Privatisation in the New Zealand Stock Market: An Empirical Analysis
Massey University Commerce Working Paper No. 02.18
35 Pages Posted: 19 May 2005
Date Written: November 2002
Abstract
This paper is an empirical investigation into the effects of privatisation on the New Zealand stock market (NZSE). After estimating the impact of privatisation on the growth of New Zealand's stock market, it was discovered that privatisations have significantly increased market capitalisation, trading activity and liquidity. A further analysis of company liquidity and share ownership was conducted to provide evidence of privatisations' impact on the market. Privatised companies are generally larger in capitalisation and hence more liquid. The enhanced liquidity of privatised companies was due to increasing investor interest, illustrated with a larger number of shareholders. Investors are attracted to the larger size and perceived stability of privatisations. The attraction of investors is increasing over time, with a greater number of investors both entering the market and being lured towards privatised companies.
The greater investor interest in privatised companies was justified with a final analysis of long-run returns. Investors in privatised companies received significantly higher returns than they could, over the same time period, by investing in an aggregate market portfolio.
A weak comparison to private companies of similar size and industry was also made to verify the above findings, and is presented in the appendices.
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