GRM 2010 GRM 2011

Abstract Details

Family Name:
Eusebio M. Santos
First Name:
Title of Paper:
Determinants of Privatization Prices in the Banking Sector: Evidence from Developing Countries
Paper Proposal Text :
Generating revenue is one of the fundamental objectives of privatization. Yet, very little is known about how well one achieves this objective and what factors determine privatization revenues. There is, for example, an open debate on the virtue of government-led adjustments in debt, labour force or bank activities prior to privatization. The paper asks what determines privatization prices in the banking sector using a sample of 118 banks privatized between 1988 and 2004 in developing countries. The data encompasses bank characteristics, bids and bidders involved in the auction, regulation characteristics and all bank restructuring actions taken by the government before the sale of each SOB. Preliminary results show that policies that eliminate barriers to privatization, such as the change of the CEO before the sale or efficiency measures that make the firm run efficiently until privatization takes place are associated with higher net prices, while the ones that delay the process or are politically costly such as debt absorption or labour cuts decrease prices. Speed is important, as lengthy processes are associated with lower premiums and actions that stimulate bidder participation are advisable given that the price is very sensitive to the level of competition in the auction.