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Privatization and optimal share release in the Chinese banking industry |
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| Authors: | Chien-Hsun Chen Chao-Cheng Mai Yu-Lin Liu Shin-Ying Mai |
| Affiliation: | aChung-Hua Institution for Economic Research, 75 Chang Hsing St., Taipei, 10672 Taiwan;bGraduate Institute of Industrial Economics, Tamkang University, 151 Ying Chuan Rd., Tamsui, 25137 Taiwan;cResearch Center for Humanities and Social Sciences, Academia Sinica, 128 Sec. 2, Academia Rd., Nankang, Taipei, 11529 Taiwan;dDepartment of Finance, Rutgers University, Newark, NJ 07102-1897, United States |
| Abstract: | This paper establishes a mixed oligopoly model to explore how the government determines the percentage of shares of the state-owned banks to be released to foreign investors under the goal of seeking to maximize social welfare. The theoretical model finds that the release of shares of state-owned banks to foreign investors will reduce the outputs of the state-owned banks. The direction of the change in the profitability of the state-owned banks depends on the percentage of the shares released. The direction of the changes in the levels of social welfare also varies. If the gap in production efficiency between the state-owned banks and private banks is not large enough, we can be certain that a partial release of shares is the government's best policy. |
| Keywords: | Privatization Mixed oligopoly model Foreign equity participation China's financial sector Optimal share release |
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