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

Aldy Fariz Achsanta (1) , Laetitia Lepetit (1) , Amine Tarazi (1)

1 LAPE - Laboratoire d'Analyse et de Prospective Economique

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

Mots clés: Banks; government ownership; loan announcements; related party transactions

Domaines: Economies et finances

Aldy Fariz Achsanta, Laetitia Lepetit, Amine Tarazi. Expropriation risk vs. government bailout: implications for minority shareholders of state-owned banks. 2020. ⟨hal-02512308⟩