ARit is the market-adjusted returns calculated as in eq. 6-3 as the dependent

market returns as the explanatory variable. Likewise, to test the relation between the

ARit = i + i ln Li + i (6.11)

where Li is the length of selling time of new issue; and ln stands for natural log. The

time for a new issue to be filled is not publicly available in Egypt. We use the length

of time from offering date until the first day of trading and the median time was 16

days. Finally, in testing the relation between the issue size, Si and underpricing, the

following model regresses the day 1 performance on the log of the size variable:

Since the firms under investigation are different in sizes, we suppose that it would be

consequences are stated by Econometricans [see Gujarati (1992) and (1995)], such

as: OLS estimators are still linear and unbiased, but they no longer have minimum

variance. That is, they are no longer efficient. As a result, the usual confidence

interval and hypothesis tests on t and F distributions are unreliable. Therefore, every

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Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

procedures are employed. Thus, in the presence of heteroscedasticity, the usual

heteroscedasticity test. First, we reestimate models (6.10, 6.11, and 6.12) and obtain Comment [H1]:

2

^

i 1 2 Xi 3 Xi2 i (6.13)

That is, the squared residuals from the original regression are regressed on the

original independent variable and its squared values. The null hypothesis H0 can be

tested by the usual F test or, alternatively, by computing nR2, where R2 is the

nR 2 ~ 2p (i.e., nR2 follows the chi-square distribution with df equal to the number

obtained in the above equation exceeds the critical chi-square value at the chosen

that in the auxiliary regression all the coefficients equal zero, except i. Therefore,

depends on the size of the squared error term at time (t-1), that is on ut21 . To be more

207

Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

specific, we again reestimate the three regression models (6.10, 6.11, and 6.12). And

distributed as:

t ~ N [0,(0 1t21 )]

That is, t is normally distributed with mean zero and variance of ( 0 1t21 ). It is

clear that the variance of at time t is dependent on the squared disturbance at time

(t-1), thus giving the appearance of serial correlation. Since the variance of t

depends on the squared disturbance term in the previous time period, it is called an

ARCH (1) process. Thus, an ARCH (p) process can be written as:

homoscedastic error variance. As Engle (1982) has shown, a test of the proceeding

null hypothesis can be easily made by running the following auxiliary regression:

where t , as usual, denotes the OLS residuals estimated from the original regression

model. The null hypothesis can be tested using the same procedures of White‟s

208

Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

6.2.3 EMPIRICAL RESULTS

Table 6.5 shows that there is no relation between initial performance and risk

of the issue, as proxied by the standard deviation of daily returns in the aftermarket

for the Egyptian IPO market. Following Beatty and Ritter (1986,p.223), R2 has to be

very low. They argue that there should be only a positive relation between ex ante

uncertainty and expected underpricing. That means, it must remain difficult for

investors to predict the actual initial return of a single individual PIPO even though

the average initial return of a large sample can be predicted with reasonable

accuracy. Although our regression does not exhibit any relationship between the

underlying variables, the correlation coefficient says that there is a positive relation

between them. Also, our very low R2 is consistent with the argument of Beatty and

Ritter (1986). Moreover, Table 6-5 shows that the initial performance of privatisation

sales is not systematically related to the length of the issue, as measured by the

variable used here. It is obvious that the t-statistic of the slope coefficient is

insignificant and R2 is close to zero. Likewise, the size of issue variable has a

positive sign in the cross-sectional regression. Also, the t-statistic is only 0.123 and

the R2 is 0.001. That is, the initial size of the firm does not appear to be related to the

day 1 performance.

Table 6-5 Regression Statistics for Day 1 Market-Adjusted Return as Dependent Variable and

Standard Deviation, the log of issue length and the Value of Initial Issue as Independent

Variables

Independent variable t() t() R2 DW

Standard deviation 10.4 1.696 1.25 0.928 0.028 1.99

Ln (length of issue) 7.49 0.926 2.83 1.044 0.035 1.95

Ln (size of issue) 12.1 0.494 0.21 0.123 0.001 1.94

* R is the correlation coefficient

209

Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

In examining the autocorrelation residuals in the three regressions: 6.10, 6.11,

and 6.12, Table 6-5 shows that DW = 1.99, 1.95 and 1.94, respectively. Following

heteroscedasticity test, first, we reestimate models 6.10, 6.11, and 6.12 and obtain Comment [H2]:

the residuals I. Second, we run the auxiliary regression defined in eq. 6.13 (i.e., the

squared residuals from the original regressions are regressed on the original

Table 6.6 shows that for all practical purposes, one can conclude, on the basis

size of 32 is relatively small, whilst the test is based on large sample theory, the

conclusion reached is very definite, suggesting that sample size is not a problem in

Table 6-6 White's test of the heteroscedasticity in the models defined in Equations (6.10,

6.11, and 6.12)

Variables Model (13) R2 n R2

Standard deviation i2 = 257.1 + 40.958ln Li + 3.24ln Li2 0.0172 0.55

Ln (length of issue) i2 = -3329.2 + 564.83ln Si - 20.76ln Si2 0.0095 0.31

Ln (size of issue) i2 = 287.93 + 100.15i -12.42i2 0.0278 0.89

A chi-square distribution with 2 degrees of freedom. The 5% critical chi-square value for 2 df is 5.99.

errors (HCSEs) relative to the usual standard errors for each regression are reported

in Table 6-7. HCSEs reflect any heteroscedasticity in the residuals which is related to

the regressors. Large differences between OLS standard errors and HCSEs values are

210

Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

Table 6-7 shows that the HCSEs are close to the OLS standard errors. However,

Table 6-7 The Difference Between SE and HCSE from Models 6.10, 6.11, and 6.12.

Independent variable Std.Error HCSE Std.Error( HCSE

() () ) ()

Standard deviation 10.4 6.15 5.75 1.25 1.35 1.07

Ln (length of issue) 7.49 8.09 8.06 2.83 2.71 2.93

Ln (length of issue) 12.07 24.44 17.55 0.21 1.71 1.24

we use the ARCH model. Using the residuals obtained from regression (6-10), we

estimate ARCH (1), ARCH (2), ARCH (3), ARCH (4), and ARCH (5) models. But,

none of these models proved to be significant. For example, the results of the ARCH

(1) model are reported in Table 6-8. These results indicate that there is no

Variables Model (6.15) R2 n R2

Standard deviation i2 = 386.0+ 0.0242t-1 0.0006 0.0186

Ln (length of issue) I2 = 395.4 + 0.0142t-1 0.0002 0.0062

Ln (size of issue) I2 = 399.8 - 0.01342t-1 0.00018 0.0062

The 5% critical chi-square value for 1 degree of freedom is 3.84.

skewed and has a median of 13 %. The level of underpricing seems to be too high

and the privatised companies may have lost money on the table. As a result, we

investigated three hypotheses which were proved, in the literature, to explain the

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Zakaria S.G.Hegazy: Egyptian Stock Market Efficiency: An Initial Public Offering

Perspective, Ph.D. thesis, Strathclyde University, U.K.,1998

positive initial returns to private IPOs. However, they were unsuccessful in

explaining even a small part of the initial returns to the Egyptian privatisation sales.

ECM;

the institutional feature of the Egyptian Capital Market, the listing requirements

of the Egyptian Stock Exchange and Capital Market Authority, together with

convince the market to absorb larger sales and reduce the risk borne by the

government;

since the privatised firms are exposed to greater policy risk, and tend to be large

and well-known relative to private IPOs. That is, underpricing may signal

from a subsequent sale, and is therefore not willing to underprice the initial sale;

and

existing stockholdings.

212

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