The Patterns of Cross-Border Bank Mergers and Shareholdings in OECD Countries

Abstract

In recent years there has been a surge in mergers and aquisitions in all sectors of economic activity. Cross-border operations have followed this trend, creating global companies operating in all major world markets. In this paper we study the pattern of cross-border M&As in the banking industry relative to the non-financial sector of the economy and investigate which factors make it more likely that a bank will expand its ctivities abroad. We find that cross-border M&As are rarer in banking than in other sectors, possibly owing to the importance of information asymmetries in banking relationships and to egulatory restrictions. Using data on almost 2,500 banks from 29 OECD countries, we also show that the most significant features of banks with foreign equity interests relate to efficiency: banks with cross-border shareholdings are on average larger, more profitable, and based in countries with a more highly developed banking market.

Keywords: Foreign direct investment, International banking, Cross-border M&As

JEL Classification: F21, F23, G21, G34