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Determinants of Cross-Border Bank Acquisitions in Transition Economies: A Latent Class Analysis

  • Tigran Poghosyan
  • Jakob de Haan

We analyze the microeconomic determinants of cross-border bank acquisitions in 16 transition economies over the period 1996-2006. By using a latent class discrete choice model we explicitly incorporate the macroeconomic and institutional heterogeneity of the transition economies into our analysis. We find that foreign banks target relatively large and efficient banks when they enter transition economies with weak institutions. This evidence provides support for the market power hypothesis. However, when foreign banks enter more developed transition economies that have made progress in economic reform, they acquire less efficient banks. This result is in line with the efficiency hypothesis.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008-08/cesifo1_wp2372.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2372.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2372
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  1. Claessens, Stijn & Van Horen, Neeltje, 2007. "Location decisions of foreign banks and competitive advantage," Policy Research Working Paper Series 4113, The World Bank.
  2. Pozzolo, Alberto Franco & Focarelli, Dario, 2007. "Cross-Border M&As in the Financial Sector. Is Banking Different from Insurance?," Economics & Statistics Discussion Papers esdp07032, University of Molise, Dept. EGSeI.
  3. Berger, Allen N. & Humphrey, David B., 1991. "The dominance of inefficiencies over scale and product mix economies in banking," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 117-148, August.
  4. Bol, Hanneke & Lensink, Robert & Haan, Jakob de, 2002. "Do reforms in transition economies affect foreign bank entry?," CCSO Working Papers 200205, University of Groningen, CCSO Centre for Economic Research.
  5. G. Lanine & R. Vander Vennet, 2006. "Microeconomic determinants of acquisitions of Eastern European banks by Western European banks," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/414, Ghent University, Faculty of Economics and Business Administration.
  6. Lensink, Robert & Meesters, Aljar & Naaborg, Ilko, 2008. "Bank efficiency and foreign ownership: Do good institutions matter?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 834-844, May.
  7. Fries, Steven & Taci, Anita, 2005. "Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 55-81, January.
  8. Focarelli, Dario & Panetta, Fabio & Salleo, Carmelo, 2002. "Why Do Banks Merge?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 1047-66, November.
  9. Haselmann, Rainer, 2006. "Strategies of foreign banks in transition economies," Emerging Markets Review, Elsevier, vol. 7(4), pages 283-299, December.
  10. Jakob De Haan & Susanna Lundström & Jan-Egbert Sturm, 2006. "Market-oriented institutions and policies and economic growth: A critical survey," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 157-191, 04.
  11. Robert Lensink & Jakob Haan, 2002. "Do Reforms in Transition Economies Affect Foreign Bank Entry?," International Review of Finance, International Review of Finance Ltd., vol. 3(3-4), pages 213-232.
  12. Allen N. Berger & Robert DeYoung & Gregory F. Udell, 2000. "Efficiency barriers to the consolidation of the European financial services industry," Finance and Economics Discussion Series 2000-37, Board of Governors of the Federal Reserve System (U.S.).
  13. Jonathan Williams & Angel Liao, 2008. "The Search for Value: Cross-border Bank M&A in Emerging Markets," Comparative Economic Studies, Palgrave Macmillan, vol. 50(2), pages 274-296, June.
  14. Focarelli, Dario & Pozzolo, Alberto Franco, 2001. "The patterns of cross-border bank mergers and shareholdings in OECD countries," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2305-2337, December.
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