Comments on Cross-border Bank Acquisitions: Is there a Performance Effect?

Excerpt

The last decade or so has witnessed an unprecedented pace of bank mergers and acquisitions. In the United States, Brewer et al. (2007), for example, document that between 1990 and 2004, the number of bank mergers and acquisitions (M&As) averaged about 435 per year compared to 345 per year over the period 1980–1989. As a result, the number of banks operating in the United States has declined by approximately 40% since 1990. Berger et al. (2004) document a substantial surge in cross-border mergers and acquisitions. These cross-border deals are a main vehicle for foreign direct investment. In the Industrial Organization literature two basic motives stand out as possible explanations for mergers and acquisitions: an efficiency motive and a strategic motive. Efficiency gains arise because M&As increase synergy between firms through increased use of economies of scale or scope. Furthermore, from a strategic perspective M&As might change the market structure and as such have an impact on firm profits. Explanations for cross-border mergers and acquisitions have relied on arguments from Foreign Direct Investment literature (see Goldberger 2004) and the New Trade Theory (see Berger et al. 2004). The paper by Correa uses a cross-border database for merger deals between 1996 and 2003 to analyze characteristics and performance effects of international takeovers on target banking organizations. Four questions are examined: (1) What factors are important in influencing the likelihood that a firm will be a target of a cross-border acquisition? (2) Do target firms that are involved in cross-border deals perform differently from other firms? (3) Are there any post-merger differences in performance for targets in developed and emerging economies? And (4) are post-merger differences influenced by host-country or home-country characteristics? …