CROSS BORDER BANK M&AS AND THE BANKING SECTOR IN DEVELOPING COUNTRIES

Abstract

Using a broad set of performance measures, this study analyzes changes in banking sector performance following foreign bank participation via cross-border bank mergers and acquisitions (M&As) in 64 developing countries between 2005 and 2009. The main aim of the paper is to explore differences in bank performance in the pre- and post-M&A periods. Relative changes in bank performance at bank- and country-level are measured using the difference-in-differences analysis. Controlling for differences in pre-M&A performance between target and domestic banks, the results show that cross-border M&As are associated with lower average net interest margins and riskier long-run loan portfolios in domestic banks in target countries. Without evidence of greater efficiency of domestic banks in target countries post-M&A, this suggests that greater competition among banks was not accompanied by enhanced sector efficiency but riskier behavior in domestic banks.