Competitive and Value Effects of Bank Privatization in Developed Countries

This paper presents a comprehensive analysis of the performance of privatized banks in developed countries. Consistent with the competitive effects hypothesis which asserts that privatization could hurt rivals, we find that the rival banks reacted negatively to news of bank privatization in developed countries. The competitive effects are stronger in cases where government ownership decreases significantly. Contrary to the findings of prior studies that examine the performance of privatized banks in developing countries, we find that privatized banks in developed countries experienced significant improvements in operating performance and stock market performance in the post privatization period.