Domestic banking sector development and cross border mergers and acquisitions in Africa

Abstract

Recently, economists have started taking a closer look at cross border mergers and acquisitions (M&As) due to its phenomenal rise in the past two decades. This study investigates the relation between banking sector development and cross M&As in Africa. Our sample consists of 11 African countries with data covering the period, 1993–2008. We use a Baltagi panel instrumental variable Error Component Two Stage Least Squares (EC2SLS) estimator with the Baltagi-Chang estimators of the variance components to deal with endogeneity. The results of the study indicate that banking sector development promotes cross border M&A activity in Africa. We also document evidence suggesting that cross border M&A activity drives banking sector development in Africa. Overall, our evidence suggests a two-way causation between banking sector development and cross border M&As.