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Deregulation and Privatization of Commercial Banking

Economic Analysis Review

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Title Deregulation and Privatization of Commercial Banking
Deregulation and Privatization of Commercial Banking
 
Creator López-de-Silanes, Florencio
Zamarripa, Guillermo
 
Description Privatization is tied to dereRulatiofl. This paper studies the effects of deregulation and privatization on commercial banks in Mexico. Our sample allows us to examine the stock market's response to different deregulation and privatization policy actions, The mere announcement of privatization of the banking system produced a mean abnormal return of 15.6% for all commercial banks, Pre-privatization bank shareholders eamed a mean market adjusted return of over 65% as a consequence of privatization. We undertake an econometric analysis of the determinants of the private benefits of control, and construct an estimate of the true value of control for the bidders based on the degree of competition in the auctionsl. Based on this measure, we estimate that a mean of almost 20% of book value was not extracted from privatization bidders due to lack of more competition in the auction. Furthermore, this study assesses the effects of deregulation and privatization on industry performance. As a result of freer operation rules, deregulation brought about an increase in activity levels and doubled operating margins. We also find evidence for efficiency gains in privalizationemerging from reduced agency costs, Nevertheless, the increased proffitability on the industry can only be explained in conjunction with its incomplete deregulation, which retained protective regulation of operations and virtually prevented foreign competition. An estimation of a dominant-fringe firm model and an analysis of post-privatization performance provide support for this claim.
Privatization is tied to dereRulatiofl. This paper studies the effects of deregulation and privatization on commercial banks in Mexico. Our sample allows us to examine the stock market's response to different deregulation and privatization policy actions, The mere announcement of privatization of the banking system produced a mean abnormal return of 15.6% for all commercial banks, Pre-privatization bank shareholders eamed a mean market adjusted return of over 65% as a consequence of privatization. We undertake an econometric analysis of the determinants of the private benefits of control, and construct an estimate of the true value of control for the bidders based on the degree of competition in the auctionsl. Based on this measure, we estimate that a mean of almost 20% of book value was not extracted from privatization bidders due to lack of more competition in the auction. Furthermore, this study assesses the effects of deregulation and privatization on industry performance. As a result of freer operation rules, deregulation brought about an increase in activity levels and doubled operating margins. We also find evidence for efficiency gains in privalization emerging from reduced agency costs, Nevertheless, the increased proffitability on the industry can only be explained in conjunction with its incomplete deregulation, which retained protective regulation of operations and virtually prevented foreign competition. An estimation of a dominant-fringe firm model and an analysis of post-privatization performance provide support for this claim.
 
Publisher Universidad Alberto Hurtado - Facultad de Economía y Negocios
 
Contributor —
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Date 2010-03-08
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
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Format text/plain
application/pdf
 
Identifier http://www.rae-ear.org/index.php/rae/article/view/175
 
Source Revista de Análisis Económico - Economic Analysis Review; Vol 10, No 2 (1995); 113-164
Revista de Análisis Económico – Economic Analysis Review; Vol 10, No 2 (1995); 113-164
0718-8870
0716-5927
 
Language spa
eng
 
Relation http://www.rae-ear.org/index.php/rae/article/view/175/314
http://www.rae-ear.org/index.php/rae/article/view/175/315