Foreign Acquisition of Banks.

My dissertation contributes to a rich literature on foreign entry into banking with three papers that shed a new light on foreign acquisitions of banks in emerging markets. The papers focus in particular on the timing of foreign acquisition following periods of structural economic change – as observed in e.g. Mexico, South Korea and Central and Eastern Europe. Structural economic change is presented as a process that makes a portion of the know-how of banks obsolete. This creates an opening for the acquisition of banks by foreign owners from advanced economies that can provide emerging market banks with access to knowledge that is relevant to rebuilding their operations. In a dynamic model of banking competition, I treat banks’ capacity to screen borrowers as a knowledge asset that is subject to depreciation. In giving banks access to knowledge, foreign acquisition reduces the marginal cost of investment in new screening capacity. Lower marginal cost of investment is particularly valuable following structural change, which is represented by an increase in the rate of depreciation of the knowledge asset. Provided there is a fixed cost of acquisition, such as a temporary disruption of operations due to the change in ownership, the model rationalizes the surge in foreign acquisitions in emerging markets after periods of structural economic change. My dissertation provides empirical support for the proposed mechanism at the bank-level as well as at the market-level. At the bank-level, I show how organizational reforms implemented by a foreign acquirer of a CEE bank contributed to significantly better sales performance. At the market level I find evidence of the presence of a fixed cost of acquisition – following foreign acquisition, the performance of banks initially drops as compared to domestically owned banks – as well as of the positive impact of foreign ownership in the medium to long term – after two to three years, foreign-acquired banks outperform otherwise similar banks that remain under domestic ownership.Ph.D.Business AdministrationUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/63623/1/hbogaard_1.pd