Cross-border bank M&A in emerging market: value creation or destruction?

Between 1998 and 2005, we identify 74 cross-border M&A transactions involving banks from developed nations acquiring an ownership stake in 46 listed banks in emerging market economies (EME). A total of $1,057,515 million of bank assets was acquired for $38,172 million in Latin America, Central and Eastern Europe, and Asia. Using an event study approach, we assess how stockmarkets respond to M&A announcements and if announcements create value; we also consider distribution of value between shareholders of acquiring and target banks. The joint abnormal returns suggest stockmarkets expect value creation in Latin America but not in CEE and Asia. The distribution of value favours more acquiring bank shareholders for Latin America investments; in Asia, return to target shareholders is positive yet negative for acquiring bank shareholders. Transactions in CEE destroy value for all shareholders. Thus, there is a win-win outcome for shareholders when Latin American targets are acquired. We consider if acquiring majority control creates value. The evidence suggests it does not and that joint returns are further reduced when target banks are larger banks. Joint returns appear to be being driven by abnormal return to acquiring banks. Our results run contrary to evidence from European M&A transactions but show similarity with some US studies.