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Privatization and optimal share release in the Chinese banking industry

Author

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  • Chen, Chien-Hsun
  • Mai, Chao-Cheng
  • Liu, Yu-Lin
  • Mai, Shin-Ying

Abstract

This paper establishes a mixed oligopoly model to explore how the government determines the percentage of shares of the state-owned banks to be released to foreign investors under the goal of seeking to maximize social welfare. The theoretical model finds that the release of shares of state-owned banks to foreign investors will reduce the outputs of the state-owned banks. The direction of the change in the profitability of the state-owned banks depends on the percentage of the shares released. The direction of the changes in the levels of social welfare also varies. If the gap in production efficiency between the state-owned banks and private banks is not large enough, we can be certain that a partial release of shares is the government's best policy.

Suggested Citation

  • Chen, Chien-Hsun & Mai, Chao-Cheng & Liu, Yu-Lin & Mai, Shin-Ying, 2009. "Privatization and optimal share release in the Chinese banking industry," Economic Modelling, Elsevier, vol. 26(6), pages 1161-1171, November.
    • Handle: RePEc:eee:ecmode:v:26:y:2009:i:6:p:1161-1171
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    Cited by:

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    2. Chen, Pei-Fen & Liu, Ping-Chin, 2013. "Bank ownership, performance, and the politics: Evidence from Taiwan," Economic Modelling, Elsevier, vol. 31(C), pages 578-585.
    3. Sameh Jouida, 2019. "Bank capital structure, capital requirements and SRISK across bank ownership types and financial crisis: panel VAR approach," Review of Quantitative Finance and Accounting, Springer, vol. 53(1), pages 295-325, July.
    4. Arkin, V. & Slastnikov, A., 2019. "Mathematical Model of Unitary Enterprise Privatization in the Real Sector," Journal of the New Economic Association, New Economic Association, vol. 43(3), pages 12-33.
    5. Paul, Arindam & De, Parikshit, 2022. "Reversal of Bertrand-Cournot Ranking for Optimal Privatization Level," MPRA Paper 116272, University Library of Munich, Germany, revised 10 Feb 2023.
    6. Yuan, Lin & Zhong, Yang & Lu, Zhou, 2022. "Foreign strategic investors and bank credit risk in China: Disclosure, finance or management effects?," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    7. Wang, Leonard F.S. & Chen, Tai-Liang, 2011. "Mixed oligopoly, optimal privatization, and foreign penetration," Economic Modelling, Elsevier, vol. 28(4), pages 1465-1470, July.
    8. Quan Dong & Juan Carlos Bárcena-Ruiz & María Begoña Garzón, 2015. "Restrictions on Foreign Investments and the Relocation of Firms," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 250-265, December.
    9. Walailuck Chavanasporn & Christian-Oliver Ewald, 2012. "Privatization of businesses and flexible investment: a real option approach," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 35(1), pages 75-89, May.
    10. Saha, Souresh, 2014. "Firm's objective function and product and process R&D," Economic Modelling, Elsevier, vol. 36(C), pages 484-494.

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