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The effect of Strategic Sale of Banks: Evidence from Indonesia

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  • Rasyad A. Parinduri

    ()
    (Singapore Center for Applied and Policy Economics (SCAPE) Department of Economics, National University of Singapore)

  • Yohanes E. Riyanto

    ()
    (Department of Economics, National University of Singapore)

Abstract

We examine the effect of strategic sale—the sale of banks to strategic foreign investors—on banks’ performance. The Government of Indonesia implemented such a policy as a part of bank restructuring in the aftermath of the 1998 banking crisis. Using difference-in-difference models, we find that strategic sale leads to 12%-15% cost reduction. These results are robust to the use of other estimators such as difference-in-difference matching-estimators and stochastic-frontier analysis, to that of other performance measures such as return on assets and net interest margin, and also to that of different types of samples. These suggest that strategic sale could play an important role in restructuring troubled banks in developing countries.

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Bibliographic Info

Paper provided by National University of Singapore, Department of Economics, SCAPE in its series SCAPE Policy Research Working Paper Series with number 0709.

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Length: 32 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:sca:scaewp:0709

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Web page: http://www.fas.nus.edu.sg/ecs/scape/index.html
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Keywords: banking crisis; recapitalized banks; the sale of assets; difference- in-difference models; matching estimator;

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