Regulations, Supervision Approaches and Acquisition Likelihood in the Asian Banking Industry

Abstract

We investigate the association between the regulatory and supervision framework and the acquisition likelihood in the Asian banking industry. The sample consists of 472 commercial banks operating in 9 South and Southeastern Asian countries, from which 52 were acquired between 1998 and 2004, resulting in a total of 2,568 yearly observations. We use information from the new database of the World Bank and examine various regulations such as the level of accounting and information disclosure requirements, the degree of official disciplinary power, the degree of diversification requirements/guidelines, the existence of deposit insurance schemes, the restrictions on bank activities, and capital adequacy requirements. We estimate various specifications of a logistic regression model with the supervisory variables examined sequentially, while controlling for bank-specific and country-specific characteristics. The results indicate that several of the regulatory and supervision approaches have an impact on the acquisition likelihood. From the bank-specific control variables, only the size and the profitability of banks are statistically significant in cases. As it concerns the country-specific control variables, the results indicate that the real GDP growth, the activity in the banking sector, the financial deepening, and the percentage of government owned banks are statistically significant in all the specifications.

Keywords: Acquisitions, Asia, Banks, Regulations, Supervision

JEL Classification: G21, G28, G34