Khan, Mehwish Aziz and Kayani, Ferheen and Javid, Attiya Yasmin (2011): Effect of Mergers and Acquisitions on Market Concentration and Interest Spread. Published in: Journal of Economics and Behavioral Studies , Vol. 3, No. No. 3 (September 2011): pp. 190-197.
Download (468kB) | Preview
This study investigates the relationship of mergers & acquisitions with the interest spread of the banking industry in Pakistan. To assess whether the merger of Pakistani banks were a success or otherwise, profitability, liquidity ratios, and net interest spread are computed which are considered essential to judge the financial performance of any bank. Data is taken for the period of 1997-2010 and this data have been used to calculate the interest spread and market concentration. Market Concentration is calculated by using Herfindahl-Hirschman Index or HHI. Findings show that the profitability and net interest spread of two merged banks declines as a result of mergers. It is also revealed that Concentration of the banking industry shows a rising trend during 2008 and 2009 after mergers occurred during 2007 as a result of merger. However, it shows the level that almost approaches the threshold i.e. 1000. One or two more mergers can push up threshold level of HH index. It means that it is the right time for banking industry of Pakistan to be reviewed by any antitrust authority to maintain the optimum level of competition.
|Item Type:||MPRA Paper|
|Original Title:||Effect of Mergers and Acquisitions on Market Concentration and Interest Spread|
|English Title:||Effect of Mergers and Acquisitions on Market Concentration and Interest Spread|
|Keywords:||Mergers & Acquisitions, Market Concentration, Banking industry, Interest Spread, and Profitability|
|Subjects:||G - Financial Economics > G1 - General Financial Markets
A - General Economics and Teaching > A1 - General Economics
M - Business Administration and Business Economics; Marketing; Accounting > M2 - Business Economics
G - Financial Economics > G0 - General
|Depositing User:||Attiya Yasmin Javid|
|Date Deposited:||12. Apr 2012 12:44|
|Last Modified:||12. Feb 2013 12:14|
Austin, J. V. (2002). The role of supervisory authorities in connection with bank mergers. <firstname.lastname@example.org>.
Barajas, A., Steiner, R. & Salazar, N. (1999). Interest rate spreads in banking in Colombia. IMF Staff Papers, 46, 196–224.
Bawumia, M., Belnye, F. & Ofori, E. M. (2005). The determination of bank interest spreads in Ghana: An empirical analysis of panel data. (WP/BOG-2005/09).
Cipollini, A. & Fiordelisi, F. (2009). The impact of bank concentration on financial distress: The case of the European banking system. EMFI WPs, 2 ‐ 2009.
Demirguc-Kunt, A. & Levine, R. (2000). Bank concentration: cross-country evidence. World Bank.
Demirguc-Kunt, A. & Huizinga, H. (1998). Determinants of commercial bank interest margins and profitability: Some international evidence. World Bank Policy Research Working Papers, WPS1900.
Esty, B., Narasimhan, B. & Tufano, P. (1996). Interest-rate exposure and bank mergers. Working paper, Department of Finance, Pennsylvania University.
Hannan, T. & Liang, J. N. (1993). Bank commercial lending and the influence of thrift competition. Finance and Economics Discussion Series 93–39 (Washington, DC: U.S. Board of Governors of the Federal Reserve System).
Kahn, C., Pennacchi, G. & Sopranzetti, B. (2000). Bank consolidation and consumer loan interest rates. Working Paper, Department of Finance, Pennsylvania University.
Khawaja, I. & Musleh-ud, D. (2007). Determinants of interest spread in Pakistan. Working Paper Pakistan Institute of Development Economics.
Kim, M., Kristiansen, G. E. & Vale, B. (2006). What determines banks’ market power? Akerlof or Herfindahl. Working Paper from Norges Bank.
Moore, W. & Craigwell, R. (2000). Market power and interest rate spreads in the Caribbean. Paper presented at the XXXII Annual Monetary Studies Conference, Kingston, Jamaica, 2 November 2000.
Prager, R. A. & Hannan, H. T. (1998). Do substantial horizontal mergers generate significant price effects? Evidence from the Banking Industry. Journal of Industrial Economics, 46, 433-52.
Sapienza, P. (1998). The effects of bank mergers on loan contracts. Working paper, Department of Finance, Northwestern University.
Simons, K., and Stavins, J. (1998). Has Antitrust Policy in Banking Become Obsolete? New England Economic Review, March/April 1998, 13-26.
Sologoub, D. (2006). The determinants of bank interest margins and profitability: Case of Ukraine. Workshop on transition economics, Helsinki, April 7-8, 2006.
Tarawneh, M. (2006). A comparison of financial performance in the banking sector: some evidence from Omani commercial banks. International Research Journal of Finance and Economic, (3), 101-112.
Tennant, D. & Folawewo, A. (2007). Macroeconomic and market determinants of banking sector interest rate spreads: Empirical evidence from low and middle income countries. Retrieved January 1, 2011 from http://www.sbp.org.pk.