Foreign institutional investors and China's financial service industry: The intra-industry effects of the foreign acquisition of Shenzhen Development Bank

This paper analyzes the effects of the foreign acquisition of Shenzhen Development Bank (SDB) on both the bank's performance and the performance of its rival banks. The authors define two types of effects on rival banks around the acquisition event: a "competitive effect", whereby a more competitive SDB threatens its rivals, and an "entrance effect", whereby SDB's acquisition signals that more foreign banks will be able to enter the banking industry in China. The empirical results indicate that the competitive effect is significant for SDB's domestic rivals in mainland China and the small banks in Hong Kong, as these banks react negatively (positively) to positive (negative) news related to the foreign acquisition of SDB, whereas the large banks in Hong Kong are more sensitive to the entrance effect, as they react positively to positive news related to the foreign acquisition of SDB. In addition, it is found that SDB outperform its rival financial institutions in China 19 months after the acquisition.