Subscriber return, underpricing, and long-term performance of U.K. privatization initial public offers

Kojo Menyah, Krishna Paudyal, Charles G. Inyangete

Research output: Contribution to journalArticlepeer-review

28 Citations (Scopus)


This study distinguishes between issuer underpricing and subscriber returns, and estimates their magnitudes for U.K. privatization initial public offers (PIPOs). It proposes and tests empirical models which incorporate theoretical, institutional, and other factors which interact to explain subscriber returns and issuer underpricing. The estimates reveal that, on average, issuer underpricing, which is measured relative to the total equity market value on the first day of trading, is 23.62%, whereas the average raw return available to subscribers is up to 41%. Regression analysis shows that underwriters' commission, market volatility, regulatory situation of the company, proportion of share clawback, and demand for shares taken together explain up to 70% of the variation in issuer underpricing and 64% of subscribers' returns. The evaluation of the long-run performance of PIPOs to assess the extent to which initial gains to subscribers persist for longer periods concludes that U.K. PIPOs, on average, provide long-run holding gains to investors, unlike their private sector counterparts.

Original languageEnglish
Pages (from-to)473-495
Number of pages23
JournalJournal of Economics and Business
Issue number5
Publication statusPublished - 31 Dec 1995


  • privatization initial public offers
  • market volatility
  • underpricing


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