The Determinants of Cross-Border Merger and Acquisition Activity in the Financial Sector in Asia

Chung-Hua Shen and Mei-Rong Lin

in Financial Sector Development in the Pacific Rim

Published by University of Chicago Press

Published in print April 2009 | ISBN: 9780226386843
Published online February 2013 | e-ISBN: 9780226386867 | DOI:
The Determinants of Cross-Border Merger and Acquisition Activity in the Financial Sector in Asia

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This chapter investigates whether the Asian crisis changed the determinants of cross-border mergers and acquisitions (M&A) among financial institutions in ten Asian countries. It tests five hypotheses on cross-border M&A activity: (i) the gravity hypothesis; (ii) following the client hypothesis; (iii) market opportunity hypothesis; (iv) information cost hypothesis; and (v) the regulation barrier hypothesis. While none of the hypotheses can be directly tested, they gather data on proxies for each of the hypotheses and use these to explain the number of financial M&As in Asia from 1990. The proxies that were statistically significant for the periods both before and after the crisis include (a) the distance between the countries; (b) the level of gross domestic product; (c) bilateral trade; and (d) net foreign direct investment. Distance had a negative impact in both periods, which tends to support both the gravity hypothesis and information cost hypotheses. Gross domestic product had a negative coefficient in both periods, which is contrary to the gravity hypothesis. On the other hand, trade had a positive coefficient for both periods, which supports the following the client hypothesis. Foreign direct investment also exerted a positive effect, which supports the both information cost and the following the client hypotheses.

Keywords: mergers and aquisitions; financial sector; Asia; financial institutions; gross domestic product; bilateral trade; foreign direct investment

Chapter.  15832 words. 

Subjects: Business and Management

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