Returns to Initial Shareholders in Savings Institution Conversions: Evidence and Regulatory Implications

In this paper, stock prices for savings institutions that have converted to the stock form of organization are examined. Event‐study methodology is used to focus on the returns to initial shareholders in the period immediately following initial trading. The results of the study indicate significant positive returns in savings institution conversions in the first several trading days, suggesting a one‐time wealth transfer from depositors not exercising their rights to initial shareholders. The results also provide support for the efficiency of the market as the market price adjusts quickly in the first two days of trading after the public offering. Given the FHLBB's objectives, there appears to be little cause for regulatory concern although initial returns are significant.