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PRIVATISING NATIONAL OIL COMPANIES: ASSESSING THE IMPACT ON FIRM PERFORMANCE - page 21 / 30

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privatised NOCs.21 Because, in addition to the positive abnormal share returns, these

firms’ accounting performance is not exhibiting a decline associated with the reversal

of positive accruals, the observed pre-privatisation accounting changes seem to fairly

reflect underlying economic realities.

V. Follow-on offerings

Privatisation, and particularly privatisation of large or domestically important

companies, is usually undertaken not in a single step, but rather through a series of

public share offerings and/or trade sales (Perotti and Guney 1993; Megginson et al.

2001). A number of explanations have been proposed: the selling government can

build credibility (of non-interference) over time and therefore maximise sales

proceeds; the initial offering can be kept small to “test the waters” and to spread the

sales risk over time; the multiple offerings help overcoming political resistance to

large sell-downs, etc. As set out in Section III, this pattern also applies for

privatisations within the global oil and gas industry. Governments are unlikely to

transfer control in the very first offering, and partial privatisations are the norm rather

than the exception. What is the impact on firm performance of such extended, gradual

privatisation processes? And are the performance changes observed during the initial

SIPs perpetuated or reversed at some point?

As visual inspection of the individual performance patterns provides limited

generalisable insights, we perform a regression analysis of the full dataset. For the

analysis of initial SIPs we were able to standardise the time period to seven years and

the number of offerings under consideration to one; the data on the longer-term

privatisation trajectories, on the other hand, is inevitably of greater structural

21 The distribution of share returns is skewed towards the left, i.e. a small number of privatisations have managed to yield very large share returns. Comparing simple and weighted averages shows that indeed the smaller firms outperform their (in terms of market capitalisation) larger competitors.

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