The latter half of the 1990s saw a sharp rise in entry of banks from developed countries into emerging market financial systems. This was motivated by, among other things, the belief that expansion into underdeveloped financial markets would result in diversification and efficiency gains, and thus prove to be value creating. This paper uses a standard event-study methodology to determine the reaction of the acquirer’s stock price to announcements of acquisitions in emerging financial markets (EFMs). Under the assumption of efficient markets, a positive reaction is interpreted as supporting the hypothesis that expansion into EFMs is value creating. However, in line with the literature on cross-border banking acquisitions in developed countries, announcements are found to be associated with negative abnormal returns for the acquirer, suggesting that potential downsides, such as operational risk, legal and social barriers, and political risk, are judged by markets to outweigh the potential benefits. Moreover, the value destruction from an acquisition was found to be bigger in all regions in the 18 months following the Asian crisis.
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