Comparative Economic Studies

, Volume 50, Issue 2, pp 274–296 | Cite as

The Search for Value: Cross-border Bank M&A in Emerging Markets

  • Jonathan Williams
  • Angel Liao


Between 1998 and 2005, we identify 73 cross-border bank mergers and acquisitions (M&A) transactions in which international banks acquired ownership stakes in 46 listed banks in emerging market economies (EME). A total of $797.5 billion of bank assets was acquired for $37.5 billion in Latin America, Central and Eastern Europe, and Asia. Using event study methods, we establish (1) whether the announcement of cross-border M&A transactions generates value for bank shareholders; and (2) whether M&A characteristics and/or economic and institutional features explain returns to bank shareholders in EME from cross-border investments. Consistent with US and European evidence, cross-border M&A creates value or significant abnormal returns for target bank shareholders. Yet, returns to shareholders at acquiring banks often exhibit value destruction; cross-border M&A activity in banking is not found to facilitate wealth redistribution from EME to industrialised countries. A regression analysis confirms the importance of the institutional and economic environment, as well as target bank profitability and the method through which international banks acquire ownership stakes, as significant determinants of abnormal returns.


mergers and acquisitions bank mergers event study abnormal return emerging markets 

JEL Classifications

G21 G34 


  1. Akhavein, J.D., Berger, A.N. and Humphrey, D.B . 1997: The effects of megamergers on efficiency and prices: Evidence from a bank profit function. Review of Industrial Organisation 12: 95–130.CrossRefGoogle Scholar
  2. Altunbaş, Y. and Marqués Ibáňez, D . 2004: Mergers and acquisitions and bank performance in Europe: The role of strategic similarities. Working paper series no. 398, European Central Bank, October.Google Scholar
  3. Amihud, Y., DeLong, G.L. and Saunders, A . 2002: The effects of cross-border bank mergers on bank risk and value. Journal of International Money and Finance 21: 857–877.CrossRefGoogle Scholar
  4. Barth, J.R., Caprio, J. and Levine, R . 2001: Bank regulation and supervision: What works best? A new database. World Bank Policy Research paper no. 2588.Google Scholar
  5. Beitel, P. and Schiereck, D . 2001: Value creation at the ongoing consolidation of the European banking market. Working paper no. 05/01, Institute for Mergers and Acquisitions (IMA).Google Scholar
  6. Berger, A.N., Demsetz, R.S. and Strahan, P.E . 1999: The consolidation of the financial services industry: Causes, consequences, and implications for the future. Journal of Banking and Finance 23: 153–194.CrossRefGoogle Scholar
  7. Berger, A.N., DeYoung, R., Genay, H. and Udell, G.F . 2000: Globalisation of financial institutions: Evidence from cross-border banking performance. Brookings-Wharton Papers on Financial Services 3: 23–158.CrossRefGoogle Scholar
  8. Berger, A.N. and Humphrey, D.B . 1997: Efficiency of financial institutions: International survey and directions for future research. European Journal of Operational Research 98: 175–212.CrossRefGoogle Scholar
  9. BIS 2004: Foreign direct investment in the financial sector of emerging market economies. Committee on the Global Financial System, Bank for International Settlements, March.Google Scholar
  10. Bonin, J.P., Hasan, I. and Wachtel, P . 2005: Bank performance, efficiency and ownership in transition countries. Journal of Banking and Finance 29: 31–53.CrossRefGoogle Scholar
  11. Brown, S.J. and Warner, J.B . 1980: Measuring security price performance. Journal of Financial Economics 8: 205–258.CrossRefGoogle Scholar
  12. Brown, S.J. and Warner, J.B . 1985: Using daily stock returns: The case of event studies. Journal of Financial Economics 14: 3–31.CrossRefGoogle Scholar
  13. Bruner, R.F . 2002: Does M&A pay? A survey of evidence for the decision-maker. Journal of Applied Finance 12 (1): 48–68.Google Scholar
  14. Bruner, R.F., Conroy, R.M., Estrada, J., Kritzman, M. and Li, W . 2002: Introduction to “valuation in emerging markets”. Emerging Markets Review 3: 310–324.CrossRefGoogle Scholar
  15. Buch, C.M. and DeLong, G.L . 2001: Cross-border bank mergers: What lures the rare animal? Working Paper No. 1070, Kiel Institute of World Economics.Google Scholar
  16. Cardias Williams, F. and Williams, J . 2008: Does ownership explain bank M&A? The case of domestic banks and foreign banks in Brazil. In: Arestis, P and de Paula, LF (eds) Financial Liberalization and Economic Performance in Emerging Countries. Palgrave Macmillan: New York (forthcoming).Google Scholar
  17. Chari, A., Ouimet, P.P. and Tesar, L . 2004: Acquiring control in emerging markets: Evidence from the stock market. NBER Working paper no. 10872, November.Google Scholar
  18. Claessens, S., Demirgüç-Kunt, A. and Huizinga, H . 2001: How does foreign entry affect domestic banking markets. Journal of Banking and Finance 25: 891–911.CrossRefGoogle Scholar
  19. Claessens, S. and Jansen, M . 2000: Internationalisation of Financial Services, WTO – World Bank (2000) Chapter 1. Kluwer Law International: The Hague.Google Scholar
  20. Clarke, G., Cull, R., Martinez Peria, M.S. and Sánchez, S.M . 2003: Foreign bank entry: Experience, implications for developing economies, and agenda for further research. The World Bank Research Observer 18 (1): 25–59.CrossRefGoogle Scholar
  21. Cybo-Ottone, A. and Murgia, M . 2000: Mergers and shareholder wealth in European banking. Journal of Banking and Finance 24: 831–859.CrossRefGoogle Scholar
  22. DeLong, G.L . 2001: Stockholder gains from focusing versus diversifying bank mergers. Journal of Financial Economics 59: 221–252.CrossRefGoogle Scholar
  23. Focarelli, D. and Pozzolo, A.F . 2001: The patterns of cross-border bank mergers and shareholdings in OECD countries. Journal of Banking and Finance 25: 2305–2337.CrossRefGoogle Scholar
  24. Goldberg, L . 2004: Financial-sector FDI and host countries: New and old lessons. NBER Working paper no. 10441, April.Google Scholar
  25. Guillén, M. and Tschoegl, A.E . 1999: At last the internationalization of retail banking? The case of Spanish banks in Latin America. Working paper 99-41, Wharton Financial Institutions Center.Google Scholar
  26. Heffernan, S . 2005: Modern banking. John Wiley and Sons Ltd: New York.Google Scholar
  27. Houston, J.F. and Ryngaert, M.D . 1994: The overall gains from large bank mergers. Journal of Banking and Finance 18: 1155–1176.CrossRefGoogle Scholar
  28. Humphrey, D.B. and Vale, B . 2004: Scale economies, bank mergers, and electronic payments: A spline function approach. Journal of Banking and Finance 28: 1671–1696.CrossRefGoogle Scholar
  29. Kaufmann, D., Kraay, A. and Mastruzzi, M . 2006: Governance matters V: Governance indicators for 1996–2005. World Bank Policy Research Department Working paper, September.Google Scholar
  30. Pilloff, S.J. and Santomero, A.M . 1998: The value effects of bank mergers. In: Amihud, Y and Miller, G (eds). Bank Mergers and Acquisitions. Kluwer Academic Publishers: Dordrecht.Google Scholar
  31. Sebastián, M. and Hernansanz, C . 2000: The Spanish banks strategy in Latin America. SUERF Working paper no. 9, Paris.Google Scholar
  32. Slager, A.M.H . 2004: Banking across borders: Internationalisation of the world's largest banks between 1980 and 2000. Erasmus Research Institute of Management: Erasmus University Rotterdam.Google Scholar

Copyright information

© Palgrave Macmillan Ltd 2008

Authors and Affiliations

  • Jonathan Williams
    • 1
  • Angel Liao
    • 2
  1. 1.Business School, Bangor UniversityBangorUK
  2. 2.The Management School, University of EdinburghEdinburghUK

Personalised recommendations