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.