Government ownership of banks: Implications for minority shareholders

We investigate whether private shareholders of banks controlled by the government suffer or benefit from such control. This question has gained in importance, especially since the 2007-2008 global financial crisis and the substantial increase in government involvement in banks. The extant literature on firm ownership provides mixed results, with a focus on non-financial firms exclusively. Using unique data from Indonesia from 2009 to 2014, we examine the stock market reaction to loan announcements made by state-owned banks and private banks. We provide new evidence that, for shareholders of state-owned banks, the outcome is not as detrimental as for shareholders of private banks and can even be beneficial. This is because government bailouts are much more common for state-owned banks.