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 - SC Johnson College of Business

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 - SC Johnson College of Business ( email )

174A STATLER HALL
ITHACA, NY 14853
United States
6142820229 (Phone)

HOME PAGE: http://https://www.johnson.cornell.edu/faculty-research/faculty/gak56/

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)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
684
Abstract Views
6,929
Rank
66,338
PlumX Metrics