Privatization and stock market liquidity

Bernardo Bortolotti, Frank de Jong, Giovanna Nicodano, Ibolya Schindele

Research output: Contribution to journalArticlepeer-review


This paper shows that share issue privatization (SIP) is a major source of domestic stock market liquidity in 19 developed economies. Particularly, privatization IPOs have a negative effect on the price impact - measured by the ratio of the absolute return on the market index to turnover. This result is robust to the inclusion of controls for other observable and unobservable factors, having also considered the endogenous nature of the decision to privatize. We also provide evidence of a positive spillover of SIP on the liquidity of private companies. This cross-asset externality is one implication of liquidity theories emphasizing the improved risk diversification opportunities and risk sharing brought about by privatization. This externality stems from both domestic privatization IPOs and cross-listings.

Original languageEnglish (US)
Pages (from-to)297-316
Number of pages20
JournalJournal of Banking and Finance
Issue number2
StatePublished - Feb 2007


  • Financial market development
  • International finance
  • Liquidity externality
  • Privatization

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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