Government Stakes as an Insurance Policy: Evidence from Seasoned Equity Offerings of Chinese Firms

While privatization has attracted much more attention in the literature, one type of reverse privatization, a privately-controlled firm inviting government ownership as its minority shareholders, is neglected in the literature. Using large-scale census firm data from China, we investigate the determinants of this kind of reverse privatization and its impact on firm performance. We find that (1) the decision of reverse privatization by Chinese private firms is affected by local political risk, firm-level financial characteristics, and industry-level characteristics, (2) the reverse privatization significantly affects the firm’s performance, which is measured in different proxies but the effects are not consistent, and (3) moreover, we find that the benefit of reverse privatization decreases as government ownership increases. Our results suggest that the prevalence of reverse privatization in China is a political outcome, which is affected by the trade-off of political risk and political privilege. Our work suggests that political risk and political considerations are the main driving factors of privatization, or its opposite, reverse privatization. Reverse privatization, to some extent, is a rational choice in some transition economies. Our findings offer clear policy implications to the nationalization phenomenon taking place around the world recently.     

The Decision to Privatize: Finance and Politics

We investigate the influence of political and financial factors on the decision to privatize government‐owned firms. The results show that profitable firms and firms with a lower wage bill are likely to be privatized early. We find that the government delays privatization in regions where the governing party faces more competition from opposition parties. The results also suggest that political patronage is important as no firm located in the home state of the minister in charge is ever privatized. Using political variables as an instrument for the privatization decision, we find that privatization has a positive impact on firm performance.     

Privatization matters: Bank efficiency in transition countries

To investigate the impact of bank privatization in transition countries, we take the largest banks in six relatively advanced countries, namely, Bulgaria, the Czech Republic, Croatia, Hungary, Poland and Romania. Income and balance sheet characteristics and efficiency measures computed from stochastic frontiers are compared across four bank ownership types. Our empirical results support the hypotheses that foreign-owned banks are most efficient and government-owned banks are least efficient. In addition, the importance of attracting a strategic foreign owner in the privatization process is confirmed. However, counter to the conjecture that foreign banks cherry pick the most profitable opportunities, we find that domestic banks have a local advantage in pursuing fee-for-service business. Finally, we show that both the method and the timing of privatization matter to performance; specifically, voucher privatization does not lead to increased efficiency and early-privatized banks are more efficient than later-privatized banks, even though we find no evidence of a selection effect.     

The Choice of Private Versus Public Capital Markets: Evidence from Privatizations

We examine the impact of political, institutional, and economic factors on the choice between selling a state‐owned enterprise in the public capital market through a share issue privatization (SIP) and selling it in the private capital market in an asset sale. SIPs are more likely in less developed capital markets, for more profitable state‐owned enterprises, and where there are more protections of minority shareholders. Asset sales are more likely when there is less state control of the economy and when the firm is smaller. Our results suggest the importance of privatization activities in developing the equity markets of privatizing countries.     

Bank political connections and performance in China

We examine the effects of bank’s political connection on bank performance and risk in China. We use hand-collected information on CEOs’ professional background to identify their political affiliations, and find that banks whose CEOs have former government experiences have higher return on assets, lower default risk, and lower credit risk. Additionally, politically connected banks have disproportionally higher performance when the CEOs previous worked in the same city where the current bank’s headquarter locates, had past banking experiences, spend more on entertainment and travel costs, and have higher previous administrative rankings (e.g., at the provincial or state level). These results suggest that politically connected banks have better access to lending to politically connected firms, which are high yield assets and more likely to be bailed out when in distress. Our results offer a mechanism of political rent seeking, consistent with the institutional environment of China’s banking and political system.     

Risk taking behavior of privatized banks

We examine the risk taking behavior of privatized banks prior to and after privatization and find that privatized banks experience a significant decrease in risk after privatization; however they continue to exhibit higher risk than their rivals. This finding is consistent with the assertion that following privatization and the removal of government guarantees and subsidies, privatized banks become more prudent. Since rival banks do not experience a significant change in risk taking, we attribute the reduction in risk experienced by the privatized banks to changes in the banks' ownership structure rather than to industry factors. Interestingly, we also find that a higher fraction of the privatized banks' shares sold beyond a certain intermediate level induces higher risk taking, as the privatized bank becomes more accountable to shareholders. The finding that the fraction of shares sold is positively related to risk taking, coupled with the result that the privatized banks had higher risk in the pre-privatization period than in the post-privatization period suggests a nonlinear relationship between government/private ownership of banks and risk taking. Results of further analysis are consistent with a somewhat U-shaped relationship between private ownership and risk taking. The risk taking behavior of newly privatized banks is also influenced by the country's level of development and degree of political risk. Our results are robust to different measures of risk.     

Foreign bank penetration and the lending channel in emerging economies: Evidence from bank-level panel data

This paper examines the main implications of recently increasing foreign bank penetration on bank lending as a channel of monetary policy transmission in emerging economies. Using a dynamic panel model of loan growth, we investigate the loan granting behavior of 1273 banks in the emerging economies of Asia, Latin America, and Central and Eastern Europe during the period from 1996 to 2003. Applying the pooled OLS, system GMM, and panel VAR estimators, we find consistent evidence that foreign banks are less responsive to monetary shocks in host countries, as they adjust their outstanding loan portfolios and interest rates to a lesser extent than domestic private banks, independent of their liquidity, capitalization, size, efficiency, and credit risk, and although there exists a bank lending channel in the emerging economies, it is declining in strength due to the increased level of foreign bank penetration. We also explore possible driving factors for the different responses of foreign and domestic banks to monetary policy shocks by investigating foreign banks’ different behavior during banking crises and tranquil periods, the effects of mode of entry to host countries, the home-country effects, and the response of foreign banks from OECD countries vs. all foreign countries including non-OECD countries. We suggest the access of foreign banks to funding from parent banks through internal capital markets as the most convincing explanation.     

The Government’s Role in Government-owned Banks

In this study, we reinvestigate the question of whether government banks are inferior to private banks. We use cross country data from 1993 to 2007 to trace the different types of government banks. These types comprise banks that acquire distressed banks, normal banks, or no banks at all. Contrary to common belief, the evidence shows that unless government banks are required to purchase a distressed bank because of political factors (the government’s role), their performances are at par with that of private banks. This fact particularly holds true in countries with poor records on political rights and governance.     

Privatization,financial development,property rights and growth

This study analyzes how prevailing institutional arrangements i.e., property rights, contracting rights, political institutions, and corporate governance practices affect privatized firms’ performance, capital markets development, and economic growth. Most of the studies surveyed show that privatization enhances privatized firms performance, efficiency, and profitability, which percolates to economic growth. Privatized firms performed better in countries with better regulatory and legal frameworks. Partial privatization may be beneficial in countries with weak institutions, namely, the French civil law countries. The stronger the economic and the governing institutions, the easier it is for privatized firms to thrive and contribute to economic growth. Overall, privatization allows firms to achieve improved efficiency while driving the development of the financial sector.     

The political economy of residual state ownership in privatized firms: Evidence from emerging markets

We investigate the political determinants of residual state ownership for a unique database of 221 privatized firms operating in 27 emerging countries over the 1980 to 2001 period. After controlling for firm-level and other country-level characteristics, we find that the political institutions in place, namely, the political system and political constraints, are important determinants of residual state ownership in newly privatized firms. Unlike previous evidence that political ideology is an important determinant of privatization policies in developed countries, we find that right- or left-oriented governments do not behave differently in developing countries. These results confirm that privatization is politically constrained by dynamics that differ between countries.     

Why government banks underperform: A political interference view

This study proposes a political interference hypothesis to explain how political considerations depress the performance of government banks. We define political interference as a situation in which government bank executives are replaced within 12 months after the country’s major elections (presidential or parliamentary elections). We classify political and non-political government banks as those that experience or do not experience political interference, respectively. The hypothesis firstly suggests that once government banks undertake political interference, their financial performance deteriorates. That is, political banks display the worst performance, followed by non-political banks and private banks have the best performance. Next, we posit that the impact of political interference is greater in developing countries than in developed countries. Finally, we hypothesize that the underperformance of government banks will be reduced if we remove political interference. By employing bank data from 65 countries from the period of 2003–2007, our hypothesis effectively explains why government banks in developed countries escape relatively unscathed, while those in developing countries suffer significantly.     

Bank globalization and efficiency: Host- and home-country effects

Analyzing 126 countries for 1995–2013, we investigate the link between bank globalization and efficiency from the perspective of both host and home countries. We find strong and consistent evidence that foreign bank entry is associated with lower efficiency in host countries (host-country effect), while foreign expansion in the banking sector improves the efficiency of banks at home (home-country effect). We further observe that the effect of bank globalization is dependent on the regulatory and institutional regimes of the respective host (home) countries. Specifically, stringent activity restrictions, tight supervision, fewer limitations on foreign banks, lower market entry barriers, and less government interference all help mitigate the efficiency loss from foreign bank entry. Less supervision power, multiple supervisors, more restrictions on foreign banks, and a competitive banking market are all conducive to the higher efficiency gain of incumbent domestic banks from the respective country’s outward investments in the banking sector. Moreover, we find that the adverse impact on efficiency from foreign bank presence is less pronounced for less risky, more profitable, and larger banks, while banks that are more efficient, more profitable, taking on more risk, and/or smaller gain more efficiency from their country’s foreign expansion.     

Political institutions and bank risk-taking behavior

This paper examines the impact of political institutions on bank risk-taking behavior. Using an international sample of banks from 98 countries over the period 1998–2007, I document that sound political institutions stimulate higher bank risk-taking. This is consistent with the hypotheses that better political institutions increase banks’ risk by boosting the credit market competition from alternative sources of finance and generating the moral hazard problems due to the expectation of government bailouts in worst economic conditions. While it is contrary to the hypotheses that better political institutions decrease banks’ risk by lowering the government expropriation risk and the information asymmetries between banks and borrowers. The results are robust to a number of sensitivity tests, including alternative proxies of bank risk-taking and political institutions, cross-sectional bank- and country-level regressions, endogeneity concerns of political institutions, country income levels, explicit deposit insurance schemes and sample extension from 1998 to 2014. I also examine the interdependence between political and legal institutions and find that political and legal institutions complement each other to influence bank risk-taking behavior.     

Credible reforms and stock return volatility: Evidence from privatization

In this paper we investigate how privatization affects stock return volatility. A credible privatization builds investors’ confidence through a reduction in political risk. In particular, a privatization program that is maintained over time signals credibility, which reduces political risk and in turn volatility. We further show that privatization is associated with lower idiosyncratic volatility mainly among developed markets, while it is associated with lower systematic volatility in developing markets. Additional tests suggest that the reduction in volatility is greater when privatization sales are carried out through the stock market than through asset sales.     

宏观调控、所有权结构与商业银行信贷扩张行为

本文结合公司金融和商业银行相关理论,厘清了股权结构对商业银行信贷扩张的作用机理,重点分析政府宏观调控政策目标和意图如何通过股权结构作用于信贷行为。选用21家银行2003-2010年间的面板数据,估计得出中央政府控制、民营化程度低、大股东持股比例高的银行具有更强的信贷扩张冲动;并利用2009年宏观经济扩张政策外生冲击形成的"自然实验"环境,通过双重差分(Difference-in-Difference)估计策略发现,宏观调控对中央政府控制、民营化程度低、大股东持股比例高的银行的信贷行为影响更为显著。本文的研究从政府控制和银行内部治理的视角为信贷扩张的微观机制以及商业银行市场化改革之后政府宏观经济调控的传导渠道提供了一个新的解释。     

State bank transformation in Brazil – choices and consequences

This paper analyzes the different options – liquidation, federalization, privatization and restructuring – that the Brazilian state governments had for the transformation of their state banks under the PROES in the late 1990s. Specifically, this paper explores (i) the factors behind the states’ choices and (ii) the effects of the transformation process on bank performance and efficiency. We find that states that were more dependent on federal transfers, whose banks were already under federal intervention and that established development agencies, were more likely to relinquish control over their banks and its transformation process. We find that privatized banks increased their performance, while restructured banks did not.     

Post-crisis regulatory reforms and bank performance: lessons from Asia

Based on a large dataset from eight Asian economies, we test the impact of post-crisis regulatory reforms on the performance of depository institutions in countries at different levels of financial development. We allow for technological heterogeneity and estimate a set of country-level stochastic cost frontiers followed by a deterministic bootstrapped meta-frontier to evaluate cost efficiency and cost technology. Our results support the view that liberalization policies have a positive impact on bank performance, while the reverse is true for prudential regulation policies. The removal of activities restrictions, bank privatization and foreign bank entry has a positive and significant impact on technological progress and cost efficiency. In contrast, prudential policies, which aim to protect the banking sector from excessive risk-taking, tend to adversely affect banks’ cost efficiency but not cost technology.     

Effects of international institutional factors on earnings quality of banks

We examine the relation between legal, extra-legal and political institutional factors and earnings quality of banks across countries. We predict that earnings quality is higher in countries with legal, extra-legal and political systems that reduce the consumption of private control benefits by insiders and afford outside investors greater protection. Using a sample of banks from 35 countries during the pre-crisis period from 1993 to 2006, we find that all five measures of earnings quality studied are higher in countries with stronger legal, extra-legal and political institutional structures. We also find that banks in countries with stronger institutions are less likely to report losses, have lower loan loss provisions, and higher balance sheet strength during the 2007–2009 crisis period. Our findings highlight the implications of country level institutional factors for financial reporting quality and are relevant to bank regulators who are considering additional regulations on bank financial reporting.     

我国银行金融数据跨境流动的法律规制

随着全球范围内银行金融数据跨境流动日益频繁,欧盟和美国在整体数据跨境流动规则下,形成了各自不同的银行金融数据跨境流动规制模式。我国也在自身国情基础上,建立了将"数据主权、数据保护与发展数字经济相统一"的整体数据跨境流动规制理念,但仍存在不同部门的规制思路有待进一步协调,以及对不同类型的银行金融数据跨境流动进行规制的针对性有待进一步提高等问题。本文认为,未来对银行金融数据的跨境流动的规制应在明确金融监管部门特殊规制权限的基础上,建立以下有区别的规制模式:针对基于商业需求而产生的银行金融数据跨境流动,应当在"知情、同意"的前提下,原则上允许跨境流动,并实行备案管理;针对基于数据流入国监管机构要求而产生的跨境流动,除存在国际协定或其他国际合作形式外,原则上不予认可。     

The performance of privatized firms in the Czech Republic

With the growing importance of privatizations as a part of government policy, most empirical studies of these privatizations conclude that firm performance immediately improves following privatization. Privatization has been the most important part of the transition from the centrally planned economies of Central and Eastern Europe and has a larger impact on those economies than privatizations in other countries. However, few studies have looked at the performance of firms following mass privatization. This study uses 453 separate firms (101 firms privatized in both waves for a total of 554 observations), in the first and second waves of Czech voucher privatization. Using methodology from previous studies, we find that while the overall effects from privatization are positive, the effects vary by privatization wave, size, and industry. Firms privatized in the first wave performed worse (decline in performance following privatization) than firms privatized in the second wave. We also fail to find ownership concentration or debt as an important factor in restructuring the firm.I believe that the results are consistent with two hypotheses. First economic and political structure surrounding the privatization waves plays an important part in the success of privatization. Stable environments, both political and economic, help privatized firms restructure and improve operating performance as well as attract foreign investors and capital even in less developed countries, but in transitional economies undergoing mass privatization in rapidly changing and developing economic and political environments hinder firms from restructuring and improving performance following privatization. Results are also consistent with the hypothesis that firms with a longer preparation period prior to privatization, an “implicit seasoning”, improve performance following privatization.