Regulatory Arbitrage and Cross-Border Bank Acquisitions

63 Pages Posted: 22 Mar 2010 Last revised: 15 May 2014

See all articles by George Andrew Karolyi

George Andrew Karolyi

Cornell University - Samuel Curtis Johnson Graduate School of Management

Alvaro G. Taboada

Mississippi State University

Date Written: May 2, 2014

Abstract

We study how differences in bank regulation influence cross-border bank acquisition flows and the share price reactions to cross-border deal announcements. Using a sample of 7,297 domestic and 916 majority cross-border deals announced between 1995 and 2012, we find evidence of a form of “regulatory arbitrage” in which acquisition flows involve acquirers from countries with stronger regulations than their targets. Target and aggregate abnormal returns around deal announcements are positive and larger when acquirers come from more restrictive bank regulatory environments. We interpret this evidence as more consistent with a benign form of regulatory arbitrage than a potentially destructive one.

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

JEL Classification: G21; G28; G34; G38

Suggested Citation

Karolyi, George Andrew and Taboada, Alvaro G., Regulatory Arbitrage and Cross-Border Bank Acquisitions (May 2, 2014). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1573168 or http://dx.doi.org/10.2139/ssrn.1573168

George Andrew Karolyi

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Alvaro G. Taboada (Contact Author)

Mississippi State University ( email )

310-H McCool Hall
PO Box 9580
Mississippi State, MS 39762
United States
662-325-6716 (Phone)
662-325-1977 (Fax)

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