The withdrawal of the state from economic activity: An Austrian capital market perspective

In this paper we investigate the success of recent privatization in Austria from a capital market perspective. The empirical analysis draws upon the concept of initial public offerings indexes to document the medium-run aftermarket performance of initial public offerings (IPOs). Due to certain peculiarities, governmental IPOs outperform non-governmental IPOs in terms of cumulative average returns. Among the approaches discussed, the theory of property rights, together with the economic theory of politics, appears to be particularly appealing in explaining this phenomenon. If market participants adjust their investment decisions accordingly, the superior performance of governmental IPOs must, however, be expected to vanish during later stages of a privatization program. The withdrawal of the state from the ownership of enterprises has repercussions on the expansion of existing private companies due to rising capital costs. Privatization programs thus temporarily inhibit the substitution of inside equity by outside equity in private companies.