Bank Privatization in Developing and Developed Countries:

Cross-Sectional Evidence on the Impact of Economic and

Political Factors

Ekkehart Boehmer, Robert C. Nash, and Jeffry M. Netter*

ABSTRACT

We examine how political, institutional, and economic factors are related to a country’s decision
to privatize state-owned banks. Using a comprehensive panel of 101 countries from 1982-2000,
we find that the determinants of this decision differ markedly between OECD and non-OECD
countries. In non-OECD countries, a bank privatization is more likely the lower the quality of the
nation’s banking sector, the more right-wing the government is, and the more accountable the
government is to its people. These findings are largely consistent with an expanding literature
documenting the importance of legal and political factors in the development of capital markets. In
contrast, poor fiscal conditions are the most important determinant of bank privatizations in OECD
countries.

Current draft: November 1, 2003

Please address all correspondence to:

Robert Nash
Babcock Graduate School of Management
Wake Forest University
Winston-Salem, NC 27109
Email: rob.nash@mba.wfu.edu

* Boehmer is at Texas A&M University, Nash is at Wake Forest University, and Netter is at the
University of Georgia
 Bank Privatization in Developing and Developed Countries:
Cross-Sectional Evidence on the Impact of Economic and Political
Factors

1. Overview

In this paper, we address a country’s decision to privatize state-owned banks.

Because state-owned banks (SOBs) often provide governments with important policy tools,

privatization of the banking sector is often regarded as a sensitive issue. Previous evidence

suggests that privatization generally improves firm performance, raises revenue for privatizing

governments, and helps develop capital markets. At a macro level, other related evidence

suggests country-specific governance systems are important in determining how well capital

markets develop and work.1

Our analysis uses a comprehensive dataset of all countries that have had any

privatization activity since 1982. In about half of these countries, the state has privatized at

least one bank. We seek to isolate why some countries have privatized banks and others

have not. We examine institutional, political, and banking-sector specific variables and ask

which factors are related to the decision to sell a SOB. We also examine factors related to

when a country privatizes banks. Most importantly, we split the sample into developing and

developed countries to see if there are systematic differences based on level of economic

development.

We hypothesize that several economic and political factors impact a government’s

decision to privatize (and when to privatize) a state-owned bank. The economic factors

include the fiscal condition of the country, the efficiency and size of the nation’s banking

sector, the occurrence of a banking crisis, and the level of capital market development. The

1
See, e.g., Megginson and Netter (2001), Djankov and Murrell (2002), and Denis and McConnell (2003) for
comprehensive discussions of the privatization phenomena.
political variables include measures of government stability and political risk, the economic

orientation of the government, and the accountability of the government to the public.

We find that in non-OECD countries bank privatization is more likely the lower the

quality of the nation’s banking sector, more likely with a right-wing government, and more

likely the greater the government’s accountability to the people. These political factors are not

as important in OECD countries, where poor fiscal conditions are the primary determinant of

bank privatizations. These results are generally robust to different model specifications –

univariate tests, logistic regressions explaining whether a country had privatized a bank, and a

duration model explaining the time to the first SOB privatization.

Overall, our findings suggest that the institutional environment is a very important

determinant of the likelihood of privatizing banks in developing countries. This is consistent

with an expanding literature that stresses the importance of the legal and political environment

in the development of capital markets (see Denis and McConnell (2003)). Our work is most

directly related to Bortolotti and Pinotti (2003) who, using panel data for 21 industrialized

countries, show that the probability of privatization is significantly associated with the

characteristics of a country’s political system.2 In the case of banks, we show that this holds in

non-OECD countries, but not in OECD member nations.

One way to study the decision process that leads to bank privatizations is to focus in

detail on specific countries. This approach makes it easier to control for many institutional,

legal, social, and economic factors that are difficult to deal with in cross-sectional studies. In

the area of bank privatization, Clarke and Cull (1997, 2000, 2002) provide excellent examples

of detailed country analyses. For example, Clarke and Cull (2002) examine how the

implementation of the Argentinean Convertibility Plan in the early 1990s affected the political

and economic incentives for provincial governments to own banks. They find that poorly

2
Bortolotti and Pinotti (2003) find that the presence of a majoritarian political system increases the likelihood of
privatization. They argue that in consensual democracies, privatization proceeds more slowly.

2
performing banks were most likely to be privatized and overstaffed and larger banks were less

likely to be sold. In addition, higher levels of provincial unemployment and higher shares of

public employees reduced the probability of privatization.

A second approach, the one we choose in this paper, is to study a broader cross-

section of countries. While it does not allow us to investigate detailed country-specific issues,

we believe it complements the individual-country analyses. We acknowledge the potential

shortcomings of a broader approach, because partially incomplete data and inconsistencies

across countries limit our ability to draw general inferences (see Megginson and Netter (2001,

p. 346)). On the other hand, we can focus on systematic variations across countries and

identify the conditions that appear to be important for bank privatizations. We believe this

broader analysis of bank privatization can add important insights for policy makers and

regulators.

The remainder of our paper is organized as follows. Section 2 describes our sample.

Section 3 outlines our empirical methodology. In Section 4, we identify economic and political

characteristics that may affect the likelihood of SOB privatization and present our results.

Section 5 provides a summary and a conclusion.

2. Bank Privatization Data

Our sample of privatizations is from the comprehensive dataset of Megginson, Nash,

Netter, and Poulsen (2004). They obtained as comprehensive a sample of privatizations as

possible drawing their sample from two principal sources: Privatization International, a

proprietary database that attempts to include privatizations from all nations (developing and

developed); and the World Bank Privatization database. In addition, they contacted various

governments to make sure their data were complete (see Megginson, Nash, Netter, and

3
Poulsen (2004) for further description of the data). These data provide details regarding each

privatizing transaction (e.g., offer size, offer date, method of sale, percent of capital sold).

Table 1 (Panel A) provides basic descriptive statistics of the privatization activity in our

sample countries. Including both developed and developing nations, 101 countries privatized

a state-owned firm from 1982-2000. Almost exactly half of the countries that conducted a

privatization decided to privatize a state-owned bank (SOB). Overall, privatization of SOBs

account for approximately 11% of the number of transactions and 10% of the value privatized.

Our sample includes privatizations by public share offerings (share-issue privatizations or

SIPs) and by direct sale to a private investor (asset sales). Our SOB transactions are

approximately evenly divided between SIPs (47%) and asset sales (53%). The average

(median) SOB privatization raises $442 million ($156 million). These values are similar to the

findings of Verbrugge et al. (1999).3 Also consistent with Verbrugge et al. (1999), we find that

governments are hesitant to relinquish control of SOBs (i.e., privatize more than 50% of the

capital). The average (median) percentage of SOB capital privatized is 47.7% (41%).

Panel B partitions the sample by OECD and non-OECD countries. We identify a

country as OECD if it was an OECD member as of 1982. Of the 80 non-OECD countries in

our sample, 33 (41.3%) implemented a SOB privatization. A much higher proportion (almost

86%) of OECD countries privatized a SOB during our sample period. The SOB transaction

size is smaller for non-OECD countries, where the average (median) SOB transaction is $247

million ($85 million) vs. $710 ($376) in the OECD. The government does not typically

relinquish control in SOB transactions in either subsample.

Table 2 presents the SOB privatizing transactions by country for each year of our

sample period. Panel A (non-OECD countries) reveals that SOB privatization was relatively

3
The average (median) from Verbrugge et al. (1999) is slightly higher because they focus exclusively on SOB
privatization through public share offerings. Megginson et al. (2004) show that share-issue privatizations are much
larger than asset sales.

4
infrequent until the early 1990s. SOB transactions were heaviest in the later 1990s with 68%

occurring between 1994 and 1999. Of the non-OECD countries, Mexico conducted the most

SOB privatization transactions (20 sales during our sample period).4 Panel B provides similar

details regarding SOB privatization in OECD countries. As in the non-OECD countries, SOB

privatization activity was greatest in the 1990s with 60% of the OECD transactions from 1995-

1999.

In Table 3, we present information about the timing, quantity, and size of privatization

activity in each of our sample countries. The table shows the period of time between a

country’s first privatization (regardless of industry) and its first SOB privatization. For the initial

transaction, most countries chose a SOE from an industry other than banking. The first SOB

privatization typically occurs 1-3 years later (median of 1 year for non-OECD; 2.5 years for

OECD). Next, the table presents the number of SOB transactions compared to all

privatizations in each country. Finally, Table 3 shows the dollar-value of SOB privatizations

relative to all privatizations. We see that the average non-OECD country conducts a smaller

number of SOB transactions (9% of total transactions for non-OECD vs. 19% for OECD).

Also, SOB privatizations in non-OECD countries represent a smaller relative amount of the

dollar-value privatized (11% vs. 18% for the OECD).

3. Methodology

Our goals in this paper are to investigate determinants of a country’s decision to

privatize a SOB, examine factors impacting the timing of bank privatization, and determine

whether these factors differ in developing (non-OECD) and developed (OECD) countries. To

identify differences between OECD and non-OECD countries, we provide separate analyses

4
While now an OECD country, Mexico did not become a member until 1994. We specify OECD membership as of
1982 (the start date for our sample). Later in the paper, we perform a duration analysis that explicitly considers the
year in which a country became an OECD member.

5
for these two groups. In a first step, we use the entire multi-year panel of 101 countries

(discussed above) to contrast governments that privatize a SOB to those that do not. To

address when a bank is privatized, given the country’s general intent to open its economy, we

condition the analysis on completed privatizations in any industry. More specifically, we

investigate countries that have completed a privatization (whether a bank or a firm from

another industry). Eighteen of the 101 countries in our sample sold a bank in their first

privatization deal. Thirty-three others initially privatized a firm from another industry and sold a

bank subsequently. Approximately half (50 countries) of our sample privatized non-bank

SOEs but did never privatize a bank.

We first provide a univariate comparison of country characteristics during the year of

the bank privatization. Second, we use a logistic regression model to estimate each variable’s

marginal effects on the likelihood of a bank privatization. Third, we estimate a duration model

with time-varying covariates that allows us to investigate how long it takes a country to

privatize a SOB. The unconditional analysis is valuable, because it provides a general picture

of potential determinants and allows us to identify the equilibrium changes associated with the

decision to privatize a bank. However, without a multivariate model, we cannot disentangle

the relative influence of each variable. Specifically, we model the yearly probability that a

country privatizes a bank, and use a logit link function to associate this probability with the

potential explanatory variables discussed above. The logistic analysis is, by construction, not

able to explicitly incorporate the time dimension. A country’s decision to privatize a bank is

likely to change over time, as economic, political, and financial conditions change. In a third

approach, we explicitly model this dependency. We measure the time between a country’s

first general privatization and its first SOB privatization, and examine which factors determine

the length of this period.

The panel nature of our data makes it necessary to control for unobservable effects

that may be associated with countries or specific years. It makes little sense to control for

6
country effects, because our primary interest lies in the cross-sectional differences between

countries. We do control for unobservable time effects by including fixed effects for each year

except the most recent. This approach yields consistent estimates when time effects are

present, but it reduces the number of observations we can use. While the univariate tests are

based on all country-years, we have to eliminate years where no country privatized a bank

from the panel estimation. For example, there is no SOB privatization in 1987; this implies that

all 1987 observations for the dependent variable are equal to zero. As a result, the fixed time

effects would provide a quasi-complete separation of data points and maximum-likelihood

estimates would not be unique. We believe this approach is more powerful and more

reasonable than to either ignore time effects (which is econometrically problematic) or to

condense the panel to a cross-section (which ignores information and thus reduces power).

For each group (OECD and non-OECD), we retain all years where at least one country

privatized at least one bank. The estimation results are not sensitive to this particular

specification. Although estimates may not be consistent, we obtain qualitatively identical

results when we omit time fixed effects and use the entire panel for estimation.

For each regression, we report maximum-likelihood coefficient estimates and the p-

value of the associated Wald Χ2 statistics. In addition, to aid interpretation of the estimates, we

compute the odds ratio (the change in the probability of a bank privatization) for a one-

standard-deviation increase in each independent variable. Finally, we provide the p-value of a

likelihood-ratio test that all coefficients are jointly equal to zero to gauge the explanatory

power of each regression.

The last analysis seeks to explain the factors that impact when a country first

privatized a bank. An advantage of our data panel is that we can pinpoint each country’s first

privatization. Because we also know when it privatized its first bank, a natural question is how

long this process takes. This is important, because political considerations make the general

decision to begin privatizing state-owned firms distinctly different from the decision to privatize

7
a bank. Using a hazard-rate model, we can estimate the determinants of the length of this

process. Specifically, a country is assumed to have a certain probability of exiting (i.e.,

privatizing its first bank) in each period, measured by the following hazard rate:

probability of exiting between t and t + ∆t

h(t ) =
probability of exiting after t
Xβ
We estimate a semiparametric Cox (1972) model h(t) = h0(t)e with time-varying covariates

X that have a multiplicative effect on the hazard. The baseline hazard h0(t) is left unspecified

as in the Cox (1972) model. The coefficients β are estimated via partial maximum likelihood.

As in the logistic regression, we want to capture the fact that countries have a choice

between privatizing a SOB and doing nothing. However, we now model this decision

dynamically by allowing a country to revisit the decision in every year until a bank is sold.

Another advantage of the duration model is that we can explicitly address the right-censoring

in our sample. Censoring arises, because any country that has not yet privatized a bank (by

the end of our sample period) may still do so in the future. The matrix of covariates X consists

of the same explanatory variables used in the logistic regression. Our methodology allows all

variables to vary over time. This is important because changes in these variables may affect

a country’s choice.

4. Results: Political Factors Affecting Likelihood and Timing of SOB Privatization

Our independent variables measure the economic and political factors predicted to

influence a government’s decision of whether to privatize a SOB. Sources for the explanatory

variables include the Emerging Stock Markets Factbook, International Financial Statistics,

International Country Risk Guide (PRS Group), databases from the World Bank and others,

and various academic papers. Table 4 provides a detailed list of all independent variables and

sources. We discuss each in turn, along with the univariate results.

8
 Table 5 presents our univariate analysis comparing country-years with no SOB

transactions to those with SOB privatizations. We report both means and medians and test

whether they are equal between the two groups of countries (using a two-sample t-test and a

non-parametric Wilcoxon rank-sum test, respectively). The univariate results provide evidence

consistent with many of our hypotheses. We focus on the non-OECD countries but also

identify instances when the influence of a factor differs between the OECD and non-OECD

subsamples. We then discuss the logistic regressions and the duration model results.

4.1. Economic Factors

When contemplating the privatization of a SOB, a government may consider factors

specific to the banking sector as well as factors relating to the broader economy. In the

following paragraphs, we describe potential economic influences on privatization policy. We

also hypothesize how each economic factor may affect the probability that a government will

privatize a state-owned bank.

4.1.1. Fiscal Pressure

A common objective of privatizations is to raise revenue for the government. In a

study specific to bank privatizations, Verbrugge et al. (1999) find that governments appear to

structure SOB privatizations in order to maximize the proceeds from the sale. However,

Clarke and Cull (2002) find little evidence that fiscal needs impacted the likelihood of

privatization in Argentina. Further, since a government’s need for revenue is especially

pronounced during periods of fiscal crisis, we expect the probability of SOB privatization to

increase as a country’s deficit widens.5 We identify the annual budget deficit for each country

from the International Financial Statistics of the IMF. We find no evidence of differences in the

deficit between non-OECD countries that privatized a bank and those that did not. For OECD

5
Megginson et al. (1994) state that governments frequently use the proceeds from privatizations to offset budget
deficits.

9
countries, the median deficit is larger in absolute terms for countries that privatized a SOB.

This suggests fiscal pressure was related to the decision to privatize.

4.1.2. Efficiency of Banking Sector

Governments may also consider the efficiency of the banking sector when considering

the privatization of SOBs. Privatization frees the government from providing subsidies to loss-

making SOEs and encourages the restructuring of unprofitable firms. Caprio and Klingebiel

(2000) and Verbrugge et al. (1999) show that many state-owned banks exhibit poor financial

performance, possibly because the banks were used to make politically-motivated loans. If

governments use privatization to improve financial performance, SOB privatization should be

likely in countries with less efficient banking sectors. Consistent with this hypothesis, Clarke

and Cull (2002) find strong evidence that poorly performing SOBs are more frequently

privatized.6

We employ two metrics to gauge the efficiency of a country’s banks. Our first measure

of bank quality is the ratio of bank loans to the public sector to total bank assets. In an earlier

paper, Clarke and Cull (1997) show that less efficient banks typically make more loans to

public entities. Further, they find that a larger relative amount of lending to the public sector

increases the probability that a SOB would be privatized. Therefore, if a higher proportion of

loans to public entities are a characteristic of lower efficiency, we expect a positive relation

between lending to government and the probability of SOB privatization.

Our second proxy for bank quality focuses on bank capital. Lower amounts of capital

should indicate a weaker and less efficient banking sector. Our bank capital ratio is the

difference between total bank assets and total bank deposits divided by total bank assets. We

predict a negative relation between our bank capital ratio and the likelihood of SOB

privatization.

6
Clarke and Cull (2002) report that the worse performing banks (measured by ratio of net worth to liabilities and
percentage of loans that are overdue) are more likely to be privatized.

10
 The univariate results support our hypotheses regarding the relation between banking

efficiency and the likelihood of SOB privatization. In the comparison of means for non-OECD

countries, we find the expected negative association between the bank capital ratio and the

likelihood a government privatizes a SOB. This does not hold in the OECD countries.

However, inspection of the bank capital ratios reveals that the OECD banks have much more

capital (approximately 46% of total assets vs. approximately 30% for the non-OECD).

Therefore, lack of adequate capital is not as critical a concern in OECD countries. The data in

Table 5 also support our expectation that privatization is more likely if banks extend more

loans to government entities. The mean and median values of the ratio of loans to government

are higher for countries that privatized a bank than those that did not. This holds in non-

OECD countries and OECD countries. It is one of the few factors that has a similar effect on

the probability of SOB privatization in both OECD and non-OECD countries.

4.1.3. Banking Crisis

Clarke and Cull (1997, 2000, 2002) and World Bank (1995) note that governments

facing an economic crisis, such as systemic bank failures, are more likely to privatize. A

systemic banking crisis occurs when much or all of a nation’s bank capital is exhausted.

Clarke and Cull (2002), Barth, Caprio, and Levine (2000), and Caprio and Klingebiel (1996)

document banking crises around the world during our sample period. Bank insolvencies have

been especially costly in developing countries and have substantially contributed to

government deficits. Therefore, to lessen the fiscal burden and reduce the probability of future

bank failures, governments may be more likely to privatize SOBs following a systemic banking

crisis. We expect that this effect should be stronger in developing countries. We use the data

from Barth et. al. (2000) and Caprio and Klingebiel (1996) to construct a variable that takes

the value 1 if a country had a bank crisis in that year and 0 otherwise.

11
 Consistent with our prediction, the univariate results indicate that a banking crisis

increases the probability of a SOB privatization in non-OECD countries – the mean and

median values of the crisis variable are higher in the countries that privatized a bank. There is

no relation between banking crises and SOB privatization in OECD countries.

4.1.4. Capital Market Development

Megginson et al. (2004) present evidence that governments use privatizations to spur

the growth of fledgling financial markets. Perotti and Oijen (2001), Subrahmanyam and

Titman (1999), and McLindon (1996) note that privatization through public share offerings can

jumpstart stock-market development and trigger gains in economic growth and efficiency.7 For

example, the privatization of large banks through share offerings should enhance the liquidity

of the nation’s equity market. With more shareholders, the market becomes more efficient.

This encourages more firms to go public, and the capital market experiences rapid growth.

Verbrugge et al. (1999) document that SOB privatizations have created hundreds of

thousands of new shareholders in countries around the world. The benefits from SOB

privatization should be most significant in the equity markets of developing nations. These

countries typically have less sophisticated capital markets (Demirguc-Kunt and Huizinga,

2000) and more state-owned banks (Barth et al., 2000). Therefore, if governments use

privatizations to encourage stock market development, we expect SOB privatizations to be

more likely in nations with less developed equity markets. We follow Megginson et al. (2004),

Booth et al. (2001), Demirguc-Kunt and Maksimovic (1999) and others and measure equity

market development with the ratio of annual equity value-traded to market capitalization.

7
Beck, Levine, and Loayza (2000), Rousseau and Wachtel (2000), Subrahmanyam and Titman (1999), and Rajan
and Zingales (1998) also analyze the relationship between development of a nation’s financial market and greater
economic efficiency and growth.

12
 The univariate tests reveal a positive relation between equity market development and

the probability of SOB privatization in non OECD countries (the mean and median values are

higher in the countries that privatized a bank). This is inconsistent with the hypothesis that

governments use SOB privatizations to stimulate the growth of domestic stock markets.

However, this result is consistent with Verbrugge et al. (1999) who find that governments often

require a well-developed equity market in order to execute a larger bank SIP. Furthermore,

while SOB privatizations can create many new shareholders, other types of privatizations

typically have an even larger impact on stock market development. Megginson et al. (2004)

show that telecom privatizations are the largest offerings in a majority of countries and create

the most new shareholders. Therefore, governments seeking to develop equity markets may

do so through privatization of telecoms or other state-owned enterprises which are perhaps

larger or more well-known than the nation’s SOBs. In addition, the univariate results do not

capture the more subtle difference between using SIP and asset sale privatizations to develop

capital markets (see Megginson et al. (2004)). This may be important, because only SIP

privatizations have a direct effect on the development of capital markets.

4.1.5. Size of the Private Banking Sector

Similar to using privatization to bolster its capital market, a government may also use

SOB privatization to enhance the country’s private banking sector. Beck et al. (1999) report

that state-owned banks are more dominant in developing countries. We also have anecdotal

evidence that state-owned banks are notorious for making politically-motivated loans, which

are often economically unsound. As a result, governments may choose to privatize SOBs to

improve access to private funding and reduce the state’s involvement in capital allocation. We

expect governments of countries with smaller private banking sectors to be more likely to

privatize SOBs. Demirguc-Kunt and Huizinga (2000) present two proxies to measure the size

of a nation’s private banking sector. First, the aggregate assets of private banks (as a

percentage of GDP) indicate the overall size of a nation’s private banking sector. Second, the

13
aggregate credit from private banks to the private sector (as a percentage of GDP) identifies

the quantity of credit provided by private banks. We expect that the probability of SOB

privatization should be negatively related to each of these measures of banking sector

development.

The univariate results provide no evidence of a relation between the likelihood of SOB

privatization and the size of a nation’s banking sector. However, we will further test for this

relation in our multivariate analysis.

4.2. Political Factors

In addition to economic characteristics, political and legal factors also influence the

privatization decision (see Denis and McConnell (2003) and Megginson and Netter (2001) for

a more complete discussion of the influence of political and legal factors on the workings of

capital markets). Political influences are especially important in SOB privatizations because

state-owned banks provide a significant source of political rents. Verbrugge et al. (1999) and

Shleifer and Vishny (1994) describe SOBs as a powerful political tool, frequently used to

reward supporters with high-wage jobs or favorable loans. Furthermore, Claessens and

Djankov (1998) and Bortolotti et al. (2002) note that governments use SOBs to channel funds

that cover the losses of other state-owned enterprises. Such subsidies are commonly

necessary because the other SOEs are also being used to garner political favor. We identify

the following political factors which may influence the likelihood of SOB privatization.8

4.2.1. Political Risk & Government Stability

Clarke and Cull (2002) argue that politicians choose to privatize when the political

benefits of privatization exceed the political costs. Privatization may subject a government to

substantial political cost because it is frequently associated with layoffs or other politically

undesirable consequences. As a result, less stable governments may be unwilling or unable

8
The measures of political risk and legal factors are necessarily imperfect. In addition, they are often correlated
with each other. Thus, the results for these variables, especially in a univariate analysis, should be viewed with
some skepticism.

14
to accept the political risk involved in a large privatization. Bortolotti and Pinotti (2003) support

this conjecture with the finding that privatization is more likely in more stable regimes.

Political risk may be especially significant in coalition or consensual governments. In

regimes with consensual rule, at least one group’s constituents will probably be averse to

privatization. This makes obtaining approval for privatization very difficult. Clarke and Cull

(2002) find weak evidence that privatization is less likely if another party holds veto power to

block the privatization at either the legislative or executive levels. Similarly, Bortolotti and

Pinotti (2003) confirm that privatization occurs more frequently in majoritarian governments

(where it is easier to gain consent for policy decisions and the executive enjoys greater

stability). Furthermore, Svensson (1998), Clague et al. (1996), and Knack and Keefer (1995)

contend that less stable governments may lack the ability to effectively enforce property and

contractual rights. Such protection is necessary to implement privatization. Accordingly, we

expect a positive relation between government stability and the likelihood of SOB privatization.

Our government stability variable is from the International Country Risk Guide (PRS Group)

and measures each country’s overall political risk. This variable includes the government’s

ability to stay in office and carry out its declared programs.

The results reveal that in OECD countries greater political stability is associated with

SOB privatization (means and medians of the political risk variables are significantly lower in

countries that privatized a SOB). We find the opposite result for non-OECD countries.

4.2.2. Economic Orientation of Government

The executive’s economic ideology may also impact the government’s likelihood of

privatizing a SOB. Beck, Clarke, Groff, Keefer, and Walsh (2001) identify the economic

orientation of each country’s ruling government, classifying right-wing governments

(conservative, Christian democratic, or rightist parties) as those that favor less state control

over the economy and left-wing governments (communist, socialist, or leftist parties) as those

that exert more state control. Megginson et al. (2004) and Clarke and Cull (1997) use similar

15
measures of ideology and find that a government’s economic orientation figures significantly in

its privatization decisions. We follow Clarke and Cull (1997) and expect that a state-owned

bank is more likely to be privatized by a fiscally conservative (right-wing) government.

We measure political orientation with an indicator variable (Right) which takes a value

of 1 if the executive is from a right-wing party (as specified by Beck et al. (2001)). In the

univariate results for this variable, we do not find any significant differences between

privatizing countries and those that did not privatize a SOB.

4.2.3. Public Pressure & Accountability to Voters

We note above that SOBs may be valuable to politicians as tools to build support

through the channeling of funds to favored constituents. However, a public official’s ability to

capture rents from state-bank ownership may be limited by an institutional structure that

provides accountability to voters. Shapiro and Willig (1990) note that a well-functioning

political system restricts the ability of politicians to pursue personal interests. Additionally,

Bortolotti and Pinotti (2003) contend that the threat from facing more competitive elections

keeps public officials “on their toes” and mitigates a politician’s willingness to exploit SOEs for

political or personal gain. Since politicians who are more accountable to voters may be less

willing to expropriate value from SOEs, these politicians should view privatization as a more

viable option.9 Therefore, greater accountability to voters, by limiting the ability to extract

political benefits from SOBs, should increase the likelihood of privatization. We measure the

politician’s degree of accountability to voters with the democratic accountability index from the

International Country Risk Guide (PRS Group). We predict a positive relation between

democratic accountability and the likelihood of SOB privatization. In non-OECD countries,

greater government accountability is associated with more SOB privatizations (for both mean

and median). However, we again find the opposite result for OECD countries.

9
Bortolotti and Pinotti (2003) find that the likelihood of privatization increases as politicians face more competitive
elections.

16
 A complication is that the accountability of government to voters may be related to

other factors. For example, in the case of banks, public pressure on politicians to privatize

state-owned banks may be exacerbated by events such as a banking crisis. Clarke and Cull

(1997, 2002) identify a significant increase in the likelihood of SOB privatization in Argentina

following the Tequila Crisis. They further note that the crisis intensified public support for

privatization by exposing the politically-motivated activities of the SOBs. 10

The success of earlier privatizations may also increase public pressure calling for the

government’s sale of SOBs. As Megginson and Netter (2001) summarize, privatized firms

frequently exhibit significant improvements in financial and operating performance.

Furthermore, privatizations allow divesting governments to generate revenue without raising

taxes. As a result, popular support for SOB privatization may strengthen as privatization

becomes more widespread. In their study of the privatization experience in Argentina, Clarke

and Cull (1997) find that government sales of SOBs become more likely over time.

Accordingly, we expect that the probability of SOB privatization increases as time passes

since the nation’s first privatization. To capture this effect, we compute the time since first

privatization for all country-years. For both non-OECD and OECD countries, the number is

significantly higher for countries with a bank privatization. This suggests that privatization in

general builds momentum for bank privatization.

4.3. Regression results

In this section, we first report the results of logistic regressions that model a country’s

decision to privatize a SOB. Next, we estimate a duration model that explicitly considers that

10
Government involvement in banking (e.g., politically-motivated lending) contributed to the banking crisis in many
nations. See Caprio and Klingebiel (1996).
13
While counter to our prediction, this is understandable since, as noted by Megginson et al. (2004), privatizations
of telecoms (not banks) are more frequently used when governments seek to build capital markets.

17
this decision may vary with changes in the economic, financial, and political environment over

time.

4.3.1. Logistic regressions explaining whether a country has privatized a SOB

Table 6 presents our logistic regression results for the non-OECD (Panel A) and

OECD (Panel B) subsamples. We provide two models that include variables we hypothesize

to affect the likelihood of SOB privatization. As with the univariate analysis, we focus on the

difference between non-OECD and OECD countries.

Our data indicate that the bank quality variables are critical factors in a government’s

decision to privatize SOBs in developing countries. For the non-OECD countries, we find that

both of our measures of banking sector efficiency significantly affect the probability of SOB

privatization. Lower bank capital ratios suggest less efficient banks. Consistent with our

predictions, there is a significant negative relation between the bank capital ratio and the

likelihood of SOB privatization. A larger proportion of lending to the public sector is another

indicator of poorly performing banks. Table 6 (Panel A) shows that SOB privatization is more

likely if banks make more loans to the public sector. Overall, these findings suggest that

governments in non-OECD countries are more likely to privatize a SOB when the quality of

the nation’s banking sector is poor. We find no evidence of a relation between bank quality

and the probability of SOB privatization in OECD countries (Panel B).

In the non-OECD countries, the government’s fiscal condition does not appear to affect

the likelihood of SOB privatization. Panel A indicates no significant relation between the

government’s deficit and its decision whether to privatize a SOB. However, in the OECD

countries (Panel B), the government’s deficit is a significant determinant of SOB privatization.

Additionally, the regressions reveal no significant relation between equity market development

(as measured by MktDevlp) and the probability of SOB privatization. Therefore, governments

18
do not appear to use SOB privatizations as instruments to expand the size and liquidity of

equity markets.13

The regressions also provide strong support for our hypotheses regarding the effect of

political variables. First, in the non-OECD countries, right-wing governments are significantly

more likely to privatize a SOB. Verbrugge et al. (1999) contend that state-owned banks play a

prominent role in a government’s planning and control of the economy. Right-wing

governments are expected to favor less state involvement in the financial sector. We do not

find a similar relation in the OECD countries—the right-wing proxy is insignificant in Panel B.

Our second political variable, democratic accountability (Dem. Account) is positive and

significant in the non-OECD regressions. This is consistent with the hypothesis that greater

accountability to the people limits a public official’s ability to use a SOB for political advantage.

As a result, a politician finds the privatization of SOBs more acceptable because the

associated opportunity cost is lower. The data support this hypothesis in the non-OECD

countries (but not in the OECD). The final political variable measures the impact of

government stability on the decision whether to privatize a SOB. Our measure of government

stability, the Political Risk Index, is not significant in any of the models.

In sum, we find significant differences in the factors that affect bank privatization in

non-OECD and OECD countries. Political and legal factors as well as the efficiency of the

banking system are important determinants of privatization in developing countries. In

contrast, in developed countries, what appears to motivate privatizations is poor fiscal

condition of the government. These results are robust to alternative specifications. In

unreported tests, we estimated separate models based on different sets of economic and

political variables (i.e., additional measures of the banking sector, government power, political

risk, etc.). Generally, we find similar magnitudes and significance levels for all coefficients.

19
4.3.2. Determinants of the time until the first bank privatization

Table 7 reports results of duration models measuring determinants of the time until a

country’s first bank privatization. We provide three different specifications of the Cox (1972)

duration model that differ in how we treat the difference between OECD and non-OECD

countries. First, when we estimate separate models, there are only 21 countries in the OECD

group and consequently this regression has little power. Second, we estimate a pooled model

that explicitly allows different baseline hazards for OECD and non-OECD countries. Third, and

probably most reasonable, we use a time-varying OECD variable as a covariate. Since

several countries join the OECD after 1982, this variable should capture any difference in the

baseline hazard. Moreover, it goes beyond the separate models used in the logistic analysis,

because we can directly estimate how becoming an OECD member affects the likelihood of

bank privatization. As in the logistic model, we report hazard ratios instead of coefficients

because they are easier to interpret. Each ratio measures how much the hazard (i.e., the

instantaneous risk of exiting) increases for a unit change in the covariate. Hazard ratios

greater (less) than 1 imply that the covariate increases (decreases) the probability of exit.

We find that countries whose banks are less capitalized and extend more loans to the

government, and whose public officials are more accountable to the people privatize state-

owned banks faster. For example, model III shows that the odds ratio associated with the

bank capital ratio is 0.06. This suggests that a unit (100%) increase in bank capital ratios

reduces the probability of bank privatization (in any given year) by 94%. Similarly, a 10%

increase in the capital ration would reduce the probability by 9.4%.

In one instance, the duration results appear to point in a different direction than

expected: Better capital market development is associated with a greater likelihood of a bank

privatization. However, there are conflicting forces in the relationship between privatization

and capital market development. On one hand (more important in developing countries),

20
privatization can be used to improve the capital markets. On the other hand (more important in

developed countries), it is easier to privatize a SOB by selling shares to the public in a country

with a well-developed capital market.

Overall, the results are similar across the three models, except for the OECD-only

model that is based on just 21 cross-sectional observations (Model I, Table 7). The pooled

models show coefficients that are similar to those in the non-OECD model, which may

suggest that the OECD-only model fails to show significant results simply because of a lack of

power. On the other hand, the OECD-only logistic results are consistent with the OECD-only

duration results. Because the OECD-only logistic results are based on a panel of 276

observations, lack of power does not appear to be the main reason for the absence of political

determinants in developed countries. In sum, the duration results are largely consistent with

the logistic regressions; this attests to the robustness of both the logistic and the duration

models.14

5. Conclusion

This study examines the economic and political factors that affect whether and when

governments decide to privatize a state-owned bank. We are most concerned with bank

privatizations in developing (non-OECD) countries, but also compare results to developed

(OECD) countries to assess whether the importance of these factors differs across levels of

economic development. Using a comprehensive dataset (which includes privatizations in 101

countries from 1982-2000), we find that both economic and political factors significantly

influence a government’s decision to privatize a state-owned bank (SOB).

14
Both models derive their power from the cross-section of countries, and differ only in how the time dimension is
incorporated. The logistic model treats each period as independent (and we mitigate some of the resulting
econometric problems by including fixed time effects). In contrast, the duration model explicitly includes the time-
series variation in the independent variables and models the decision to privatize conditional on time.

21
 In developing countries, the most important influences on a government’s decision to

privatize a SOB relate to political conditions and the quality of the nation’s banking sector.

Consistent with Clarke and Cull (1997), we find that SOB privatization is more likely when

banks are less efficient (have lower quality). This negative relation between bank efficiency

and the probability of privatization is much stronger in the developing countries than in the

OECD countries. We also find that the government’s ideological orientation significantly

affects the likelihood of bank privatization in non-OECD countries. Specifically, the data

indicate a significant positive association between right-wing governments and the probability

of SOB privatization. Additionally, governments that have greater accountability to voters are

more likely to privatize a SOB.

In contrast, neither bank quality nor government ideology appear to be important

factors for bank privatizations in developed (OECD) countries. Instead, it seems that other

types of political factors (such as public pressure due to widening budget deficits) influence an

OECD government’s decision to privatize SOBs.

Our results are robust to various estimation methods and are largely consistent with

those of Clarke and Cull (2002), who study bank privatizations in Argentina. We feel that our

study adds value by expanding the analysis across several countries and throughout many

years. We also contribute to the growing literature that underscores the importance of political

and institutional factors in the development of capital markets.

22
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24
 Table 1

This table presents summary statistics for our sample of 101 countries which privatized firms from
1982-2000. SOB is state-owned bank. Other refers to a privatization involving an industry other
than banking. Data are from Privatization International and the World Bank. Transaction
amounts are in millions of US$ as of the date of the privatization.

Panel A presents summary statistics for the entire sample. Panel B separates the sample into
OECD and non-OECD countries. We identify OECD membership as of 1982.

Panel A

All Countries Total SOBs Other

Number of Countries 101 51 100

Number of Transactions 2407 270 2137

Average (Median) Size Per 482.6 442.1 487.7

Transaction in US$ millions (44) (156.3) (36)

Average (Median) Per Cent of 59.1 47.7 60.5

Enterprise Sold in Transaction (55) (41) (59)

Per Cent of Transactions

37.9 46.7 36.8
Through Share Offering

Total Value of All Transactions in

1,161,558 119,370 1,042,188
US$ millions
 Table 1 (continued)

Panel B

Non-OECD Countries Total SOBs Other

Number of Countries 80 33 79

Number of Transactions 1566 156 1410

Average (Median) Size Per 172 247 163

Transaction in US$ millions (18) (85) (15)

Average (Median) Per Cent of 58.8 46.3 60.2

Enterprise Sold in Transaction (55.0) (40.0) (59.0)

Per Cent of Transactions

34.0 43.6 32.9
Through Share Offering

Total Value of All Transactions in

268,495 38,473 230,022
US$ millions

OECD Countries Total SOBs Other

Number of Countries 21 18 21

Number of Transactions 841 114 727

Average (Median) Size Per 1062 710 1117

Transaction in US$ millions (210) (376) (177)

Average (Median) Per Cent of 59.7 49.6 61.2

Enterprise Sold in Transaction (51.5) (41.7) (60.0)

Per Cent of Transactions

45.2 50.1 44.3
Through Share Offering

Total Value of All Transactions in

893,063 80,897 812,166
US$ millions
 Table 2

This table presents the number of privatizing transactions involving state-owned banks (SOBs) by year for each country that privatized a SOB during 1982-2000.
Panel A presents data for non-OECD countries. We measure OECD membership as of 1982.

Panel A: Non-OECD Countries

Country 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Total
Argentina 1 1 1 2 5
Brazil 3 1 1 2 7
Cape Verde 1 1
Colombia 2 3 5
Egypt 1 4 1 1 7
Ghana 2 1 1 4
Guyana 1 1
India 1 1 1 1 4 8
Indonesia 1 1 2
Israel 1 4 1 1 4 3 1 1 16
Ivory Coast 1 1 2
Jamaica 1 1 2
Kenya 1 1 1 1 1 2 1 8
Korea 1 1 2
Kuwait 1 3 5 1 10
Lebanon 1 1
Malawi 1 1
Malta 1 1
Mexico 8 9 1 1 1 20
Morocco 1 5 2 8
Mozambique 1 1 2
Pakistan 1 2 3 6
Peru 1 2 1 1 1 1 7
Philippines 1 1 2 1 1 1 7
Singapore 1 1
Sri Lanka 1 1 2
Taiwan 1 1 1 3
Thailand 1 2 3
Trinidad & Tobago 1 1
Uganda 2 2 4
Uruguay 1 1
Venezuela 1 1 1 2 2 7
Zimbabwe 1 1

Total 0 0 0 0 2 0 1 2 3 11 15 9 13 11 23 34 13 12 7 156
 Table 2 (continued)

This table presents the number of privatizing transactions involving state-owned banks (SOBs) by year for each country that privatized a SOB during 1982-2000.
Panel B presents data for OECD countries. We measure OECD membership as of 1982.

Panel B: OECD Countries

Country 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Total
Australia 2 1 1 2 2 1 2 11
Austria 1 1 1 1 4
Belgium 1 2 1 1 1 1 7
Denmark 1 1
Finland 1 1
France 1 2 1 1 2 2 9
Germany 1 1 1 1 1 5
Greece 1 1 2 3 3 10
Iceland 1 3 1 5
Italy 1 1 1 1 1 1 2 1 1 5 2 2 19
Netherlands 1 1 2
New Zealand 1 1 1 1 4
Norway 1 1 2 2 6
Portugal 1 3 2 2 1 2 1 12
Spain 2 1 1 4
Sweden 1 1 1 1 4
Turkey 1 1 3 2 7
UK 1 1 1 3

Total 0 0 0 1 0 0 4 8 3 7 4 14 4 14 12 14 15 13 1 114
 Table 3

This table presents data about the timing, quantity, and size of privatization activity in our 80 sample countries
from non-OECD countries. We identify OECD membership as of 1982. The year columns display the year of
each country’s first privatization (regardless of industry) and its first bank privatization, respectively. Transaction
amounts are in millions of US$ as of the date of the privatization.

Panel A: Non-OECD Countries

Country First First SOB Time Since Number of % of $ Amount % of

Priv Priv First Priv SOB Priv SOB Priv SOB Priv SOB Priv
Algeria 1998 0 0% 0 0%
Angola 1997 0 0% 0 0%
Argentina 1990 1994 4 5 6% 998 3%
Bahrain 1994 0 0% 0 0%
Bangladesh 1994 0 0% 0 0%
Barbados 1992 0 0% 0 0%
Belize 1990 0 0% 0 0%
Benin 1994 0 0% 0 0%
Bolivia 1992 0 0% 0 0%
Brazil 1988 1997 9 7 6% 5,521 8%
Burkina Faso 1994 0 0% 0 0%
Cameroon 1996 0 0% 0 0%
Cape Verde 1999 1999 0 1 50% 33 41%
Chile 1988 0 0% 0 0%
Colombia 1991 1994 3 5 29% 1,414 19%
Congo 1996 0 0% 0 0%
Costa Rica 1994 0 0% 0 0%
Dominican Republic 1999 0 0% 0 0%
Ecuador 1993 0 0% 0 0%
Egypt 1993 1993 0 7 6% 356 8%
El Salvador 1998 0 0% 0 0%
Ethiopia 1998 0 0% 0 0%
Gabon 1998 0 0% 0 0%
Ghana 1994 1996 2 4 9% 88 8%
Grenada 1994 0 0% 0 0%
Guatemala 1997 0 0% 0 0%
Guinea 1995 0 0% 0 0%
Guinea-Bissau 1992 0 0% 0 0%
Guyana 1991 1997 6 1 17% 20 18%
Haiti 1992 0 0% 0 0%
Honduras 1994 0 0% 0 0%
Hong Kong 1999 0 0% 0 0%
India 1991 1991 0 8 11% 2,576 34%
Indonesia 1994 1996 2 2 12% 512 6%
Iran 1995 0 0% 0 0%
Israel 1986 1992 6 16 33% 4,524 62%
Ivory Coast 1995 1999 4 2 6% 14 3%
Jamaica 1986 1986 0 2 13% 40 14%
Jordan 1995 0 0% 0 0%
Kenya 1986 1986 0 8 27% 87 47%
Korea 1989 1994 5 2 14% 964 9%
Kuwait 1994 1994 0 10 50% 1,009 50%
Lebanon 1998 1998 0 1 100% 122 100%
 Country First First SOB Time Since Number of % of $ Amount % of
Priv Priv First Priv SOB Priv SOB Priv SOB Priv SOB Priv
Lesotho 1999 0 0% 0 0%
Libya 1997 0 0% 0 0%
Malawi 1996 1998 2 1 6% 3 11%
Malaysia 1985 0 0% 0 0%
Mali 1996 0 0% 0 0%
Malta 1998 1999 1 1 50% 250 73%
Mauritania 1999 0 0% 0 0%
Mexico 1988 1991 3 20 29% 14,954 47%
Morocco 1993 1994 1 8 10% 626 24%
Mozambique 1995 1996 1 2 11% 32 42%
Nepal 1992 0 0% 0 0%
Nicaragua 1994 0 0% 0 0%
Nigeria 1989 0 0% 0 0%
Oman 1992 0 0% 0 0%
Pakistan 1990 1991 1 6 19% 101 6%
Panama 1991 0 0% 0 0%
Papua New Guinea 1996 0 0% 0 0%
Paraguay 1994 0 0% 0 0%
Peru 1991 1991 0 7 7% 394 4%
Philippines 1989 1989 0 7 26% 718 25%
Qatar 1998 0 0% 0 0%
Senegal 1997 0 0% 0 0%
Sierra Leone 1997 0 0% 0 0%
Singapore 1990 1993 3 1 9% 27 0%
South Africa 1988 0 0% 0 0%
Sri Lanka 1989 1994 5 2 3% 78 11%
Taiwan 1989 1992 3 3 14% 1,774 22%
Tanzania 1995 0 0% 0 0%
Thailand 1988 1989 1 3 18% 568 24%
Trinidad & Tobago 1993 1994 1 1 6% 0 0%
Tunisia 1995 0 0% 0 0%
UAE 2000 0 0% 0 0%
Uganda 1992 1997 5 4 15% 27 19%
Uruguay 1990 1990 0 1 50% 15 88%
Venezuela 1990 1990 0 7 26% 587 10%
Zambia 1993 0 0% 0 0%
Zimbabwe 1994 1997 3 1 14% 44 31%

Total 156 38,473

Average 1993 1994 2.2 2.0 9% 481 11%
Median 1994 1994 1.0 0 0% 0 0%
 Table 3 (continued)

This table presents data about the timing, quantity, and size of privatization activity in our 21
sample countries from OECD countries. We identify OECD membership as of 1982. The year
columns display the year of each country’s first privatization (regardless of industry) and its first
bank privatization, respectively. Transaction amounts are in millions of US$ as of the date of the
privatization.

Panel B: OECD Country

Country First First SOB Time Since Number % of $ Amount % of

Priv Priv First Priv SOB Priv SOB Priv SOB Priv SOB Priv
Australia 1989 1989 0 11 15% 7,488 12%
Austria 1987 1995 8 4 12% 2,157 19%
Belgium 1991 1993 2 7 50% 3,726 45%
Denmark 1990 1993 3 1 14% 110 1%
Finland 1988 1995 7 1 4% 134 1%
France 1987 1991 4 9 21% 13,208 18%
Germany 1988 1988 0 5 9% 5,597 4%
Greece 1991 1991 0 10 33% 2,430 25%
Iceland 1992 1993 1 5 71% 240 99%
Ireland 1991 0 0% 0 0%
Italy 1985 1985 0 19 25% 25,593 22%
Japan 1986 0 0% 0 0%
Netherlands 1989 1989 0 2 8% 1,322 7%
New Zealand 1988 1988 0 4 17% 1,812 19%
Norway 1990 1993 3 6 60% 2,107 53%
Portugal 1989 1989 0 12 19% 3,768 13%
Spain 1989 1993 4 4 10% 5,610 13%
Sweden 1989 1994 5 4 25% 3,405 16%
Switzerland 1998 0 0% 0 0%
Turkey 1988 1993 5 7 6% 1,235 16%
UK 1982 1989 7 3 2% 955 1%

Total 114 80,897

Average 1989 1991 2.7% 5.4 19% 3,852 18%
Median 1989 1992 2.5% 4.0 14% 2,107 13%
 Table 4

This table presents the definitions and data sources for the independent variables used in our
empirical analysis.

Variable: Turnover
Definition: Total Equity Value Traded – in millions of current U.S. $
Source: Emerging Stock Markets Factbook

Variable: MktCap
Definition: Total Equity Market Capitalization – in millions of current U.S. $
Source: Emerging Stock Markets Factbook

Variable: MktDevlp
Definition: Turnover/MktCap
Source: Emerging Stock Markets Factbook

Variable: Right
Definition: Economic Orientation of Executive Branch of Government – 1 = right-wing executive
Source: Database of Political Institutions; Beck et al. (2001)

Variable: GNI
Definition: Gross National Income – per capita, PPP-adjusted (current international $)
Source: World Bank SIMA Database

Variable: GDP
Definition: Gross Domestic Product – in millions of current, local currency
Source: World Bank SIMA Database

Variable: Loans to Govt.

Definition: Loans by private banks to central government and other government entities (non-
financial public enterprises); millions of units of local currency
Source: International Financial Statistics

Variable: Private Loans

Definition: Loans by private banks to private sector; millions of units of local currency
Source: International Financial Statistics

Variable: Bank Assets

Definition: Total bank assets; millions of units of local currency
Source: International Financial Statistics

Variable: Bank Capital

Definition: (Total bank assets – Total bank deposits) / Total bank assets
Source: International Financial Statistics

Variable: Deficit
Definition: Government Deficit; millions of units of local currency
Source: International Financial Statistics

Variable: Dem. Account

Definition: Democratic Accountability – measure of how responsive government is to the people;
Higher = government more accountable to the people
Source: PRS Group
Variable: Pol. Risk
Definition: Measure of overall political risk; Higher = greater political risk
Source: PRS Group

Variable: Crisis
Definition: 1 if country experienced banking crisis that year
Source: Barth, Caprio, and Levine (2000) and Caprio and Klingebiel (1996)

Variable: Time Since First

Definition: Years since country’s first privatization
Source: Privatization International and World Bank
 Table 5

This table presents summary statistics for our independent variables. The sample includes 101 countries
that have privatized a company since 1982. We split the sample into two groups, according to whether a
country was an OECD member as of 1982. See Table 4 for the definitions of the independent variables.

Panel A: Non-OECD Countries

Independent Number of Median for Median for p-value of Mean for Mean for p-value of
Variable country- years years with Wilcoxon years years with t-test for
year obs without SOB priv. test for without SOB priv. difference
SOB priv. difference SOB priv.

Crisis 1,586 0 0 0.01 0.17 0.28 0.02

Bank Assets 1,479 0.38 0.47 0.10 0.60 0.62 0.73
Private Loans 1,479 0.23 0.25 0.16 0.30 0.32 0.39
Bank Capital 1,499 0.32 0.29 0.00 0.33 0.27 0.00
Loans to Govt. 1,499 0.12 0.21 0.00 0.16 0.21 0.00
MktDevlp 1,001 0.05 0.24 0.00 0.21 0.37 0.00
Deficit 1,010 -3 -11 0.37 -375 -30 0.00
Right 1,522 0 0 0.30 0.26 0.31 0.32
GNI 1,291 3 2 0.80 289,805 62 0.20
Dem. Account 1,380 3 4 0.00 2.92 3.79 0.00
Pol. Risk 1,357 56 63.50 0.00 55.62 62.55 0.00
Time Since First 1,586 0 4 0.00 1.75 4.88 0.00

Panel B: OECD Countries

Independent Number of Median for Median for p-value of Mean for Mean for p-value of
Variable country- years years with Wilcoxon years years with t-test for
year obs without SOB priv. test for without SOB priv. difference
SOB priv. difference SOB priv.

Crisis 434 0 0 0.93 0.15 0.15 0.93

Bank Assets 433 1.13 0.99 0.65 1.23 1.17 0.36
Private Loans 433 0.69 0.69 0.42 0.73 0.66 0.05
Bank Capital 433 0.47 0.46 0.79 0.46 0.46 0.86
Loans to Govt. 433 0.12 0.17 0.00 0.13 0.17 0.00
MktDevlp 396 0.35 0.41 0.02 0.49 0.55 0.32
Deficit 390 -54 -63 0.08 -229 -245 0.82
Right 414 1 0 0.20 0.51 0.44 0.20
GNI 434 33 8 0.00 68 48 0.04
Dem. Account 434 6 6 0.02 5.60 5.38 0.03
Pol. Risk 434 84 79 0.00 82.14 78.34 0.00
Time Since First 434 1 6 0.00 3.91 6.21 0.00
 Table 6

This table contains the results of logistic panel regressions examining a country's decision to privatize a state-owned bank. The sample includes
101 countries that have privatized a company since 1982 (bank or non-bank). We split the sample into two groups, according to whether a country
was not an OECD member in 1982 (Panel A) or an OECD member (Panel B). For each group, we exclude all years where no country privatized a
bank.

The regressions include time fixed effects (coefficients not reported). The adjusted odds ratio represents the relative change in the probability that
a bank is privatized for a one-standard deviation change in the independent variable.

Panel A: Non-OECD Countries

Variable Hypothesized Coefficient Odds Ratio p-value Coefficient Odds Ratio p-value
Relation Estimate Estimate

Crisis + 0.10 1.04 0.75 0.09 1.04 0.80

Private Loans - -0.44 0.90 0.51 -1.19 0.73 0.15
Bank Capital - -1.87 0.74 0.05 -2.24 0.68 0.03
Loans to Govt + 6.03 2.18 0.00 7.42 2.57 0.00
MktDevlp - 0.18 1.07 0.55 0.10 1.04 0.77
Deficit + 0.00 18.42 0.74
Right + 0.74 1.39 0.02 0.85 1.47 0.03
Dem Account + 0.36 1.56 0.01 0.25 1.36 0.11
Pol Risk - 0.00 1.01 0.94 0.02 1.24 0.34
Time Since First + 0.17 1.85 0.00 0.28 2.71 0.00

Country-years with 85 73
bank privatizations
Country-years without 502 365
bank privatizations
p-value for likelihood 0.00 0.00
ratio test
 Table 6 (continued)

Panel B: OECD Countries

Variable Hypothesized Coefficient Odds Ratio p-value Coefficient Odds Ratio p-value
Relation Estimate Estimate

Crisis + -0.64 0.78 0.15 -0.53 0.82 0.53

Private Loans - -0.96 0.75 0.18 -0.87 0.78 0.87
Bank Capital - -1.21 0.80 0.26 -1.56 0.75 0.18
Loans to Govt. + 5.76 1.81 0.01 5.50 1.78 0.02
MktDevlp - 0.22 1.14 0.48 0.23 1.11 0.54
Deficit + 0.00 0.73 0.09
Right + 0.01 1.01 0.97 0.04 1.02 0.90
Dem. Account + -0.01 1.00 0.99 0.03 1.03 0.91
Pol Risk - 0.02 1.24 0.39 0.03 1.31 0.34
Time Since First + 0.23 2.57 0.03 0.18 2.02 0.13

Country-years with 84 75
bank privatizations
Country-years without 192 171
bank privatizations
p-value for likelihood 0.00 0.00
ratio test
 Table 7
The table contains the results of a duration model with time-varying covariates, estimated using a partial maximum likelihood Cox (1972) model. We model
the duration between a country's first privatization, whether bank or other industry, and its first bank privatization. The sample includes 101 countries that
have privatized a company since 1982 (bank or non-bank). The odds ratio represents the relative change in the instantaneous probability that a bank is
privatized in year t, conditional on not having sold one before, for a one-unit change in the independent variable.

Coefficient Adjusted p- Coefficient Adjusted p- Coefficient Adjusted p- Coefficient Adjusted p-

estimate odds value estimate odds value estimate odds value estimate odds value
ratio ratio ratio ratio
Model I Model I Model II Model III
Non-OECD OECD Pooled, different baseline for Pooled, using OECD
OECD and non-OECD membership as a time-varying
covariate
Crisis -0.59 0.56 (0.30) -0.31 0.73 (0.71) -0.62 0.54 (0.15) -0.76 0.47 (0.08)
Private Loans -0.59 0.55 (0.60) -1.73 0.18 (0.21) -0.92 0.40 (0.22) -1.07 0.34 (0.15)
Bank Capital -3.42 0.03 (0.01) -1.96 0.14 (0.37) -2.72 0.07 (0.00) -2.75 0.06 (0.00)
Loans to Govt. 4.77 118.40 (0.00) 5.82 338.27 (0.24) 4.70 109.50 (0.00) 5.02 151.66 (0.00)
MktDevlp 1.65 5.23 (0.01) -0.27 0.77 (0.78) 0.97 2.64 (0.07) 1.00 2.71 (0.04)
Right 0.65 1.91 (0.16) -0.43 0.65 (0.50) 0.37 1.44 (0.29) 0.42 1.52 (0.23)
Dem. Account 0.30 1.35 (0.08) 0.06 1.06 (0.92) 0.32 1.37 (0.04) 0.32 1.37 (0.04)
Pol Risk 0.02 1.02 (0.24) 0.02 1.03 (0.59) 0.01 1.02 (0.37) 0.02 1.02 (0.30)
OECD 0.34 1.40 (0.50)

Number of
countries with 29 17 46 46
bank privatizations
Number of
censored
observations (no 51 4 55 55
bank privatization
by 2000)
p-value for
likelihood ratio test (0.00) (0.38) (0.00) (0.00)