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CF Workshop - by Professor Andrew Karolyi - "Regulatory arbitrage and cross-border bank acquisitions"

When Jan 22, 2013
from 05:00 PM to 06:00 PM
Where Sidgwick Hall, Newnham College
Contact Name
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"Regulatory arbitrage and cross-border bank acquisitions"

G. Andrew Karolyi (Cornell University) and Alvaro G. Taboada (University of Tennessee)

 

Abstract:

We study how differences in bank regulation influence cross-border bank acquisition flows and share price reactions to cross-border deal announcements. Using a sample of 5,125 domestic and 793 majority cross-border deals announced between 1995 and 2008, we find evidence of a form of “regulatory arbitrage” in that cross-border bank acquisition flows involve primarily acquirers from countries with stronger supervision and stricter capital requirements than those of their targets. However, we also show that target and aggregate abnormal returns around the deal announcements are higher when acquirers come from countries with more restrictive bank regulatory environments even after accounting for the acquirer’s other attributes. These market reactions are consistent with a more benign form of “regulatory arbitrage” than one that is associated with a potentially destructive “race to the bottom” in which national bank regulators become less able to constrain excess risk-taking.

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