Cross-border bank mergers: What lures the rare animal?

doi:10.1016/j.jbankfin.2003.08.002

Journal of Banking & Finance

Volume 28, Issue 9, September 2004, Pages 2077-2102

https://doi.org/10.1016/j.jbankfin.2003.08.002 Get rights and content

Abstract

Although domestic mergers and acquisitions (M&As) in the financial services industry have increased steadily over the past two decades, international M&As were until recently relatively rare. Moreover, the share of cross-border mergers in the banking industry is low compared with other industries. This paper uses a novel dataset of over 3000 mergers that took place between 1985 and 2001 to analyze the determinants of international bank mergers. We test the extent to which information costs and regulations hold back merger activity. Our results suggest that information costs significantly impede cross-border bank mergers. Regulations also influence cross-border bank merger activity. Hence, policy makers can create environments that encourage cross-border activity, but information cost barriers must be overcome even in (legally) integrated markets.

Section snippets

Motivation

Domestic mergers and acquisitions (M&As) in banking have risen steadily for the past two decades. Yet, compared to the number of domestic bank mergers, international bank M&As have remained until recently relatively rare. Between 1985 and 2001, only about one-fifth of all bank mergers around the world involved partners headquartered in two different countries.

International M&As in banking: The rare animal

International mergers between financial institutions, it may seem, are one feature of the globalization of financial markets. Headline cases – such as the take-over of the US commercial bank Bankers Trust by the German Deutsche Bank in 1999, the acquisitions of US financial institutions by Japanese banks in the late 1980s,⁷ or the inroads of US investment banks into European financial markets –

Why should banks merge across borders?

The theoretical literature on the determinants of international banking has taken a fairly eclectic approach to the question of why banks should merge across borders.⁹ Empirical studies that examine

Why do banks merge across borders?

The goal of this paper is to determine the motivation for international bank mergers. For instance, we would like to know whether mergers tend to occur between banks that are geographically close or that share a common cultural background. We are also interested in knowing which banks are more likely to be targets. For example, are banks from developing countries more often targets or acquirers? To answer our questions, we use two main sets of regressions to analyze our data. We start with

Summary

Using an encompassing, novel dataset of more than 3000 international bank merger cases, which were announced and completed between 1985 and 2001, we have addressed two issues. First, we have asked to what extent regulatory factors and information costs affect bank merger decisions. To analyze this question, we have restricted the analysis to the second half of the 1990s while distinguishing banks from developed and from developing countries. Second, we have asked whether regulatory initiatives

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^☆: This paper has partly been written during a research visit of Claudia Buch at the National Bureau of Economic Research (NBER), Cambridge, MA. She would like to thank the NBER for its hospitality and the Volkswagen Foundation for financial support. Bjoern Christensen, Joerg Doepke, Joern Kleinert, Larry Wall, participants of seminars organized by the Swiss Finance Association, the European Central Bank and the Center for Financial Studies, the University of Kiel, the University Tor Vergata (Rome), and two anonymous referees have given most helpful comments. Saovanee Chantapong, Annemarie Grandke, Anja Kuckulenz, Anne C. Richter, and Jing Xie have provided most efficient research assistance. Any errors are solely the responsibility of the authors.

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Cross-border bank mergers: What lures the rare animal?☆

Abstract

Section snippets

Motivation

International M&As in banking: The rare animal

Why should banks merge across borders?

Why do banks merge across borders?

Summary

Journal of International Money and Finance

Journal of Banking and Finance

Journal of Multinational Financial Management

Journal of Banking and Finance

Journal of Public Economics

Journal of Banking and Finance

Journal of Banking and Finance

Journal of Banking and Finance

Journal of International Money and Finance

The regulation and supervision of bank around the world: A new database

Motivations for bank mergers and acquisitions: Enhancing the deposit insurance put option versus earnings diversification

Journal of Money, Credit, and Banking

Megamergers in banking and the use of cost efficiency as an antitrust defense

Antitrust Bulletin

The efficiency of financial institutions: A review and preview of research past, present, and future

Journal of Banking and Finance

Globalization of financial institutions: Evidence from cross-border banking performance

Brookings-Wharton Papers on Financial Services

Efficiency barriers to the consolidation of the European financial services industry

European Financial Management

Information or regulation: What drives the international activities of commercial banks

Journal of Money, Credit, and Banking

Banks and the world's major financial centers, 1970–1980

Weltwirtschaftliches Archiv