suggests that following a large privatization event the number of employees rises and non-interest income and liquidity ratios fall significantly. These initial results suggest that privatized banks increase their traditional financial intermediation by higher credit provision with respect to their assets with more bankers possibly channeling assets from high liquidity assets such as cash balances at the central bank or treasury bills to credit. Indeed, comparing banks’ asset allocation shows that after the privatization holdings of government securities and interbank loans are lower while corporate loans are higher. Such a shift may be desirable as it would have positive real outcomes for the economy as long as the banks will not get into liquidity problems and credit allocation is well done. In contrast, there are no significant differences in pre- and postprivatization outcomes such as bank profitability, efficiency, and funding variables (equity over assets, short-term funding over assets and deposits over assets). These results warrant further econometric analysis to be able to incorporate more sophisticated specifications, where we control for various bank and country characteristics.<sup>18</sup>

# **3.2. Multivariate analysis of the relationship between privatization and bank outcomes**

In the multivariate empirical analysis, we establish short-term correlations of privatization events as well as longer term relationships between larger sales (i.e. 30 percent or more of shares sold in a privatization) with bank outcomes related to performance, strategy and distributional implications.<sup>19</sup> We employ a bank fixed effect panel specification with time fixed effects, where we control for bank- and country-level variables: B B o o o o + ∑3 P P B + _(1)_ ii,tt ii tt jj=0 jj ii,tt−jj ii,tt−1 = αα + θθ ββ BBooP ooPP oohBBPPoo + γγB CCooBBooPPooCCoo jj,tt ii,tt This first specification focuses on short-term dynamics during and after the privatization events, δδCCo BBooPPCC CCooBBooPPooCCoo + εε where is bank fixed effects and is year fixed effects. The dependent variable B B o o o o captures various bank outcomes for bank _i_ in year _t_ . The first variable of ii tt interest is a continuous privatization variable, αα θθ _Privatized share,_ capturing the relative size of the ii,tt transaction by using the sold amount over the book equity of the bank, which is a reasonable proxy for the fraction of shares sold. P P includes the privatized share sales of bank _i_ at year _t-j_ , where _j_ goes up to three to include from the contemporaneous share sale to its third lag. ii,tt−jj As smaller share sales became more common especially after the GFC, in an alternative BBooP ooPP oohBBPPoo specification, we also generate a cumulative share sale measure, _(t-1 to t-3),_ capturing total sold amount in the last three years over respective values of book equity. We also ii,tt include bank-level control variables lagged one year and country-level controls for banks in CCo ooCCBBooP oo ooBBCCo country _j_ in year _t_ .

> 18 The documented statistically significant differences seem to be economically significant as well as post-pre differences in absolute terms vary between 9-24 percent of pre-privatization means.

> 19 In this analysis, we are working on a specific subsample of banks, namely SOCBs, which had at least one government involved share sale in our sample period. Our sample includes banks, which ceased to exist due to mergers or liquidation, limiting survivorship bias. The amount and timing of share sales would be endogenous limiting the causal interpretation of our analysis.

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