THE STOCK MARKET PERFORMANCE OF DEMUTUALIZED THRIFTS

Demutualization is the process by which a company transfers ownership from its members to shareholders. In this paper, the authors document the short-run and long-run price performance of mutual-to-stock conversions by thrifts ("savings and loans" and "savings banks"). The authors investigate two competing hypotheses concerning the stock price reaction. The Regulatory Hypothesis suggests that the initial stock price reaction will be less positive than the general market, while the Agency Hypothesis predicts the opposite. The study's empirical findings support the Regulatory Hypothesis: the initial returns at stock issuance are much less than the general market and the long-run performance is much better.