Post-Privatization State Ownership and Bank Risk-Taking: Cross-Country Evidence

57 Pages Posted: 6 Mar 2019 Last revised: 14 Feb 2020

See all articles by Narjess Boubakri

Narjess Boubakri

American University of Sharjah - School of Business and Management; HEC Montreal - Department of Finance

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Omrane Guedhami

University of South Carolina - Moore School of Business

Mahmud Hossain

University of Memphis - Fogelman College of Business and Economics

Date Written: February 17, 2019

Abstract

We examine the relation between state residual ownership and bank risk-taking for privatized banks from 45 countries. Applying propensity score matching, we find that privatized banks tend to exhibit higher levels of risk-taking post-privatization than their publicly listed non-privatized counterparts. Moreover, partially privatized banks exhibit higher levels of risk-taking than fully privatized banks. We also observe a positive and significant relation between the level of residual state ownership and risk-taking. These findings are consistent with the distorted objectives associated with government control, as suggested by the political benefits of control, and with the soft budget constraint views of state ownership. The distortion can be mitigated by the quality of a country’s institutional and regulatory environments. Finally, our results show that the effect of state ownership on risk-taking is more pronounced in countries with a higher dominance of state-owned enterprises, and it was more prevalent during the global financial crisis.

Keywords: privatization; state ownership; risk-taking; institutions; regulations

JEL Classification: G32, G21; L22

Suggested Citation

Boubakri, Narjess and El Ghoul, Sadok and Guedhami, Omrane and Hossain, Mahmud, Post-Privatization State Ownership and Bank Risk-Taking: Cross-Country Evidence (February 17, 2019). Available at SSRN: https://ssrn.com/abstract=3336023 or http://dx.doi.org/10.2139/ssrn.3336023

Narjess Boubakri

American University of Sharjah - School of Business and Management ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

HOME PAGE: http://www.aus.edu

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Sadok El Ghoul (Contact Author)

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Mahmud Hossain

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

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