Expropriation risk vs. government bailout: implications for minority shareholders of state-owned banks

Aldy Fariz Achsanta, Laetitia Lepetit and Amine Tarazi
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Aldy Fariz Achsanta: LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges
Laetitia Lepetit: LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

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Abstract: We investigate the implications of government versus private ownership for bank minority shareholders. Specifically, we use unique data to examine whether the stock prices of government-owned and family-owned banks, equally engaged in related lending, differently react to loan announcements. Our empirical findings show that the expected negative market reaction due to minority shareholder expropriation driven by related lending ("grabbing hand" effect), is offset by shareholders' expectations of future support from the government ("helping hand" effect). Positive announcement returns are also larger for new loans to state-owned firms than for those to private firms. Our findings support the view that in countries with weak shareholder protection, shareholders of state-owned banks rationally anticipate expropriation, but are willing to accept it in exchange for higher expectations of government support to state-owned banks and to state-owned firms. JEL Classification: G21, G28

Keywords: Banks; government ownership; loan announcements; related party transactions (search for similar items in EconPapers)
Date: 2020-03-19
New Economics Papers: this item is included in nep-ban
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Working Paper: Expropriation risk vs. government bailout: implications for minority shareholders of state-owned banks (2022)
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