The merger and exit decisions model of foreign banks by real options approach

LIU Bin, ZENGYong, LIQiang, DENG Shi-jie

Systems Engineering - Theory & Practice ›› 2012 ›› Issue (3) : 522-534.

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Systems Engineering - Theory & Practice ›› 2012 ›› Issue (3) : 522-534. DOI: 10.12011/1000-6788(2012)3-522

The merger and exit decisions model of foreign banks by real options approach

  • LIU Bin1, ZENGYong1, LIQiang1, DENG Shi-jie2
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Abstract

Taking both the uncertainty of the release timing of policy restriction on merging domestic banks and that of the credit market size into account, this paper develops a real option model to analyze the effects of two kinds of uncertainties as well as banks' specific characteristics on the foreign banks' merging and exit decision. The results show that when the release of policy restriction on foreign banks' merging activities speeds up and the uncertainty about market size increases, foreign banks prefer to cooperate with a domestic bank, rather than exit the market. Moreover, we find that foreign banks with a high opportunity cost or poor screening techniques prefer to exit the market. However, foreign banks with a high equity stake in domestic banks would like to continue to cooperate with a domestic bank.

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foreign banks / merge / exit / policy restriction

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LIU Bin , ZENGYong , LIQiang , DENG Shi-jie. The merger and exit decisions model of foreign banks by real options approach. Systems Engineering - Theory & Practice, 2012(3): 522-534 https://doi.org/10.12011/1000-6788(2012)3-522

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