How important is ownership in a market with a level playing field? The Indian banking sector revisited

Sumon Bhaumik, Ralitza Dimova

Research output: Contribution to journalArticle

Abstract

Private ownership of firms is often argued to lead to better firm performance than public ownership. However, the theoretical literature and the empirical evidence indicate that agency problems may affect the performance of privately owned firms. At the same time, competition and hard budget constraints can induce state-owned firms to operate efficiently. In India, banking sector reforms and deregulation were initiated in 1992, encouraging entry and establishing a level playing field for all banks. Data for the financial years 1995–1996 through 2000–2001 suggest that, by 1999–2000, ownership was no longer a significant determinant of performance. Rather, competition induced public-sector banks to eliminate the performance gap that existed between them and both domestic and foreign private-sector banks.
Original languageEnglish
Pages (from-to)165-180
Number of pages16
JournalJournal of Comparative Economics
Volume32
Issue number1
DOIs
Publication statusPublished - Mar 2004

Fingerprint

Ownership
Level playing field
Banking sector
Public ownership
Empirical evidence
Public sector banks
Deregulation
Agency problems
India
Private ownership
Private sector banks
Firm performance
Budget constraint

Keywords

  • banking sector reforms
  • performance
  • competition
  • ownership
  • convergence

Cite this

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abstract = "Private ownership of firms is often argued to lead to better firm performance than public ownership. However, the theoretical literature and the empirical evidence indicate that agency problems may affect the performance of privately owned firms. At the same time, competition and hard budget constraints can induce state-owned firms to operate efficiently. In India, banking sector reforms and deregulation were initiated in 1992, encouraging entry and establishing a level playing field for all banks. Data for the financial years 1995–1996 through 2000–2001 suggest that, by 1999–2000, ownership was no longer a significant determinant of performance. Rather, competition induced public-sector banks to eliminate the performance gap that existed between them and both domestic and foreign private-sector banks.",
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How important is ownership in a market with a level playing field? The Indian banking sector revisited. / Bhaumik, Sumon; Dimova, Ralitza.

In: Journal of Comparative Economics, Vol. 32, No. 1, 03.2004, p. 165-180.

Research output: Contribution to journalArticle

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