Abstract

http://ssrn.com/abstract=1573168
 


 



The Role of Regulation in Cross-Border Bank Acquisitions: Is it Really a ‘Race to the Bottom’?


George Andrew Karolyi


Cornell University - Johnson Graduate School of Management

Alvaro G. Taboada


University of Tennessee

August 2, 2011


Abstract:     
We study how differences in bank regulation influence cross-border bank acquisition flows, share price reactions to cross-border deal announcements, and post-acquisition bank performance. Using a sample of 5,125 domestic and 793 majority cross-border deals announced between 1995 and 2008, we find that cross-border bank acquisition flows involve primarily acquirers from countries with stronger supervision and stricter capital requirements than those of their targets. This finding is consistent with a form of “regulatory arbitrage” that facilitates a destructive “race to the bottom” in bank regulations in which national regulators become less able to constrain excess risk-taking. However, a target bank’s abnormal returns around the deal announcements are higher when acquirers come from countries with more restrictive bank regulatory environments even after accounting for the acquirer’s attributes, which implies a more benign motive for regulatory arbitrage. Deals involving high-risk acquirers from countries with tougher capital requirements are associated with more adverse share-price reactions. Finally, we uncover a reduction in risk-taking following acquisition completion for acquirers in cross-border deals involving targets in weaker regulatory regimes, casting further doubt on the harmful effects of regulatory arbitrage in cross-border bank acquisitions.

Number of Pages in PDF File: 50

Keywords: Cross-border mergers and acquisitions; financial institutions; bank regulation.

JEL Classification: G21; G28; G34; G38

working papers series


Download This Paper

Date posted: March 22, 2010 ; Last revised: August 3, 2012

Suggested Citation

Karolyi, George Andrew and Taboada, Alvaro G., The Role of Regulation in Cross-Border Bank Acquisitions: Is it Really a ‘Race to the Bottom’? (August 2, 2011). Available at SSRN: http://ssrn.com/abstract=1573168 or http://dx.doi.org/10.2139/ssrn.1573168

Contact Information

George Andrew Karolyi
Cornell University - Johnson Graduate School of Management ( email )
Ithaca, NY 14853
United States
Alvaro G. Taboada (Contact Author)
University of Tennessee ( email )
Knoxville, TN 37996
United States
865-974-1704 (Phone)
865-974-1716 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 1,365
Downloads: 308
Download Rank: 52,868

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.454 seconds