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Private information, institutional distance, and the failure of cross-border acquisitions: Evidence from the banking sector in Central and Eastern Europe

Sumon Bhaumik (), Oluwarotimi Owolabi and Sarmistha Pal

Journal of World Business, 2018, vol. 53, issue 4, 504-513

Abstract: In this paper, we develop an information theory-based framework about cross-border acquisitions in the financial intermediation industry. We argue that even though “soft” information embedded in customer relationships of local banks can, in principle, help multinational banks (MNBs) overcome informational disadvantage in host countries, the cost of verification of this private information may, paradoxically, make local banks with significant customer relationships unattractive for cross-border acquisition. Further, we propose that the relationship between the amount of customer information embedded in an incumbent bank and the likelihood of its acquisition by a MNB is modified by the institutional distance between the home and host countries of the MNB. Specifically, the strength of the negative relationship increases with institutional distance between home and host countries because the verification cost of private information increases with institutional distance. Our hypotheses find support in the context of Central and Eastern Europe.

Keywords: Multinational bank; Cross-border acquisition; Customer relationship; Private information; Verification cost; Institutional distance; Central and Eastern Europe (search for similar items in EconPapers)
Date: 2018
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