Partial privatization and its effect on structure, conduct, performance in the Indonesian commercial banking market

Abstract

This study aims to evaluate the link between partial privatization of state-owned banks and the impact on the performance of firms and also to examine the relationship between partial privatization of state-owned banks and the impact on market structure. In order to examine the effect of partial privatization of state-owned banks on market structure, conduct and performance, this study divides the time frame into three phases: the deregulation phase, the restructuring and partial privatization phase, and the divestment phase. Initially, the study examines the effect of partial privatization of state-owned banks on market structure and indirectly on firms' behaviour using the Panzar and Rosse model. Then the study separately evaluates the impact of the partial privatization on firms' performance using the performance variables. The results from the Indonesian banking market structure show that the commercial banking market is found to be highly competitive during 1997 to 2003 or in period 2,yet,the H statistics from 1992 to 2011 were in the area of monopolistic competition. The results from the performance of Indonesian state-owned banks post partial privatization during 2004 to 2011 or in period 3 suggest that merged banks significantly improved profitability and economic efficiency and also decreased credit risk exposure. Overall state-owned banks performances after partially privatized in the short term, however, decreased economic efficiency. In the long run, the performance of state-owned bank improved profitability and efficiency.

Date of Award	2013
Original language	English
Supervisor	Cameron Gordon (Supervisor) & Christopher Sadlier (Supervisor)