The effect of Strategic Sale of Banks: Evidence from Indonesia

Rasyad A. Parinduri and Yohanes Eko Riyanto ()

SCAPE Policy Research Working Paper Series from National University of Singapore, Department of Economics, SCAPE

Abstract: We examine the effect of strategic sale—the sale of banks to strategic foreign investors—on banks’ performance. The Government of Indonesia implemented such a policy as a part of bank restructuring in the aftermath of the 1998 banking crisis. Using difference-in-difference models, we find that strategic sale leads to 12%-15% cost reduction. These results are robust to the use of other estimators such as difference-in-difference matching-estimators and stochastic-frontier analysis, to that of other performance measures such as return on assets and net interest margin, and also to that of different types of samples. These suggest that strategic sale could play an important role in restructuring troubled banks in developing countries.

Keywords: banking crisis; recapitalized banks; the sale of assets; difference- in-difference models; matching estimator (search for similar items in EconPapers)
JEL-codes: C21 C23 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cse, nep-dev, nep-eff and nep-sea
Date: 2007-05
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