Search

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 it increases the verification cost of private information with institutional distance. Our hypotheses find support in the context of Central and Eastern Europe.

There is a large and growing literature on the impact of institutional quality on economic performance and the broad consensus is that \good" institutions facilitate better economic performance. The literature that provides micro-level support for the policy discourse about institutional quality does not, however, account for significant intra-country variation reactions of firms to changes in business environments, even within the same industry, and it by and large ignores the possibility that the impact of institutional quality on firm performance may not be neutral. In this paper, we analyze the impact of institutions on firm performance using an approach that enables us to overcome these problems with the stylized approach. Using cross-country firm level data, we demonstrate that not only does the marginal impact of institutional quality vary significantly within countries, but also that the impact is economically significant only at the two extremes of the distribution. We view this as prima facie evidence that policies that tinker with institutional quality on the basis of the popular wisdom about the impact of these institutions on the average firm may not have the desired or expected impact, at least at the micro-level.

Our analysis of a rich representative household survey for Malawi, where patrilineal and matrilineal institutions coexist, suggests that: in matrilineal societies the likelihood of high-value crop cultivation by a household increases with the extent of land owned by males, while the income generated from high-value crop production decreases with the amount of land owned by females; and the cultivation of high-value crops increases household welfare. The policy implication is that facilitating female ownership of assets through informal and formal institutions does not, on its own, increase welfare when appropriate complementary resources and institutions are absent.