Determinants of cross-border bank acquisitions in transition economies1

We analyse the microeconomic determinants of cross-border bank acquisitions in 11 transition economies over the period 1992-2006. We find that foreign banks target relatively large and efficient banks when they enter transition economies with weak institutions. This evidence provides support for the 'market power' hypothesis. However, when foreign banks enter more developed transition economies that have made progress in economic reform, they acquire less efficient banks. This result is in line with the efficiency hypothesis. We use a multilevel mixed effects logit model that allows us to explicitly incorporate the macroeconomic and institutional heterogeneity of the transition economies into our analysis.