The Regulatory Environment, Level of Entry and International Acquisitions of Financial Firms

THE JOURNAL OF INTERNATIONAL FINANCIAL MARKETS, INSTITUTIONS AND MONEY, Vol.5, 1994-95

Posted: 30 Apr 1998

See all articles by Rita Biswas

Rita Biswas

University at Albany - SUNY

Donald R. Fraser

Texas A&M University - Department of Finance

Arvind Mahajan

Texas A&M University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Abstract

This study presents evidence on the influence of the regulatory environment of host and home countries, on firm value, when the firm announces a foreign acquisition. The study analyzes the valuation effects on financial firms, based on the returns to shareholders of 120 bidders from 13 home countries acquiring across 20 host countries. Bidder shareholders lose significantly when entering "open" markets for the first time, but gain significantly when making initial and subsequent entries into "restricted" markets. This implies that markets perceive monopoly rents to outweigh learning costs associated with initial entries but diversification benefits are inadequate in outweighing learning costs. The evidence is consistent with the notion that regulations in both host and home countries should be endogenous to FDI decisions. The influence of the tax environment and exchange rates was also examined, but only the former was found to be a significant factor in affecting bidder returns.

JEL Classification: F30, F23, F38

Suggested Citation

Biswas, Rita and Fraser, Donald R. and Mahajan, Arvind, The Regulatory Environment, Level of Entry and International Acquisitions of Financial Firms. THE JOURNAL OF INTERNATIONAL FINANCIAL MARKETS, INSTITUTIONS AND MONEY, Vol.5, 1994-95, Available at SSRN: https://ssrn.com/abstract=5669

Rita Biswas (Contact Author)

University at Albany - SUNY ( email )

1400 Washington Ave.
Albany, NY 12222
United States
518-442-4996 (Phone)
518-442-3045 (Fax)

Donald R. Fraser

Texas A&M University - Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States
979-845- 2020 (Phone)

Arvind Mahajan

Texas A&M University - Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States
979-845-4876 (Phone)

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