Cross-Border Bank Acquisitions: Is There a Performance Effect? Ricardo Correa* Federal Reserve Board December 1, 2007 * The author’s views do not necessarily reflect those of the Board of Governors of the Federal Reserve or the Federal Reserve System.

Research Questions 1.Which factors influence cross-border acquisitions ? 2.Do cross-border acquisitions improve the target’s performance? 3.Is there any post-acquisition difference in performance for targets in developed and emerging economies? 4.Do home-country or host country characteristic have an effect on performance?

Literature: Cross-border M&As Buch and DeLong (2004) – What factors influence cross-border M&As? Information Costs and Regulation. Miller and Parkhe (1998) – “Follow your customer” hypothesis (U.S. banks) – Yes in developed countries, no in emerging economies. Focarelli and Pozzolo (2005) – Profit opportunities – Expected rate of economic growth of the host country. Amihud, DeLong, and Saunders (2002) – Do cross-border M&As decrease the risk of the acquirer? No.

Literature: M&As and Efficiency Chamberlain (1998) – 180 acquisitions in the US. No increase in performance. Berger, DeYoung, Genay and Udell (2000) – Home or Global Advantage Hypothesis? Home but in some cases Global. Bayraktar and Wang (2004) – Domestic bank efficiency. Increases with foreign bank entry. Vander Vennet (2002) – Efficiency after M&As in 62 European Deals ( )? Small increase in profit efficiency but not in cost.

Data Sources M&As: –SDC Platinum – Thomson Financial –Zephyr – Bureau van Dijk Financial Data: –Bankscope – Bureau van Dijk –Financial Structure Database – World Bank Other: –Banking Freedom Index – Heritage Foundation –IFS and World Bank

Sample Selection Target country and country of the acquirer’s ultimate parent are different. Less than 50% of shares owned before deal and more than 50% after. Target’s data available in Bankscope. Target has only one deal in the sample period. Has at least two years of data before and after the deal.

Deals by Region of Target and Acquirer ( )

Q1: Which factors influence cross-border acquisitions? X: Bank specific variables Z: Country characteristics M: Regulatory and market structure proxies

Determinants of Cross-Border Acquisitions

Q2: Do cross-border acquisitions improve the target’s performance?

Target Characteristics Before Acquisition

Performance

Q3: Is there any post-acquisition difference in performance for targets in developed and emerging economies?

Q4: Do home-country or host country characteristic have an effect on performance?

Performance, Economic Integration and Information Costs

Summary Targets are mostly large, bad performers, in small countries with concentrated banking sectors. Targets’ performance decreases or is the same relative to domestic banks after cross-border deals. This is true for acquisitions in developed and emerging economies. Shared characteristics like a common language reduce the transition process.