Mergers and Acquisitions (M&As) in Banking Sector: Literature Agglutination

Abstract

Purpose - The basic purpose of the study is to classify and present the current status of mergers and acquisitions (M&As) all over the world. Many robust aspects are appearing in post-2000 era. This research work is an effort to provide some emerging aspects to future researchers by reviewing the several accessible post-2000 literatures. These literatures are presenting the findings to give a comprehensive picture regarding M&As. Design/Methodology/Approach - Different sources were considered to download the research papers. A sample of 40 research papers is taken out of hundred paper downloaded for this study. These papers have been properly classified to demonstrate the present status on some aspects of M&As in banking sector. Findings - The present study organized the post-2000 literature from 2001 to 2018. A significant growth was noticed in recent five years i.e. from 2014 to 2018. The study covered many emerging aspects of M&As in banking sector. Originality/Value - The paper offers in-depth analysis of literatures, organize it properly and give a comprehensive bibliography to the future researchers. Further, it will be helpful to the academicians, investors, practitioners and Government to understand different facets which buffeted by the wind of change over the sample period.

Introduction

I. INTRODUCTION

Mergers and Acquisitions (M&As) are considered important measures of corporate restructuring, which means reconstruct the business, asset and ownership with a view to increase shareholder’s worth. The shareholder’s value can be enhanced if the companies continuously make evaluation of its investment portfolio, ownership capital mix and assets arrangements (Singh and Singh, 2008). Merger refers to a corporate combination of two or more independent business corporations into a single entity, usually the absorption of one or more firms by a dominant one. Acquisition, in general sense, is the purchase of controlling interest by one company in the share capital of another existing company (Bassi and Gupta, 2015). In Indian banking sector, the recent M&As of banks takes us back to the year 1921 wherein Imperial Bank of India was formed for the first time by the amalgamation of the three presidency banks namely the Bank of Calcutta, the Bank of Bombay and the Bank of Madras. It was on July 1, 1955 when the Imperial Bank of India was renamed as the State Bank of India. Many mergers have been taken place in Indian banking sector since then (Shubhra, 2017). The present study covers the analysis of published and unpublished research work collected from various sources for the period starting from 2001 to 2018 and is divided into six sections. Section-I covers the introduction, Section-II describes the objectives of the study, Section-III presents the data and methodology adopted for attaining the objectives, Section-IV explains the literature on M&As in banking sector, Section-V shows the findings of the study and Section-VI provides the conclusion and scope for future research.

II. OBJECTIVE OF THE STUDY

Many studies have been conducted about M&As in banking sector. From the review of literature, it is observed that most of the studies focused on analyzing the problems of M&As, benefits to the shareholders, process of M&As and financial performance of the transferee bank after merger. These issues have their own implications on the performance of the sampled banks. Therefore from the point of view of both managerial and policy interests, it is extremely important to know the impact of these mergers on the efficiency of banks.

III. DATA AND METHODOLOGY

A. Data

The present paper consists the review of 40 published and unpublished research papers on M&As in banking sector of various countries. Out of these, 37 papers are refereed journals, one paper is an international conference paper and two papers are working papers.

B. Methodology

After reviewing the available literature, it is found that several researchers used event methodology for data analysis such as DeLong (2001), Chehab (2002), Beitel et al. (2004), Mylonidis and Kelnikola (2005), Sufian et al. (2007), Ma et al. (2012), Goddard et al. (2012), Noufal (2017); and some researchers namely Sufian et al. (2007), Awdeh and EL-Moussawi (2011) and Kilic (2011) used DEA approach, whereas Carbo´ et al. (2003), Lepetit et al. (2004), Meslier-Crouzille et al. (2008) and Bharathi (2010) concentrated mainly on newer techniques like Herfindahl-Hirschman index (HHI), GARCH model and Factor analysis. Out of theses research papers, the highest number of years considered by Smirnova (2014) i.e. 21 years in his study, followed by Hosono et al. (2006), who covered 19 years and maximum number of sample are 87. Similarly, Beitel et al. (2004) covered 16 years and 98 merger cases in his study to find out determinants on M&As success in European Banks. DeLong (2001), Lepetit et al. (2004), Beitel et al. (2004), Amihud et al. (2002) and Goddard et al. (2012) present the status of diversification of banks M&As and revealed the positive effect and provided a weapon for reducing risk in cross-border merger, whereas Ma et al. (2012) focused on the specifying activity and shown the negative results, however mixed results were shown by Berger and DeYoung (2001). Cornett et al. (2002), Chehab (2002), Momodou et al. (2017), Ghosh and Dutta (2015), Okpanachi (2011), Bharathi (2010), Kilic (2011), Beccalli et al. (2009), Noufal (2017), Ogada et al. (2016), Okoye et al. (2016), Masud (2015), Antony (2011) and Onaolapo and Ajala (2012) exhibited the improvement in financial performance after M&As deal. Some studies like Meslier- Crouzille et al. (2008), Vizcaíno-González and Navío-Marco (2018), Azofra et al. (2008), Abdulwahab, and Ganguli (2017) revealed negative performance of banks mergers, while other studies like Mylonidis and Kelnikola (2005), Wang et al. (2014), Sufian et al. (2007), Patel (2018) produced mixed results regarding merger performance. Carbo et al. (2003) highlighted that bank as deregulation enhances cost and profitability in the economy, so it is better than merger. Many studies like Hassan et al. (2016) and Ayadi et al. (2013) focused on complementarities resources, whereas Louis (2004) stressed on overpayment as premium and cost. Profit determinant identified by Hosono et al. (2006) and Hernando et al. (2009). Motives like economics of scale, cost cutting, technology up-gradation, growth, etc. were identified by Kwabla- King (2017). Awdeh and EL-Moussawi (2011) identified expansion and market share. Smirnova (2014) covered the internal as well as external motives for mergers. Alam and Ng (2014) analyzed the changes in the determinants after the crisis, while Shanmugam and Nair (2004) focused on reasons and process of the merger deal.

IV. LITERATURE ON BANKING MERGERS AND ACQUISITIONS

This part of the paper presents the classification of literature on M&As in banking sector as given in Table-I., which is divided into following categories:

1. Methodology/tools adopted for data analysis.
2. Year-wise classification of studies.
3. Country-wise distribution of studies.
4. Number of years taken as a sample data set.
5. Number of countries considered for study forming sample data.
6. Source from where the papers are collected.

A. Methodology/Tools adopted for Data Analysis

Table II and Figure II presents the various tools and methodology considered in the earlier studies. Majority of researchers used ratios, t-test to find pre and post merger performance, regression and event window analysis to find wealth effect, and others used Z-test, ANOVA, Data Envelopment Analysis (DEA), Wilcoxon test and correlation analysis. Some other studies also used Cumulative average return (CAR), Interview method, Factor analysis, Mann-Whitney, generalized least squares (GLS), Shapiro-Wilk normality test, GARCH Model, F-test, CAMEL Model, Herfindahl- Hirschman index (HHI), H-statistics, etc. to analyze related aspects of M&As.

???????B. Year-wise Classification of Studies

The year-wise frequency of research work presented in Table III and Figure III exhibits that the concept of banking merger has become popular over the years, but a significant increase was noticed in recent five years i.e. from 2014 to 2018.

???????C. Country-wise Classifications of Studies

The country-wise classification of research work presented in Table IV and Figure IV reveals that out of 40 studies, 15 percent are from USA, 13 percent are from India and Europe each, 8 percent from Nigeria, 5 percent from Asia and Pakistan, 3 percent each from New York, UK, Greek, France, Germany, Japan, Canada, Turkey Malaysia, Singapore and Spain and remaining 13 percent are from the countries like Kenya, Ghana, Bahrain, Lebanon and Kazakhstan.

???????D. Number of Years taken as a Sample Data Set

Table V and Figure V demonstrated the number of years taken as a sample data set. It is inferred that mostly studies covered the time span between six to ten years. Out of 40 studies, 26 studies have data set with the time frame between one and 10 years and eleven studies have a data set between 11-15 years. Remaining two studies have a data set between 16-20 years.

???????E. Number of Merger Cases Considered for Study framing Sample Data

Table VI and Figure VI shows the number of banks considered in each study as sample data. The findings are very interesting that out of 40 research papers, 36 papers considered less than 500 merger cases. The merger cases having interval of 500-1000 and 1000-1500 were covered in one study each. There are only two studies out of 40, which considered more than 2000 merger cases.

???????F. Source from Where the Papers are Collected

The sources from where the research papers were collected are summarized in Table VII and Figure VII. From the analysis, it is inferred that most of the papers i.e. 93 percent of the papers are collected from refereed academic research journals, 14 percent were collected from other sources like various electronic databases of different publishing houses and only one paper is a conference paper considered in the present study.

V. FINDINGS OF THE STUDY

Evidence emanating from the studies shows that diversification enhanced the shareholders’ value after the merger. Some studies considered two way merger deals namely specifying and diversifying merger and positive results were found in both types of merger, but the return in specifying deal is statically significant. While another study depicts the positive response of market towards both diversification and specialization activities. It is also found that diversifying mergers are not revealing better results than focused merger in terms of enhancing the value of shareholders. The studies related to cross-border M&As have shown mix evidence in diversification and bank efficiency. The results are significantly positive on some indicators of financial performance like CAR, EPS, and ROCE after M&As deal. Further positive results were found from the empirical analysis of DEA approach. Profitability, economics of scale, synergies, complimentary resources, cost cutting, technology up-gradation, market share and maintaining risk, etc were found the main motives of M&As.

Conclusion

The present study provides an organized review of empirical studies in the field of M&As in the banking sector. This study comprises of 40 research papers taken from various journals, published and unpublished sources, websites and online databases between 2001 and 2018. After reviewing the literature, it is inferred that the contribution of research work in this area has been continuously increasing during the recent time period especially from 2012 to 2017. The percentage of banking mergers concentrated more in USA and majority of research work also from this country i.e. 15 percent, 13 percent from India and Europe each, 8 percent from Nigeria, 5 percent from Asia and Pakistan, 3 percent each from New York, UK, Greek, France, Germany, Japan, Canada, Turkey Malaysia, Singapore and Spain and remaining 13 percent are from the countries like Kenya, Ghana, Bahrain, Lebanon and Kazakhstan India, Europe and Nigeria. Further, there is a need to examine the impact of M&As on the emerging issues like human aspect, corporate governance and ethical issues, etc. in banking sector. Countries not uncovered in past literature may also be considered for future research. Simultaneously, sample data, sample period and methodology may be altered to verify the authenticity of the results. The data can be analyzed by using some newer techniques for better understanding of M&As.

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Copyright © 2022 Krishan Lal Grover. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.