Corporate Governance and Access to Finance - ESBG

A case study built by Clarke et al (2009) focuses on the privatization ofa stake of the Uganda Commercial Bank in favor of the large StanbicSouth African bank in an open sale process. They conclude that profitabilityand credit growth are similar to the remaining banks in Uganda.Profitability increased and the data does not support an outreach declineafter private control. As the authors point out, since privatization, the shareof lending devoted to agriculture increased, while the shares of governmentsecurities and lending to manufacturing declined.An empirical research by Caprio et al (2007) shows that concentration ofcash-flow rights as well as stronger law protection are positively correlatedwith banks valuation, even for state controlled banks. The conclusion that(partial) state ownership for large listed banks does not introduce adistortion on their valuation supports some impact of the so called“market discipline”, but does not necessarily hold for banks which arenot listed.Du (2005) shows that more interventionist governments control a higherproportion of banks, interpreting that a larger ownership of, and controlpower over, banks also makes it more legitimate for governments toutilize fiscal revenue to subsidize or rescue ailing banks, ensure thesolvency and liquidity of the system, enhance the stability of the bankingsector and boost the confidence of small depositors. These arguments arealigned with the thesis of Hart, Schleifer and Vishny (1997) that bankers’incentives to conduct risky lending activity will be largely eliminatedunder government control.The conclusions on the impact of government bank ownership differwhen the analysis discriminates between developed and developingcountries. Micco Panizza and Yanez (2007) find that state owned banks,compared to private banks, operating in developing countries have lowermargins and profitability as well as higher overhead costs, but publicownership does not affect their performance in developed countries.These findings are related to political influence on banks activities.The empirical analysis by Korner and Schnabel (2009) shows that theimpact of state ownership of banks on the growth of GDP per capitadepends on the degree of financial development. Contrary to thefindings of La Porta et al. (2002), their results show that the lessdeveloped the financial system is, the more negative the effect of stateownership of banks on economic growth.103