Bank Privatisation in Central and Eastern Europe Through the View of the Western European Stock Markets

Abstract

There are numerous studies on the privatisation process in Central and Eastern Europe (CEE) but none of them evaluates the effect of privatisation on bidders' market value. The objective of this research is the determination of the market value changes of several European banks during the time of their involvement in the process of bank privatisation in CEE. We have concentrated our attention on the variation of the privatising banks' stock prices, from the moment they had announced their intention to participate in the privatisation of bank institutions in Eastern and Central Europe, till the moment the privatisation contract was signed. We found that the capital markets react positively to the information about the privatisation process. We can say that this means that investors accept this process as positive news and that they expect that the privatisation will add value to the bidder's shares. This is a very clear indication that investors support management decision for expansion in CEE by participating in the process of privatisation. The different market reaction to privatisation in different countries can be taken as an indicator of the bank privatisation methods used by the governments in CEE. The results show that participation in the process of bank privatisation in CEE countries increases the cumulative abnormal volatility of the bidders.

Keywords: Central and Eastern European Countries, Bank privatisation, Event-study analysis, GARCH

JEL Classification: C10, G14, G34, P20