Post-Privatization State Ownership and Bank Risk-Taking: Cross-Country Evidence
64 Pages Posted: 6 Mar 2019
Date Written: February 17, 2019
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 exhibit higher risk-taking after privatization than their publicly listed counterparts. When we focus on the sample of privatized banks, we find that partially privatized banks show greater risk-taking than fully privatized banks. We also observe a positive and significant relation between residual state ownership and risk-taking. These findings are consistent with the distorted objectives associated with government control. This 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 during the global financial crisis.
Keywords: privatization; state ownership; risk-taking; institutions; regulations
JEL Classification: G32, G21; L22
Suggested Citation: Suggested Citation