Merger and Acquisition in Banking Sector: A Review of the Literature

Ullah, Nazim and Abu Seman, Junaidah (2018): Merger and Acquisition in Banking Sector: A Review of the Literature.

Abstract

This paper provides a review of merger and acquisition literature that have examined the theories, the impact of M&A towards banking performance, both conventional and Islamic, as well as the factors associated with M&A activity. The authors have been able to review more than thirty investigations over a twenty-year period, from 1993 to 2017. The study is theoretical and analytical in nature and secondary method has applied. Through a literature review, this study provide an account of the theories and main findings of the literature as well as examines the extent to which M&A give impact to the banking performance and highlights some factors contribute to the successfulness of M&A activity. Overall, the evidence reviewed suggests that M&A affect the conventional and Islamic banks in several different ways. This could be explained by different approaches in handling M&A (i.e., domestic or cross border) and various factors contributing to the decision of conducting the M&A activity. As far as the development and increase interest in Islamic finance are concerned, it is perhaps surprising that very little empirical research on M&A in Islamic banking sector. The paper concludes with several recommendations for future research, the most important of which is the need for a systematic effort on conceptual analysis as well as empirical study on M&A in Islamic banking and finance.

• Item Type: MPRA Paper
• Language: English
• Keywords: Merger and Acquisition, theory, bank performance, Islamic banking
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance

References

Abbas, Q., Hunjra, A. I., Azam, R. I., Ijaz, M. S., & Zahid, M. (2014). Financial performance of banks in Pakistan after Merger and Acquisition. Journal of Global Entrepreneurship Research, 4(1), 13.

Al‐Sharkas, A. A., Hassan, M. K., & Lawrence, S. (2008). The impact of mergers and acquisitions on the efficiency of the US banking industry: Further evidence. Journal of Business Finance & Accounting, 35(1‐2), 50-70

Altunbaş, Y., &Marqués, D. (2008). Mergers and acquisitions and bank performance in Europe: The role of strategic similarities. Journal of Economics and Business, 60(3), 204-222.

Amihud, Y., DeLong, G. L., & Saunders, A. (2002). The effects of cross-border bank mergers on bank risk and value. Journal of International Money and Finance, 21(6), 857-877.

Antoniadis, I., Alexandridis, A., &Sariannidis, N. (2014). Mergers and acquisitions in the Greek banking sector: An event study of a proposal. Procedia Economics and Finance, 14, 13-22.

Askari, H., Iqbal, Z., & Mirakhor, A. (2011). New Issues in Islamic Finance and Economics: Progress and Challenges(Vol. 753). John Wiley & Sons.

Barros, C. P., & Caporale, G. M. (2012).Banking consolidation in Nigeria, 2000–2010. Journal of African Business, 13(3), 244-252.

Cigola, M., & Modesti, P. (2008).A note on mergers and acquisitions, Managerial Finance, 34 (4), 221-238.

Cortés et al. (2017). Waves and determinants in mergers and acquisitions: The case of Latin America. Emerging Markets Finance and Trade, 53(7), 1667-1690.

Cybo-Ottone, A., & Murgia, M. (2000).Mergers and shareholder wealth in European banking. Journal of Banking & Finance, 24(6), 831-859.

Daniya et al. (2016). Impact of Merger and Acquisitions on the Financial Performance of Deposit Money Banks in Nigeria. Arabian Journal of Business and Management Review, 6(4), 1-5.

Das, P., &Rao, S. P. (2011). Value Premiums and the January Effect: International Evidence.

DeYoung, R. (1997). Bank mergers, X-efficiency, and the market for corporate control. Managerial finance, 23(1), 32-47

Focarelli, D., &Pozzolo, A. F. (2001). The patterns of cross-border bank mergers and shareholdings in OECD countries. Journal of banking & Finance, 25(12), 2305-2337.

Gattoufi, S., Al-Muharrami, S., &Shamas, G. (2014).Assessment of mergers and acquisitions in GCC banking. International Journal of Accounting and Finance, 4(4), 358-377.

Goyal, K. A., & Joshi, V. (2011). Mergers in Banking Industry of India: Some Emerging Issues. Asian Journal of Business and Management Sciences, 1(2), 157-165.

Guo, W. C., & Yang, C. C. (2013). Are bank mergers procyclical or countercyclical? Theory and evidence from Taiwan. Applied Financial Economics, 23(1), 1-14.

Ibrahim, M. H., &Rizvi, S. A. R. (2017). Do we need bigger Islamic banks? An assessment of bank stability. Journal of Multinational Financial Management, 40, 77-91.

Iqbal, Z. (2008). The Impact of Consolidation on Islamic Financial Services Industry. Islamic Economic Studies, 15(2), 80.

Kandil, T., &Chowdhury, D. (2014).Islamic Banks’ Mergers and Acquisitions–Impacts on Performance and Financial Crisis in the United Kingdom. In The Developing Role of Islamic Banking and Finance: From Local to Global Perspectives (pp. 119-140). Emerald Group Publishing Limited.

Kiel, G., & Nicholson, G. (2003). Board Composition and Corporate Performance: How the Australian Experience Informs Contrasting Theories of Corporate Governance. Corporate Governance: An International Review, 11(3), 189–205.

Linder, J. C., & Crane, D. B. (1993). Bank mergers: integration and profitability. Journal of Financial Services Research, 7(1), 35-55.

Liner, E. (2016). What’s Behind the All-Time High in M&A? Thirdway report.Retrieved on November, 2017. http://www.thirdway.org/

Massoudi, A. &Fontanella-Khan, J. (2016, December 30). M&A boom set to continue in 2017. Financial Times, Retrieved from https://www.ft.com

Mitchell, M. and Mulherin, H. (1996) The impact of industry shocks on takeover and restructuring activity, Journal of Financial Economics, 41, 193–229.

Morris, T. (2004), Bank mergers under a changing regulatory environment.In Sociological Forum (Vol. 19, No. 3, pp. 435-463).Kluwer Academic Publishers-Plenum Publishers.

Nagano, M. (2013). Similarities and differences among cross-border M&A and Greenfield FDI determinants: Evidence from Asia and Oceania. Emerging Markets Review, 16, 100-118.

Nair, A., Trendowski, J., & Judge, W. (2008). [Review of the book The Theory of the Growth of the Firm, by Edith T. Penrose. Oxford: Blackwell].

Neto, P., Brandão, A., &Cerqueira, A. (2010).The macroeconomic determinants of cross-border mergers and acquisitions and Greenfield investments. IUP Journal of Business Strategy, 7(1/2), 21.

Okpanachi, J. (2011). Comparative analysis of the impact of mergers and acquisitions on financial efficiency of banks in Nigeria. Journal of Accounting and Taxation, 3(1), 1

Pasiouras, F., &Zopounidis, C. (2008). Consolidation in the Greek banking industry: which banks are acquired? Managerial Finance, 34 (3), 198-213.

Petmezas, D. (2009). What drives acquisitions?: Market valuations and bidder performance. Journal of Multinational Financial Management, 19(1), 54-74.

Piloff, S. J., &Santomero, A. M. (1998). The value effects of bank mergers and acquisitions. In Bank Mergers & Acquisitions (pp. 59-78). Springer US.

Pinter, E. (2011). Merger and Acquisition in the Financial Services Industry. International Journal of Social Sciences and Human Studies.ISSN, 1309-8063.

Polemis, M. L., &Paleologos, J. M. (2014).Too big to merge?Evidence from the US banking sector. Applied Economics Letters, 21(11), 782-785.

Rao-Nicholson, R., Salaber, J., & Cao, T. H. (2016).Long-term performance of mergers and acquisitions in ASEAN countries. Research in International Business and Finance, 36, 373-387.

Roberts et al. (2003). Mergers and Acquisitions.Pearson Education.

Shleifer, A. and Vishny, R. (2003) Stock market driven acquisitions, Journal of Financial Economics, 70, 295–489.

Smirnova, Y. (2014). Motives for mergers and acquisitions in the banking sector of Kazakhstan. Economcs questions, issues and problems, 79-98.

Sufian et al. (2012). Assessing the effect of mergers and acquisitions on revenue efficiency: Evidence from Malaysian banking sector. Vision, 16(1), 1-11.

Sufian, F. (2011).Benchmarking the efficiency of the Korean banking sector: a DEA approach. Benchmarking: An International Journal, 18(1), 107-127.

Sufian, F., & Habibullah, M. S. (2009). Do mergers and acquisitions leads to a higher technical and scale efficiency? Counter evidence from Malaysia. African Journal of Business Management, 3(8), 340.

Sufian, F., & Habibullah, M. S. (2014). The impact of forced mergers and acquisitions on banks’ total factor productivity: empirical evidence from Malaysia. Journal of the Asia Pacific Economy, 19(1), 151-185

Wadhwa, K., &Syamala, S. R. (2015).An Empirical Examination of Efficiency Theory of Mergers in Emerging Market India. Theoretical Economics Letters, 5(06), 757

Weitzel, U., & McCarthy, K. J. (2011).Theory and evidence on mergers and acquisitions by small and medium enterprises. International Journal of Entrepreneurship and Innovation Management, 14(2-3), 248-275.

Zou, H., & Simpson, P. (2008). Cross-border mergers and acquisitions in China: An industry panel study, 1991–2005. Asia Pacific Business Review, 14(4), 491-512.