Cross-border M&As in the financial sector: Is banking different from insurance?

This paper investigates what factors might help explain the internationalization strategy of banks and insurance companies, by comparing the determinants of cross-border M&As in the two sectors in a unified framework. The empirical analysis shows that between 1990 and 2003 the internationalization of banks and insurance companies followed similar patterns. Distance and economic and cultural integration are important determinants for both the banks' and the insurance companies' expansion abroad. Comparative advantage also has a prominent role, the more so for banks. The evidence is less supportive of the view that cross-border M&As are more frequent between similar countries, as predicted by the new trade theory. Finally, and most interestingly, we find indirect evidence consistent with the hypothesis that implicit barriers to foreign entry are more important in explaining the behavior of banks than that of insurance companies.