Empirical Evidence on cross-border M&A in the European Banking Sector

Table of Contents

1. Introduction
1.1 Background and Problem Definition
1.2 Structure

2. Theoretical Background
2.1 Mergers & Acquisitions
2.1.1 Description
2.1.2 Terminology of M&A transactions
2.1.3 Motivations for M&A
2.2 Definition of M&A success
2.2.1 Measuring success in bank related M&A transactions
2.2.1.1 Event Studies
2.2.1.2 Accounting Studies
2.3 Factors influencing M&A success in banking transactions
2.4 M&A transactions in the European Banking Sector
2.4.1 Financial Consolidation in the European Banking Sector
2.4.2 Barriers for European Transactions
2.4.2.1 Legal and Regulatory Barriers
2.4.2.2 Political and Cultural Barriers
2.4.2.3 Other barriers
2.4.3 Drivers of the financial consolidation
2.4.3.1 Globalisation
2.4.3.2 Technological Change
2.4.3.3 Regulatory Reform
2.4.3.4 Industrial Driver

3. Research Hypotheses

4. Empirical Analysis
4.1 Data Sample
4.1.1 Selection Process
4.1.2 Annotation to the selected Data Sample
4.2 Sample Statistics
4.3 Short-term performance
4.3.1 Methodology - Event Study Approach
4.3.2 Test for Statistical Significance
4.3.2.1 T-Test
4.3.2.2 Standardized-Residual Test
4.3.2.3 BoehmerTest
4.3.2.4 T-Test for Differences
4.4 Long-term Performance
4.4.1 Cumulative abnormal return approach
4.4.2 Buy-and-hold abnormal return approach
4.4.3 Calendar-time portfolio approach
4.4.4 Significance Test
4.5 Explanatory Variables
4.5.1 Country Characteristics
4.5.2 Hofstede’s Dimensions
4.5.3 Governance Indicators
4.5.4 Religious Characteristics
4.5.5 Control Variables

5. Empirical Results
5.1 Univariate Analyses and Results (Short-term Performance)
5.1.1 Full Sample Analysis
5.1.2 Sub-Sample Analysis for Bidding Bank
5.1.2.1 Hypothesis 1
5.1.2.2 Hypothesis 2
5.1.2.3 Hypothesis 3
5.1.2.4 Hypothesis 4
5.1.2.5 Hypothesis 5
5.1.2.6 Hypothesis 6
5.1.2.7 Hypothesis 7
5.1.3 Sub-Sample Analysis for Combined Banks
5.1.4 Robustness Check
5.2 Multivariate Regression Analysis
5.2.1 Results
5.3 Long-term-performance
5.3.1 Results of Buy-and-Hold Approach
5.3.2 Results of Calendar-Time Portfolio Approach
5.4 Accounting Study
5.4.1 Reasons for Accounting Study
5.4.2 Methodology
5.4.3 Data Sources
5.4.4 Results
5.5 Summary of the Results

6. Case Study
6.1 National Culture
6.2 The Merging Parties
6.3 Quantitative Results

7. Conclusion
7.1 Summary of the Results
7.2 Limitations

Bibliography

Appendix

List of Figures

Figure 1: Structure of the Thesis

Figure 2: M&A transaction volume in the European Banking Sector

Figure 3: Value per Transaction

Figure 4: The communication cycle of the Italians

Figure 5: Business Mix of UniCredit Group

Figure 6: Stock Price Development of UniCredit Group and HVB Group

Figure 7: ROE of UniCredit and HypoVereinsbank between 2003 and 2007

Figure 8: Profit of UniCredit and HypoVereinsbank between 2003 and2007

Figure 9: Structure of UniCredit Group

Figure 10: Number of employees at the HVB Group

Figure 11 : Number of branch offices at the HVB Group

List of Tables

Table 1: Typology of M&A Transactions

Table 2: Motives for M&A transactions

Table 3: Number of credit institutions, change in % between 1997-2006

Table 4: Herfindahl Index for bank’s total assets and index change and market share of the 5 largest CIs

Table 5: Summary of the Hypotheses

Table 6: Number and total value of transactions

Table 7: Overview of the nationality of the acquirers

Table 8: Overview of nationality of the target banks

Table 9: CAR of the target sample

Table 10: CAR of the bidder sample

Table 11: CAR of the combined sample

Table 12: Cumulative Abnormal Return of the Bidder by Distance

Table 13: Cumulative Abnormal Return of the Bidder by Language

Table 14: Cumulative Abnormal Return of the Bidder by Legal Origin

Table 15: Cumulative Abnormal Return of the Bidder by Border

Table 16: Cumulative Abnormal Return of the Bidder by Voice

Table 17: Cumulative Abnormal Return of the Bidder by Political

Table 18: Cumulative Abnormal Return of the Bidder by Government

Table 19: Cumulative Abnormal Return of the Bidder by Regulator

Table 20: Cumulative Abnormal Return of the Bidder by Law

Table 21 : Cumulative Abnormal Return of the Bidder by Corruption

Table 22: Cumulative Abnormal Return of the Bidder by Power Distance

Table 23: Cumulative Abnormal Return of the Bidder by Individualism

Table 24: Cumulative Abnormal Return of the Bidder by Masculinity

Table 25: Cumulative Abnormal Return of the Bidder by Uncertainty Avoidance

Table 26: Cumulative Abnormal Return of the Bidder by Religion

Table 27: Cumulative Abnormal Return for Combined Entity

Table 28: Cumulative Abnormal Return for Combined Entity for Hypothesis 6

Table 29: Cumulative Abnormal Return for Combined Entity for WGI Indicators

Table 30: Regression Output for Bidder

Table 31: Regression Output for Combined Banks

Table 32: Correlation Matrix

Table 33: Regression Output for Combined Entity, excluding correlated variables

Table 34: Regression Output for Combined Entity, including correlated variables

Table 35: Annual BHARs

Table 36: Calendar-time long run abnormal returns by language

Table 37: Calendar-time long run abnormal returns by border

Table 38: Calendar-time long run abnormal returns by Individualism

Table 39: Calendar-time long run abnormal returns by Political

Table 40: Calendar-time long run abnormal returns by Law

Table 41: Calendar-time long run abnormal returns by Power

Table 42: Correlation Matrix for financial variables

Table 43: Summary of the variables

Table 44: Descriptive Statistics of the main Financial Variables

Table 45: Descriptive Statistics of the main determinants of performance

Table 46: Descriptive Statistics of post-merger performance according to the cultural variables

Table 47: Results of hierarchical regression analysis of the impact on change in performance

Table 48: Regression Analysis, excluding correlated variables

Table 49: Overview of the Empirical Results

Table 50: Hofstede’s cultural dimensions for Germany and Italy

Table 51 : M&A deals by top 5 global firms

Table 52: List of countries according to their legal origin

Table 53: Definition of Governance

Table 54: Summary of Return Studies to Targets, Bidders and Combined Banks

Table 55: Return for combined entities on hypotheses 1, 2, 3,4 & 7 (-8% outliers)

Table 56: Return for combined entities on Hofstede’s cultural dimensions (-8% outliers)

Table 57: Return for combined entities on WGI indicators (-8% outliers)

I Introduction

1.1 Background and Problem Definition

Mergers and Acquisitions (abbreviated M&A) within the European financial market have altered the European banking sector drastically in the past couple of decades. Walkner & Raes (2005) claim that cross-border M&As have not been a major feature of the EU banking sector, implying that domestic bank mergers dominated the merger process for a long time.

From 1995 to 2006, the number of credit institutions decreased on average my approximately 7% in the eurozone, which was mainly driven by domestic merges.

However, since the mid of the 1990s cross-border M&As gained momentum and play a significant role in the European banking consolidation process. Nevertheless, “cross-border M&A has never come close to exceeding domestic mergers and acquisitions” (Kleimeier et al., 2007).

Despite the high level of M&A activity in Europe, relatively little research has been conducted dealing with cross-border M&As. Most of prior research applies event study methodology in order to analyze announcement effects of European bank M&As. Further, these studies focus on the question whether bank M&As in Europe have created or destroyed shareholder value. Others try to provide an in depth analysis of the factors that affect and may explain the value creation process. Altunbas et al. (2007) or Beitel et al. (2003) try to explain the M&A success in European bank mergers. However, the results often lack explanatory power.

Therefore, this thesis looks at the success of cross-border M&A from a different perspective. The paper aims at understanding whether or not culture plays an important role in the success of M&As. Consequently, the study tries to identify cultural characteristics of bidder and targets, which have explanatory power for bidder returns and the combined effect of both bidder and target.

The thesis has several unique features. First, the study conducts an extensive short-term and long-term analysis on cross-border M&As. Second, the results of the event studies are tested by employing accounting studies as well. Third, the thesis provides a real life example of the merger between UniCredit and HypoVereinsbank.

This thesis is the first one, which extensively analyzes the following research question:

Are cross-horofer M&As о/cultural similar countries more successful?

1.2 Structure

Chapter 1 serves as an introduction to the thesis. Chapter 1.1 introduces the reader to the topic of this dissertation by providing relevant background information and by putting the content of this thesis into the most recent context. In a further step, the major problems to be addressed in this study are defined. Based on the problem statement, Chapter 1.2 elaborates on the structure of the thesis.

Chapter 2 provides the reader with necessary background information, in order to better understand the research motive. Chapter 2.1 gives a brief description of the term M&A, followed by an overview of the typology of the different M&A transactions. Further, the motives for possible M&A transactions are scrutinized, distinguishing between value-creating as well as non-value creating motives. In chapter 2.2, a definition of M&A success will be given. Here the success of the transaction will be discussed under the shareholder-, client-, employee-, as well as the society perspective. The reader will also be introduced to the two methods used during this study. Chapter 23 briefly discusses the different factors that influence cross-border M&A success in banking transactions. The last chapter 2.4 introduces the reader to the recent financial consolidation in the European banking sector. Barriers as well as potential drivers for further integration are analysed.

The intention of chapter 2 is to give the reader sufficient information in order to have an understanding of the typology M&A as well as of the recent development in banking transactions.

Chapter 3 elaborates on the hypotheses developed. In order to find an answer to the research question, 7 hypotheses have been developed that will shed further light on the problem statement. The chapter ends by providing an overview of the developed hypotheses.

Chapter 4 contains a description of the empirical data. While chapter 4.1 explains the process of data selection, Chapter 4.2 describes the characteristics of the sample used for this thesis. In chapter 4.3 the methodology used for short-term performance (event study) is explained, followed by a detailed description of the explanatory variables used during this study (Chapter 4.4).

Chapter 5 contains the empirical analysis of this study. In Chapter 5.1 the hypotheses are tested by making use of univariate analysis. In Chapter 5.2 a multi-regression has been applied in order to obtain more reliable information about the research question under study.

Finally, chapter 5.3 makes use of accounting studies. Here the operating long-term performance was analysed. Chapter 5.4 summarizes the empirical results.

Chapter 6 tries to analyse the research question from a different angel by providing a case study of Unicredito and Hypo Vereinsbank. Thus, the reader should be familiar of a real life case, which will be complementary to the empirical results.

Chapter 7 incorporates the summary and final conclusion of this thesis. In chapter 7.7 final comments, combined with conjectures about the future development, are provided. Finally, implications for future research are discussed in chapter 7.2.

The structure of this thesis is illustrated in figure 1.

Figure 1: Structure of the Thesis¹

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II Theoretical Background

2.1 Mergers & Acquisitions

2.1.1 Description

Over the past decade, M&A have reached unprecedented levels in the banking sector, as banks use corporate financing strategies to maximize shareholder value and create a competitive advantage (Bruner et al, 2004).

Despite the frequent use of the term mergers and acquisitions a consistent as well as uniform comprehension of the term does not exist and therefore, a definition will be provided. Basically, the phrase mergers and acquisitions comprises “aspects of corporate strategy, corporate finance as well as of management, dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity” (Cooper et al, 2006).Generally, acquisitions occur when a large company takes over a small one. Further, throughout the working paper, the term acquisition is used when one company acquires a majority interest in another company. A merger typically involves two relative equals joining forces and creating a new company. Weston et al. (1990) defines mergers and acquisitions as “any transaction that forms one economic unit from two or more previous ones.”

Most mergers and acquisitions should be considered friendly, but a hostile takeover occurs when the acquirer bypasses the board of the targeted company and purchases a majority of the company’s stock on the open market.

A merger is considered a success if it increases shareholder value faster than if the company had remained separate (Fuller et al., 2002).

Due to the immutable fact that corporate takeovers and mergers can reduce competition, they are heavily regulated, often requiring government approval (Gaughan, 2005).

In order to increase chances of the deal’s success, acquirers engage themselves in rigorous due diligence - a review of the targeted company’s assets and performance history - before the purchase to verify the company’s stand-alone value and unmask problems that could jeopardize the outcome (Lajoux et al., 2000).

The terms, mergers and acquisitions, are used interchangeably throughout the paper even though some acquisitions are not mergers.

2.1.2 Terminology of M&A transactions

After having provided a brief description of mergers and acquisitions, a detailed typology of the different M&A transactions will be presented. Referring to the articles of Eschen (2002) as well as Beitel (2002), the following table has been created that classifies the different transactions.

Table 1: Typology of M&A Transactions²

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Basically, one needs to distinguish between horizontal, vertical, conglomerate as well as concentric M&A when referring to the direction of any transaction.

Horizontal M&A basically describes transactions among companies which compete more or less within the same industry, offer the same or similar products, employ similar technologies as well as targeting the same customers. Hence, horizontal transactions often aim at eliminating competitors, increasing ones market share as well as realizing valuable synergies (Pearce, 2005).

In contrast, vertical transaction refers to companies that operate along one value chain of a product or service. Backward transactions typically involve the purchase of suppliers, whereas in forward transactions, activities are expanded to include control of the direct distribution of its products. Besides the realizations of synergies and the increase of efficiency, vertical transactions are often aimed at reducing one’s dependency. For example, acquiring a supplier might be mainly driven by the aim to reduce the uncertainty of the supply of inputs and to control critical resources (Pearce, 2005).

Concentric transactions involve the acquisition of businesses that are related to the acquiring firm in terms of technology, markets, or products. With this form of merger, the selected new businesses possess a high degree of compatibility with the firm’s current businesses.

Conglomerate mergers or lateral mergers emerge when companies do exhibit different value chains, are engaged in a different product as well as market segment and consequently do not directly compete against each other. Such mergers are mainly justified by various diversification motives. Unlike concentric transactions, conglomerate mergers give little concern to creating product-market synergy with existing businesses. (Pearce, 2005).

Besides the aforementioned types of mergers and acquisitions, one also needs to distinguish between domestic as well as cross-border M&A.

The next typology of M&A transactions concerns the mode of the deal, whether it is friendly or hostile. In case of a friendly takeover, management of both parties agree on the transaction, and the target’s management advice their stakeholder to accept the offer of the acquiring company. In contrast, a transaction is considered hostile if the target’s board rejects the offer, but the bidder continues to pursue the transaction or if the bidder makes the offer without informing the board beforehand. In general, the majority of the mergers are considered to be friendly rather than hostile. Examples of a hostile takeover in the banking sector are the acquisition of NatWest by the Royal Bank of Scotland in 2000 as well as the acquisition of Paribas by BNP in 1999.

Next, the type of the value transfer will be discussed. A share deal refers to the acquisition of the target’s stocks by the bidder, whereas in an asset deal, specific assets as well as rights are transferred to the acquirer. The decision of which type of value transfer should be applied is mainly based on tax considerations.

The last terminology of M&A transactions deals with the method of payment. In unlevered M&A transactions the acquirer either pays in cash or with shares for the target. In levered mergers, debt is used such as management buy-outs, management buy-ins or leveraged buy­outs. The method of payment does convey an important signal to the capital market, influencing the potential return for the acquirer and the target. For example, Myers and Majluf (1984) argue that a bidder is eager to use stock as the method of payment if the board believes that its own shares are overvalued. Since shareholders are aware of such actions, they are not inclined to accept a stock offer. Consequently, higher-valued acquirers will make use of cash in order to signal their value to the market. However, if the bidder is uncertain about the true value of the target, the bidder may not want to offer cash, due to the immutable fact that the target will only accept a cash offer greater than its true value and the bidder will have overpaid (Fuller et al., 2002).

2.1.3 Motivations for M&A

The following section deals with the motivations of mergers and acquisitions. Due to the fact that diverse authors have provided various reasons for mergers, table 3 summarizes the main motives of M&A transactions in the banking sector. Here, one needs to distinguish between

value-creating as well as non-value creating motives such as agency theory, hubris theory and the pecking order theory.

Table 2: Motives for M&A transactions³

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Each business’s basic value chain activities or infrastructure becomes a source of potential synergy and competitive advantage for another business. Synergies in its widest sense are the predominant motivation in mergers and acquisitions. Academics distinguish between operating as well as financial synergies, whereas the former comprises enhancements in any business function such as management, labour costs, production or distribution, resource acquisition and allocation of market power. Financial synergies, on the other hand, are achieved when the combined market value is bigger than the sum of the individual market values due to the “financial configuration of the merged firm” (Ogden et al., 2003). However when talking about synergies, operating synergies in the forms of economies of scale and economies of scope will be considered. Economies of scale basically deal with cost savings that a firm achieves when activities of the merged company can be combined and streamlined. In the banking sector, economies of scale results predominantly from combining particular back-office activities (Beitel, 2002).

Provisioning, production and distribution are basically the three sources in which economies of scope in the banking sector can be achieved. Economies of scope are obtained if through the merger, the pooled offer of bank products as well as services is cheaper than the sum of the individual offers.

Besides striving for operational synergies, banks often conduct mergers in order to replace inefficient management of the target company. Inefficient management is characterized by the fact that they are incapable of efficiently employing the invested capital in order to increase the company’s profit. By replacing management by a more efficient one, it is believed that the company will operate under full potential and that shareholder value as well as the undervalued price increases.

A further significant driver for mergers and acquisitions is to strive for market power. In general, market power enables a bank to alter the market price for its products or services without suffering from loss of customers. Especially, horizontal transactions of companies, leading to a concentration of the market, allow the company to fully exploit its market power. However, even if an increase in market power is desirable for any company, it is detrimental for the economy as a whole and therefore it is often subject to antitrust authority. Antitrust’s aim is to eliminate any malfunctioning of the market due to reduction in competition or monopoly power.

Diversification is another important motive for M&A transactions in the banking sector. Based on the portfolio theory by Markowitz (1952), the purchase of not perfectly correlated financial instruments might lead to a reduction in the overall risk of the portfolio. Applying this theory to M&A transactions, a merger of banks with not perfectly correlated earnings leads to a decline in the volatility of future combined earnings and consequently to a reduction of the unsystematic risk. Further, risk can be mitigated by geographical diversification, which is an important reason for cross-border M&A’s.

However, shareholders do not value diversification effects per se due to the immutable fact that they are able to diversify at a lower cost by their own.

Amihud et al. (2002) nevertheless shows that a significant reduction of the overall risk of a merger due to a cross-border transaction does not exist on average. Consequently, risk- reducing effects are often offset by risk-increasing effects.

Further, M&A transactions can be motivated trough the target’s undervaluation due to inefficient capital markets. Often, companies are undervalued by the market due to lack of knowledge about the company’s true value. In such cases, the acquirer’s management often possess superior information than the market and therefore thinks that the true value of the target is higher than the market actually conveys. Hereby, the acquirer is trying to keep the premium as low as possible in order to reap a benefit (arbitrage) from the missvaluation of the market.

This type of motivation for M&A transactions however stands in contrast with the theory of “efficient markets”, in which undervaluation of companies does not exist and consequently, arbitrage is not possible. The information hypothesis, introduced by Seidel (1995), claims that acquiring an undervalued company that has been identified through non-public available information, “is a value-maximizing motive”.

Strategic motivations explaining M&A transactions can have a positive impact on the valuation of the merger. One of a strategic motive might be the acquisition of valuable resources such as know-how, patents or technology, which can be transformed into an increase in the overall performance of the merged company. Another strategic motivation might be a new strategic positioning. Here, the bank changes its focus on clients, products or markets due to changing exogenous factors. An example for a new strategic positioning with a change in the product focus of a company is the acquisition of Dresdner Bank by Allianz in 2001.

Due to globalisation as well as the deregulation in the international financial markets, establishing a presence in the new environment is becoming more and more important. In order to achieve a competitive presence, banks need to grow in size. The size effect enables banks to play a more active role in the anticipated pan-European consolidation as well as being able to conduct certain business transactions⁴.

Another important value-maximizing motive is the g-ratio, introduced by Weston and Chung (1990). The q-ratio, also called Tobin’s Q, compares the market value of a company and the value of the company’s assets. Consequently, with the goal of capacity expansion, the acquisition of a company may be the more efficient (cheaper) way, compared with own capacity creation. This is basically true when the own company has a q-ratio greater than one and the target a q-ratio multiplied with the %-acquisition premium of below one. Hence, acquiring that company is cheaper than buying all the essential goods to imitate its activity (replacement value).

All the aforementioned motives for M&A transactions are based on the premise of value- maximisation. However, academics have found a paradox between the increase in M&A activities within the banking sector on the one hand and the empirically proven lack of value creation on the other hand. Consequently, some M&A transactions might be driven by motives other than the maximization of shareholder value.

The agency-theory explains how to best organize relationships in which one party (the principal) determines the work, which another party (the agent) undertakes. Under conditions of incomplete information and uncertainty, the agency theory is basically concerned with resolving two problems that can occur in agency relationships: adverse selection and moral hazard. Adverse selection describes the condition under which the principal is not able to verify if the agent accurately represents his ability to do the work for which he is being paid. Moral hazard is based on the condition under which the principal cannot be certain if the agent has employed maximal effort in his work (Eisenhardt, 1989).

Based on this principal-agency theory, two problematic motives for M&A in the banking sector can be identified. Jensen (1986) claims that free cash flow is a source of value-reducing mergers. Based on the theory, a firm with high free cash flow is one where internal funds are in excess of the investments required to fund positive net present value (NPV) projects. The consequence of such substantial free cash flow might lead to value-reducing diversification decisions.

A second value-reducing theory of mergers is the Shleifer-Vishny (1989) model of management entrenchment. Here, managers engage in investments that increase the manager’s value to shareholders. However, such management-specific investments do not enhance value to the shareholders themselves. Consistent with the model of Jensen (1986), managers in the entrenchment model are hesitant to pay out cash to shareholders. Investments made by the managers can be in the form of acquisitions in which managers overpay but lower the likelihood that they will be replaced.

Next, a value-neutral motive for M&A transactions is based on Roll (1986), who claimed that “Hubris on the part of individual decision makers in bidding firm can explain why bids are made even when a valuation above the current market price represents a positive valuation error. Bidding firms infected by hubris simply pay too much for their targets”⁵. The concept of the hubris theory (also called winner’s curse) is based on the premise that markets are strong-form efficient but individual managers are prone to excessive self-confidence. Consequently, the manager who has the most optimistic forecast of another firm’s value falls prey to the winner’s curse in a bidding competition. The hubris theory suggests that mergers can occur even if they have no effects on value. In cases where a merger bid is less than the target firm’s value, the target does not sell. However, whenever the bid exceeds the target’s value, the target is prone to sell and what is gained by the target shareholders is a wealth transfer from the bidding firm’s owners.

The last motive for mergers is based on the pecking order theory by Myers and Majluf (1984), in which cash poor companies may want to acquire cash rich companies in order to pursue all profitable investments. Further, companies with excess cash but very few investment opportunities may turn to mergers financed by cash.

To sum up, it has been shown that value-increasing as well as value-decreasing motives play an important role in the motivation for M&A transactions.

The value-increasing motives predict that the combined value of two merging companies will increase and, therefore, the merger will have a positive effect on firm value. In the case that the gain in value to the target is not positive, the target shareholders will not sell. The gains to the bidding firm should be non-negative. However, if the gains are negative, then the bidder firm will not complete the deal.

In contrast, the agency cost and entrenchment motives predict that a merger will have a negative effect on combined firm value due to the immutable fact that any positive return to target shareholders is more than offset by the negative effect in the value of the bidding firm. The hubris theory suggests that the gain to the combined firm in a merger is zero. Any positive gain borne by the target shareholders is merely an offset from the overbidding by the buyer.

Berkovitch and Narayanan (1993) noted, that a combination of all the motives, whether value- increasing or value-decreasing motives, play an essential role in the motivation for M&A transactions.

2.2 Definition of M&A success

Due to the immutable fact that various parties are affected by the M&A transaction, it is rather complicated to provide a general definition of M&A success. Since most studies only focus on shareholders per se, appendix 1 provides a brief overview of merger success, dealing with 4 different stakeholders.

2.2.1 Measuring success in bank related M&A transactions

The above section made clear that M&A success is based on the various stakeholders. However, nowadays, the focus mainly has shift on the creation of shareholder value. Consequently, M&A success depends on whether or not shareholders are better off after the deal. The thesis will focus on two methods in order to measure M&A profitability.

> Event Studies

> Accounting Studies

2.2.1.1 Event Studies

Event Study was first used by Fama et al. in 1969⁶ and it is by far the most frequent used methodology and the only one focused on capital markets. Basically, this approach analyses the impact of a specific event (merger) on the value (share price) of a company. Here, an event is defined as the public announcement of the merger. This methodology is explained in more detail in chapter 4.3.

The main reason for the popularity of event studies is the strengths of the approach. It allows that changes in value can be calculated separately for the acquirer, target and the combined entity. Further, based on market data, event studies reflect the value of the companies (as

opposed to annual report data). Finally, this methodology is a forward looking approach that automatically takes into account future expectations about the combined entity.

However, event studies are not free from weaknesses. One of the main disadvantage of the approach is the assumption of efficient capital markets, implying that all publicly available information and future expectations are correctly factored into the share price. Further, event studies do not provide rules for the length of the event window and it may be sometimes difficult to exactly determine the time of the event (information leakage). A final disadvantage is the immutable fact that any efficiency gains due to a merger are not captured by event studies (Beitel, 2004).

2.2.2.1 Accounting Studies

The second study that has been employed in chapter 5.3 is the accounting study. This examines the reported financial results of acquirers before, and after, acquisitions in order to observe how financial performance changed. A more detailed overview of the methodology will be provided in section 5.3

2.3 Factors influencing M&A success in banking transactions

Referring to Beitel et al. (2004), certain key factors do have an impact on the success of banking mergers.

First, many empirical studies dealing with geographic focus find out that shareholder value will be created when bidder and target do operate in a related geographical region.

Second, the relative size of target and bidder do have an impact on M&A success. Academics⁷ have found out that M&A transactions are more favourable when the size of the target is smaller than that of the acquirer.

Third, DeLong (2001) concludes that transactions, that are growth oriented⁸, are more successful from a combined point of view of the bidder and the target than mergers, which diversify or focus in only one direction.

Fourth, a study by Hawawani and Swary (1990) finds that mergers with highly correlated transaction partners exhibit more value for the bidding banks.

Fifth, Banerjee et al. (2000) conclude that M&A transactions are more successful when the bidding bank is more profitable (higher ROE) than their targets. When target firms are less efficient than their bidding counterparty, the merger will offer the combined banks greater chance to achieve increased profitability through efficiency gains, thus being more successful. Sixth, the capital market performance of the target prior to the merger has an impact on the success of a deal⁹. DeLong finds that mergers in which the target banks exhibit poorer performance compared to the peer group are more successful.

Seventh, studies have found a positive relationship between the success of an M&A transaction and the experience of the acquiring bank. The experience is measured by the numbers of already conducted mergers.

Eight, the method of payment affects the success of a deal, due to fact that it reveals important information that can be seen as a signal to the capital markets. In general, bidders prefer cash payments as long as they believe that their stocks are undervalued and vice versa. Becher (1999) shows that the returns for target and bidder are significantly higher, when the mergers were financed by a mixture of cash and stocks.

Finally, shareholder value is positively related with an efficient post-merger integration program.

The aforementioned factors could be possible control variables when later identifying cross­border M&A performance.¹⁰

2.4 M&A transactions in the European Banking Sector

2.4.1 Financial Consolidation in the European Banking Sector

After having discussed the definition of the M&A term, the typology as well as having provided an overview of the motives of M&A transactions, the next step is to consider the financial consolidation in the European banking sector.

Figure 2 perfectly shows the increase in volume and number of M&A transactions in the European banking sector between 1990 and 2007¹¹.

Figure 2: M&A transaction volume in the European Banking Sector between 1990-2007¹²

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The figure depicts the entire cross-border banking mergers and is in sharp contrast to the sample, described in chapter 5. The reason for the fact that the sample under study considers much less observations is the following. First, figure 2 does not differentiated whether or not the deal has been completed. Second, every cross-border M&A has been included, not considering the value of the merger. Third, public as well as private cross-border M&As have been considered. Finally, due to a lack of data, some observations have been dropped.¹³

While the M&A transaction volume in the beginning of the 1990s has been very low, the creation of the “Single Market” for financial services in the early 1990s and, more recently, the introduction of the Euro has helped to boost the process of financial consolidation in the European banking sector (Kleimeier et al., 2007). Interesting here is the dramatic increase in M&A volume in the course of the stock market boom in the late 1990s. Despite the collapse of the capital markets in 2001 and 2002, the M&A transaction volume is still larger than that in the beginning of the 1990s. The consequence of the increased M&A volume is a reduction in the numbers of credit institutes within the European banking sector.

Between 1997 and 2006 a sharp decline in the numbers of credit institutions within the EU 15 member states can be examined. For example, the number of credit institutions fell almost by 46% in the Netherlands, 40% in Germany, by over 35% in France and in excess of 25% in the United Kingdom. Running counter to this generalised trend, the number of credit institutions in Ireland, Greece and Finland increased by approximately 10%, 13% and 4%, respectively. Calculating EU and Euro-area aggregates based on these national numbers, the number of credit institutions declined by 29% in the Euro area and by 28% in the EU 15 according to the most recent data available (Table 3).

Table 3: Number of credit institutions, change in % between 1997-2006¹⁴

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The immense decline in the number of credit institutions in the European banking sector is mainly due to the increased M&A transactions. Further, this trend has led to an enormous increase in the size of the European credit institutions. Between 1997 and 2006 the size has more than doubled and reaches approximately 4.4 billion EUR¹⁵. An examination of trends in cross-border M&A shows an increase in the number of volume and therefore it plays an important role in the European banking sector.

The whole development regarding the M&A transactions as well as the increased consolidation is not only limited to the banking sector per se. The end of the 1990s marks an overall increase in the M&A activities in almost all industries throughout Europe (Appendix 1). Academics classify this development into a fifth wave of M&A transactions, which is characterized by increased “global mega-deals”. Authors describe such appearance of M&A transactions in waves and they claim that within such waves, clustering of different industries emerges. Andrade et al. (2001) especially considers the deregulation in the market as an important factor. Also, the increased consolidation among European banks at the end of the 1990s is mainly driven by the increasing European integration and the resulting deregulation.

To sum up, cross-border M&A transactions are increasing by number, especially at the end of the 1990s. This trend in the banking sector goes in line with a development that has been already detected in other industries at the 1980s. Despite the increase in number and value of cross-border transactions, domestic M&As are still dominating with a share of approximately 68% of the total transaction volume and 60% of the total numbers of transactions¹⁶. These numbers are comparable with the pan-industrial M&A development in Europe: Domestic M&A transactions with a share of more than 50% of total transactions still play the major role in M&A deals within major industries¹⁷. In this context, Beitel (2003) has referred to “state- induced” barriers to integration, such as explicit and implicit rules against foreign competitors, which are sometimes accompanied by strategies to create national champions. However, a report of the European Commission also confirms the fact that cross-border M&As have been gaining momentum. Referring to the report, cross-border mergers accounted for less than 25% of the total number of bank mergers within the EU-25, but reflected approximately 80% of the total value .¹⁸

Boot (1999) sums up the EU situation in the banking sector with the following words:

“The domestic banks in Europe were - and are- protected as domestic flagships. A fundamental belief that financial institutions should not be controlled by foreigners has (so far) almost prevented any cross-border merge ... central banks, ministries of finance and the banks operate in close concert. This is not very surprising: a very homogenous group of executives is in charge of the financial sector, central banks and government ministries guaranteeing a clear national identity of domestic institutions”.

The increased banking integration and consolidation process is far from being complete and is expected to continue. First, forces underpinning the consolidation process, such as the effect of technological changes and financial globalisation, will continue to exist. Second, the number of banks per inhabitant in the EU is almost twice that in the United States, implying that there is still room for further consolidation. Finally, there is still a high degree of heterogeneity across EU countries in terms of bank’s concentration (Altunbas et al, 2007). The following section will discuss the reduced barriers as well as the drivers for further consolidation in the European banking sector in more detail.

2.4.2 Barriers for European Transactions

Due to the high concentration of national banking markets, only few possibilities of national consolidations still exist. Consequently, the future continuance of the banking consolidation will shift its focus from a rather national integration towards pan-European markets.

Thus, the following paragraph describes the barriers that might slow down the pan-European banking integration.

The previous focus of national transaction in the European banking sector can be seen as an indicator for the existence of various barriers. Berger et al. (2001) come to the conclusion that there are still high “efficiency” barriers in the form of differences in language, culture as well as in regulatory and legal issues. These barriers make any cross-border transaction more difficult and therefore can be seen as an important hurdle for pan-European integration. Because of such existing barriers, the authors claim that a fast and far-reaching cross-border consolidation in the European banking sector cannot be achieved until the end of the 90s. Other authors, such as Peree et al. (2003) verify the findings of Berger et al. (2001) and confirm that the existing regulatory and fiscal as well as cultural and linguistic differences between the countries in the European banking sector as well as between countries around the world do have a negative impact on the pan-European banking integration. Additionally, academics also often mention the persisting powerful influence of the national central banks and the national regulatory that might have a negative impact on the consolidation process¹⁹. All the mentioned factors might reduce the profitability/economy of a cross-border M&A to such an extent that banks try to circumvent pan-European transactions as long as the barriers persist.

The following section will therefore specifically deal with regulatory as well as legal barriers in more detail. Subsequently, the impact of political and especially cultural barriers on the European banking consolidation will be described.

2.4.2.1 Legal and Regulatory Barriers

The previous European banking consolidation as described in section 2.6.1 shows parallels to the banking consolidation in the United States. Consequently, European banks will also grow in size (mainly due to national, but recently also due to large cross-border transactions), comparable to the big banks in the United States²⁰.

The main reason that the banking consolidation process in the US occurred earlier than in Europe is that legal as well as regulatory barriers were reduced. At the beginning of the 80s, the US’ banking sector was characterized by immense regulatory barriers within as well as across the individual states, making M&A transactions more difficult. However, these restrictions and barriers have been reduced first for transaction within the states and later on also among the states. Enabling more “interstate” M&A transactions, the McFadden Act of 1927 and the Bank Holding Company Act of 1956 were the first amendments that tried to reduce the overall differences in regulation and laws between the different states. The Riegel- Neal Interstate Banking as well as the Branching Efficiency Act of 1994 finally paved the way for an increase in interstate transactions. The acts and the resulting deregulation in the US banking sector led to an immense surge in M&A transactions in the banking sector. Thus, as was already mentioned, deregulation must be considered as a main driver for M&A waves²¹. Buch and DeLong (2002) find similar results by observing 2300 international transactions between 1978 and 2001. They find out that companies within regulated markets do exhibit a lower probability of M&A transactions. In contrast, deregulation enables the companies to engage themselves in mergers and acquisitions, especially in cross-border deals. Campa and Hernando (2002) show a similar development in the European banking sector and claim that deregulation is a prerequisite for an increased financial consolidation. Due to the immutable fact that deregulation plays such an important role, a differentiated consideration of the existing regulatory as well as legal barriers among the countries seems plausible to discuss.

It is however not the aim of the thesis to go into detail of the differing laws between the countries. However, besides differences in data protection, outsourcing-laws, bank secrets as well as stock issues (to name just a few), there are still plenty of differences between the countries. The European Union tries hard to minimize these differences and to allow a fast and increased consolidation process. The EU-directive “98/59/EG” for example is one way to reduce the regulatory and legal differences between the European countries by constricting mass layoffs .²²

The directive is one of many regulations within the EU that has been introduced in order to reduce the different regulatory as well as legal barriers. However, the existing/persisting heterogeneity among European countries makes an overall deregulation almost impossible to achieve.

Focusing on the deregulation in the European banking sector, “the second European banking directive” helped to foster the integration of the financial capital markets. Implemented in 1993, the directive focuses on the creation of a common European market for “financial services”. For example, the directive implemented the “Single Banking License”. Credit institutes that obtained their operating licences within the EU member states are allowed to conduct financial services without the permission of the member state in which it is located (Beitel, 2002). In 1999, another directive, the so called “Financial Services Action Plan” (FSAP) has been introduced. Based on a number of premises, the directive’s goal was to achieve a full integration of the European bank and capital markets until 2005.

The mentioned directives show that the EU is on its way towards a more integrated financial capital market.

A similar development towards a more homogenous market can be seen in the transaction process per se. The different national laws often exhibit specific mechanisms in order to prevent takeovers, so called “poison pills”. However, the directive “2004/25/EC” tries to eliminate the different poison pills among the EU countries. Implemented in 2004, the directive is aimed at determining the anti-takeover mechanism that can be used by the companies. Further, it sets the duties of the bidding companies regarding any takeover process.

Different accounting standards as well as accounting regulations between the companies in the different countries is a barrier towards a homogenous integration. These differences in the financial statements make it hard for the bidder to correctly assess the value/potential of the target company. However, the adaptation of common accounting standards (e.g. IFRS) as well increased transparency (e.g. Basel II)²³ enhances the comparability of targets for the bidder. Consequently, a correct valuation of the target’s financial health is possible and hence, potential cross-border transactions increase.

Peree et al. (2003) concludes that the persisting power/Ul influence of the national central banks and the national regulatory might have a negative impact on the financial consolidation process. For example, the merger between the BBVA and UniCredit in 1999 was hindered due to the resistance of the Italian central bank. Also, the fusion between ABN-Amro and the Italian bank Antonveneta was only achieved after a strong battle against the opposition of the central bank. These examples show that some European central banks as well as national regulatory try often hard to avoid mergers due to national interests.

Finally, the EU countries apply different laws when dealing with the potential creation of cartels. Since 1990, the EU commission per se is able to deal with the potential conflicts of cartels that might occur due to a merger between big banks.²⁴ The community dimension exists when (a) the worldwide cumulative revenue of the combined companies is larger than 5 billion Euros or (b) when both of the combined entities obtain 2/3 of their EU revenue from one particular member state. In cases of such “community dimensions”, the EU commission can decide whether a potential merger should be rejected or not.²⁵

To sum up, the aforementioned different aspects have shown that heterogeneity in the regulatory as well as legal framework still exists among the different European countries.

However, the implementation of certain directives by the EU shows that the banking industry is following a similar pattern as has been already the case in the United States. However, due to the immutable fact that national/governmental interests always play an important role in big banking mergers, a full deregulation is almost impossible to achieve.

The next section deals with various political as well as cultural barriers that also have a negative impact on the pan-European financial consolidation process.

2.4.2.2 Political and Cultural Barriers

The past has shown that cross-border M&As are often negatively influenced from a political point of view. With the help of national regulatory (as has been already described in section 2.6.2.1), especially the government of the target company often tries to refuse any merger in order to ensure their own national interests. Besides that, governments per se often held a stake at the target company and therefore can exert influence on other shareholders. Further, “article 21” enables the government to block cross-border transactions if these are in conflict with their own national interests.

Next to the political influence on cross-border M&As, unions also are able to exert high influence on the outcome of a merger. In contrast to the USA, Europe is characterized by powerful (labour) unions, which needs to be considered in any M&A deal.²⁶ Besides the powerful influence of government and unions on M&A transactions, academics often consider cultural hurdles as one of the main barriers in mergers. Chapter 2.6.2 of this thesis has slightly dealt with the failure of M&A transactions (especially cross-border) due to different cultural standards between the bidding and target country. Hall (1995) tried to emphasize the importance of cultural inequality between countries by studying joint ventures. He finds that cultural dissimilarities between the countries of the companies creating the joint ventures, might lead to a failure of the joint venture. A large number of US as well as UK studies have emerged that deal with the aspect of M&A transactions and culture. However, most of this literature has dealt only with differences between the companies’ corporate culture and less with national cultural differences. However, nowadays, especially in Europe, many literature dealing with national cultural differences exist and consider it as an important potential barrier for cross-border M&A. Especially Hofstede’s (1980; 1994) research has been extremely influential in shaping the understanding of national cultural differences.²⁷ He suggests that differences in cultural knowledge and beliefs across countries can be explained in terms of four dimensions: Individualism/collectivism, power distance, uncertainty avoidance and masculinity/femininity.²⁸

2.4.2.3 Other barriers

Besides the aforementioned regulatory, legal, political as well as cultural barriers, other obstacles also exist that do have an impact on M&A transactions.

One of those deals is the negative overall financial market condition after the collapse of the capital market in 2000 and 2001. In general, between 1985 and 2003, the pan-industrial M&A transactions showed a very high correlation coefficient of approximately 0,88 with the development of the capital markets (measured at the EuroIndex)²⁹. The collapse of the capital markets resulted in a negative sentiment towards merger and acquisitions and therefore companies tried to avoid those. During this time, M&A transactions were considered as a defensive action and therefore also as value-destroying actions. Especially cross-border transactions did not realize any value increase until 2002. The resulting cost synergies did not justify the high premiums paid and the capital market per se did not exhibit much confidence in the synergy potential of cross-border deals. In contrast, domestic M&As had been preferred due to its lower risk as well as higher synergy potential³⁰. Banks followed a rather organic growth strategy and followed a strong restructuring program that did not allow any cross­border deals.

However, recent years have shown that the negative market conditions have turned into a driver of cross-border deals due to its advancements. Further, banks did engage in cross­border M&As after they have reached a limit to its organic growth potential. But still, the complexity of cross-border deals per se remains a barrier.

2.4.3 Drivers of the financial consolidation

2.4.3.1 Globalisation

The globalisation of the international financial market due to the liberalisation of international capital movements and financial deregulation within countries is one of the main factors facilitating banking sector integration and consolidation. An important aspect of the integration in the financial markets has been the internationalisation of the banking sector.

This has led to the fact that many banks decided to hold assets outside their country. This internationalisation of balance sheets was mainly reached by cross-border mergers and acquisitions.

2.4.3.2 Technological Change

Major technological improvements, particular in the field of data processing, are another factor facilitating bank consolidation. The technological advancements led to declining costs for information collection, storage, processing and transformation. Further, these advancements also led to the immutable fact that many banks offered an extended range of services and increasingly engaged in non-traditional activities. Consequently, new technologies are said to have increased the optimum bank size, providing a powerful rational for consolidation.

2.4.3.3 Regulatory Reform

As has already been mentioned, the new regulatory approach of many European countries has led to more efficiency through competition and to a reduction in the aforementioned barriers. Further, from the mid-1980s onwards, efforts to promote an EU internal market in financial services intensified, holding out the prospect of a much larger and more liquid “domestic” market for banks operating in the EU. Thus, the introduction of home country supervisory control and the single license raised hopes for EU banking sector integration and consolidation. The introduction of the Euro might have also led to a positive relationship towards bank consolidation.

2.4.3.4 Industrial Driver

Another driver influencing the development of financial consolidation in the EU deals with the potential of cross-border mergers. The high domestic consolidation and the absence of cross-border mergers resulted in a rise in concentration ratios at the national level as measured by the Herfindahl index as well as in asset terms of the 5 largest domestic banks.

The index is determined by the sum of the squares of the asset shares of each individual bank and can range from 0 (atomic competition) to 10000 (a single monopolistic firm).³¹

According to those numbers, countries such as Malta (-34,4%), Poland (-24,4%), Slovenia (-18,8%), Italy (-18,5%), Lithuania (-14,6%) as well as Spain (-13,8%) experienced an index decline.³² In contrast, other countries such as France (32%), United Kingdom (28,3%), Finland (24,9%) as well as Portugal (17,7%) experienced index increases.³³ Equally noteworthy are the relative high index levels of Estonia (3593), Finland (2560) and Belgium (2041), while Germany (178), Italy (220) as well as United Kingdom (394) do exhibit a relatively low index level. This implies that especially in such countries with an index below 1800, there is still high potential for further consolidation.³⁴

The market share of the 5 largest CIs (table 5) underlines the rise in domestic concentration ratios, which have been notable in countries such as United Kingdom (21,3%), France (17,3%) and Portugal (12,3%). While some countries already experience a high degree of concentration, such as Estonia (97%), other countries such as Germany (22%) and United Kingdom (36%) still experience a rather fragmented financial market. These results are in line with the findings of the Herfindahl index.

Table 4: Herfindahl Index for bank’s total assets and index change and market share of the 5 largest CIs³⁵

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Despite the high concentration of the national banking market, Europe as a whole can still be considered as highly fragmented. “Banking is fundamentally still a regional industry” (Morgan Stanley, 2005). Consequently, the future consolidation process will be based on a rather cross-border merger focus, especially for such countries with very high concentration ratios at the national level (table 4).

III Research Hypotheses

In chapter 3 the research hypotheses of this thesis will be derived. Referring to the introductory chapter, the main research question is:

Are cross-border bank mergers of culturally similar countries more successful?³⁶

In order to find an answer to the research question, 7 hypotheses have been developed that will shed further light on the problem statement.

At least theoretically, it can be assumed that cross-border bank mergers that have occurred, in which the distance among the bidder and the target is close, does have a positive impact on the success of the transaction. Therefore it is hypothesized:

Hypothesis 1: Cross-border bank mergers are more successful the lower the distance between the bidding bank and the target.

It can be assumed that M&A transactions will be more successful if bidder and target firm do share the same language. Countries that share a common language are considered to be more cultural similar and hence, mergers between those countries may be more successful. Consequently, the following hypothesis is introduced:

Hypothesis 2: Cross-border bank mergers are more successful if bidder and target bank do share a common language.

Previous research has shown that the nature of both financial markets as well as government involvement differs across legal origins. For example, French civil law countries tend to intervene in economic activity to a greater extent than do common law countries (La Porta et al., 2002). It can be argued that mergers between banks that share the same legal family are free from strong government control and are cultural more similar. This leads to the third hypothesis:

[...]

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¹ Source: Own illustration

² Source: Own illustration

³ Source: Own illustration

⁴ For example, bond transactions that require a certain size due to the increasing volume of the deal.

⁵ Roll (1986), p.197

⁶ Fama, F., Fischer, L., Jensen, M. and Roll, R.(1969)

⁷ e.g. Hawawini and Swary (1990)

⁸ DeLong considers growth oriented transactions as mergers that are both geographic-diversifying as well as product-diversifying.

⁹ Market performance can be measured through (1) using the stock performance of the target, (2) the targets EPS and (3) the targets market-to-book ratio.

¹⁰ For a detailed overview of the control variables, refer to chapter 4.5.5.

¹¹ The analysis is based on data from Thomson Financial SDC. Only transactions among banks (using the industry code DA, DB and DC) are considered. At least one of the party must be from Europe (Regarding SDC, the country codes are the following: AA, AD, AS, BY, BL, BC, BU, CT, CY, CC, CZ, DN, GD, EA, FI, FN, FR, GE, WG, GI, GR, GG, VA, HU, IC, IM, IT, JE, LA, LI, LT, LX, MM, MT, MB, MO, NT, NO, PL, PO, IR, RO, RU, ME, SV, LV, SU, SP, ST, SW, SZ, TK, UE, UK, YG).

¹² Source: Own depiction, Thomson Financial SDC.

¹³ For further detail about the sample selection, read chapter 4.1.1.

¹⁴ Source: Europe Central Bank (2007): Table 3, own calculations.

¹⁵ See ECB (2007), Appendix I, table 4

¹⁶ Data are retrieved from Thompson SDC between 1990-2007.

¹⁷ See Campa and Hernando (2002)

¹⁸ European Commission, 2006a

¹⁹ See Peree and Riess (2003)

²⁰ For example, BNP Paribas, Royal Bank of Scotland, ABN-AMRO etc.

²¹ See Andrade et al. (2001)

²² The directive ensures that union labours will be informed about imminent layoffs and both will try to integrate the employees to find new jobs.

²³ Pillar 3 of Basel II intends to foster market transparency so that market participants can better assess bank capital adequacy. Disclosure requirements have been introduced according to which banks will have to publish detailed qualitative and quantitative information about capital levels, including details of capital structure and reserves for credit and other potential losses, risk exposure, and capital adequacy (Crouhy et al., 2006).

²⁴ This is only the case when the transaction reaches a “community dimension“.

²⁵ See EU(2006)

²⁶ See Campa and Hernando (2002)

²⁷ Another cultural perspective that has been applied to management and organization is that of Trompenaars (1993)

²⁸ A more detailed description of the dimensions and the resulting consequences for cross-border M&As will be provided in chapter 4.5.

²⁹ See McKinsey (2003),p.6

³⁰ See McKinsey (2003)p.4

³¹ According to the ECB (2007), a number above 1800 stands for a concentrated market, whereas a number below 1000 stands for a non concentrated market.

³² Countries such as Czech Republic, Denmark, Greece, Estonia, Hungary, Luxembourg, Austria, Slovakia, Bulgaria and Romania also witnessed an index decline.

³³ Besides those mentioned countries, Belgium, Germany, Ireland, Cyprus, Latvia, Netherlands and Sweden also had an index increase.

³⁴ The EU 25 have an index of 589, implying much room for further consolidation.

³⁵ Source: ECB(2007); own calculation

³⁶ In other words, are cross-border M&As of cultural similar countries more successful than cross-border M&As of cultural dissimilar countries.