Mergers and Acquisitions in Banking Sector
MERGERS AND AQUISITIONS IN BANKING SECTOR
Research project submitted to
Deppt. Of Management Studies and Computer Applications
For
Partial fulfilment for award of degree in
Masters of Business Administration,
(MBA)
Punjab Technical University, Jalandhar.
(2011)
Supervised By: Submitted By:
Dr. H. S. Gill Ravinder Preet
Assistant Professor Univ. Roll No. 90032265819 A. C. E. T Amritsar CHAPTER-I INTRODUCTION Globally mergers and acquisitions have become a major way of corporate restructuring and the financial services industry has also experienced merger waves leading to the emergence of very large banks and financial institutions. The key driving force for merger activity is severe competition among firms of the same industry which puts focus on economies of scale, cost efficiency, and profitability. The other factor behind bank mergers is the “too big to fail” principle followed by the authorities. In some countries like Germany, weak banks were forcefully merged to avoid the problem of financial distress arising out of bad loans and erosion of capital funds. Several academic studies (Berger, 1999) examine merger related gains in banking and these studies have adopted one of the two following competing approaches. The first approach relates to evaluation of the long term performance resulting from mergers by analyzing the accounting information such as return on assets, operating costs and efficiency ratios. A merger is expected to generate improved performance if the change in accounting-based performance is superior to the changes in the performance of comparable banks that were not involved in merger activity. An alternative approach is to analyze the merger gains in stock price performance of the bidder and the target firms around the announcement event. Here a merger
Research project submitted to
Deppt. Of Management Studies and Computer Applications
For
Partial fulfilment for award of degree in
Masters of Business Administration,
(MBA)
Punjab Technical University, Jalandhar.
(2011)
Supervised By: Submitted By:
Dr. H. S. Gill Ravinder Preet
Assistant Professor Univ. Roll No. 90032265819 A. C. E. T Amritsar CHAPTER-I INTRODUCTION Globally mergers and acquisitions have become a major way of corporate restructuring and the financial services industry has also experienced merger waves leading to the emergence of very large banks and financial institutions. The key driving force for merger activity is severe competition among firms of the same industry which puts focus on economies of scale, cost efficiency, and profitability. The other factor behind bank mergers is the “too big to fail” principle followed by the authorities. In some countries like Germany, weak banks were forcefully merged to avoid the problem of financial distress arising out of bad loans and erosion of capital funds. Several academic studies (Berger, 1999) examine merger related gains in banking and these studies have adopted one of the two following competing approaches. The first approach relates to evaluation of the long term performance resulting from mergers by analyzing the accounting information such as return on assets, operating costs and efficiency ratios. A merger is expected to generate improved performance if the change in accounting-based performance is superior to the changes in the performance of comparable banks that were not involved in merger activity. An alternative approach is to analyze the merger gains in stock price performance of the bidder and the target firms around the announcement event. Here a merger