domestic banking systems. However, the gap seemed to be closing recently with the median difference reducing from 6.7 percent in the pre-GFC to 2.7 in its aftermath, with very few transactions posting double digit differences.

- **Bank privatization events did not appear to be motivated by domestic banking crises** . Only 21 out of 475 transactions coincided with a banking crisis as defined by Laeven and Valencia (2018). In fact, 74 percent of the sample, which excludes sales related to GFC-related bank bailouts, did not undergo a banking crisis in the decade preceding to the equity sale.

# **3. Empirical analysis**

The empirical analysis in this section estimates the relation between privatization and bank financial performance, strategy, as well as the distributional implications. For that purpose, we collect bank-level outcome variables at an annual frequency from Bankscope and Bank Focus Orbis and match them with our sample of SOCB privatization events. The variables chosen to measure bank profitability and efficiency include _return on assets (ROA), return on equity (ROE)_ and _cost-to-income ratio_ . We also analyze the credit provision through _credit growth_ and the ratio of _NPLs over loans._ Changes in the banks’ strategy are approximated through _liquidity, noninterest income_ and asset composition _,_ while the distributional impacts are assessed by looking at employment ( _log of number of employees)_ ) and the _net interest margin (NIM)_ .

The summary statistics of the variables for our sample are provided in Table 1.<sup>14</sup> Note that all bank-level variables are winsorized at 1 percent and 99 percent. Our econometric analysis includes 250 banks from 65 countries for which we could match at least one privatization event with their financials.<sup>15</sup> Out of 3,139 bank-year observations from around 240 banks between 1995 and 2017, 420 observations represent privatization events, of which 71 events are IPOs and 47 events are foreign issuances. On average 13.8 percent of shares were sold in these events.<sup>16</sup> We use a 30 percent threshold to represent large privatizations and these sales constitutes 23.8 percent of all the events (60 events in developing countries and 40 in high-income countries). We also try to identify whether bank privatizations involved large increases in equity (i.e. more than a 33 percent growth in equity last year) and/or presented high NPL ratios (specifically, higher than 8.7 percent, the 75<sup>th</sup> percentile of large privatization observations).

# **3.1. Bi-variate analysis of banks’ pre- and post-privatization performance**

We start the empirical analysis by calculating and comparing bank outcome variables before and after a large privatization event, where the sold amount was at least 30 percent of the book equity (similar to Otchere, 2005). The pre-privatization mean ratios are calculated over the year t-3 to year t-1 period and the post-privatization mean ratios are calculated over the year t+1 to year t+3 period relative to year t=0 (the year of issue).<sup>17</sup> Thus, this analysis provides insights into shortterm differences in banking outcomes around the privatization events. The t-stat test results regarding the difference post- and pre-privatization are reported in Table 2. Comparing the means

> 14 The summary statistics are based on the multivariate regression including the bank and country level control variables (regression 3 in Table 3).

> 15 This is slightly smaller than the 270 observations used in the previous section due to missing bank-level data. 16 The median sale in these events was 22.6 percent.

> 17 These mean ratios are calculated for banks with at least two observations for each window.

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