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Partial privatization, lending relationships and executive compensation

Partial privatization, lending relationships and executive compensation Purpose – Privatization has been a widely researched topic in the literature, both at the cross-country level as well as at the level of individual countries. However, the issue of partial privatization – where an entity is publicly listed although the government remains the controlling owner – has not been adequately discussed in the literature. The purpose of this paper is to employ data on Indian state-owned banks during 1992-2010 to explore the timing and intensity of privatization. Contextually, the authors also explore several associated hypotheses, such as the behavior of lending relationships by these banks and executive compensation. Design/methodology/approach – Given the hypotheses being discussed, the authors use suitable methodology relevant to the hypothesis. Accordingly, the authors employ proportional hazard models to address the timing issue and the Tobit model to determine the factors impacting the intensity of privatization. As regards lending relationships, the authors employ ordered logit and Poisson regression models. Finally, the issue of executive compensation is addressed using OLS regression. Findings – The evidence appears to suggest that smaller, riskier banks with higher levels of over-staffing are likely to be privatized at an early date. Among the political factors, the findings suggest that both the timing of elections as well as the fragmentation of the coalition impacts the timing of privatization. Regarding lending relationships, the analysis indicates that it is typically the large banks that act as the main bank for both foreign and state-owned firms. Finally, the evidence lends credence to the fact that bigger well-capitalized banks with smaller boards pay higher compensation. Originality/value – How far do economic and political factors play a role in impacting the timing of partial privatization of state-owned banks remains an open empirical question. There is also admittedly limited evidence as to how bank-specific and political factors influence the intensity of privatization. Judged thus, to the best of the knowledge, this is one of the few studies to examine these issues within a coherent empirical framework for a leading emerging economy. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png South Asian Journal of Global Business Research Emerald Publishing

Partial privatization, lending relationships and executive compensation

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2045-4457
DOI
10.1108/SAJGBR-11-2014-0075
Publisher site
See Article on Publisher Site

Abstract

Purpose – Privatization has been a widely researched topic in the literature, both at the cross-country level as well as at the level of individual countries. However, the issue of partial privatization – where an entity is publicly listed although the government remains the controlling owner – has not been adequately discussed in the literature. The purpose of this paper is to employ data on Indian state-owned banks during 1992-2010 to explore the timing and intensity of privatization. Contextually, the authors also explore several associated hypotheses, such as the behavior of lending relationships by these banks and executive compensation. Design/methodology/approach – Given the hypotheses being discussed, the authors use suitable methodology relevant to the hypothesis. Accordingly, the authors employ proportional hazard models to address the timing issue and the Tobit model to determine the factors impacting the intensity of privatization. As regards lending relationships, the authors employ ordered logit and Poisson regression models. Finally, the issue of executive compensation is addressed using OLS regression. Findings – The evidence appears to suggest that smaller, riskier banks with higher levels of over-staffing are likely to be privatized at an early date. Among the political factors, the findings suggest that both the timing of elections as well as the fragmentation of the coalition impacts the timing of privatization. Regarding lending relationships, the analysis indicates that it is typically the large banks that act as the main bank for both foreign and state-owned firms. Finally, the evidence lends credence to the fact that bigger well-capitalized banks with smaller boards pay higher compensation. Originality/value – How far do economic and political factors play a role in impacting the timing of partial privatization of state-owned banks remains an open empirical question. There is also admittedly limited evidence as to how bank-specific and political factors influence the intensity of privatization. Judged thus, to the best of the knowledge, this is one of the few studies to examine these issues within a coherent empirical framework for a leading emerging economy.

Journal

South Asian Journal of Global Business ResearchEmerald Publishing

Published: Mar 7, 2016

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