Financial institutions mergers: a strategy choice of wealth maximisation and economic value

Purpose This study Investigates Shareholders' value adjustment in response to financial institutions (FIs) merger announcements in the immediate event window and in the extended event window. This study also investigates accounting measures performance, comparison of post-merger to pre-merger, including several cash flow measures and not just profitability measures, as the empirical literature review suggests. Finally, the authors examine FIs mergers orientations of diversification and focus create more value for shareholders (in the immediate announcement window and several months afterward) and/or generates better cash flows, profitability and less credit risk. Design/methodology/approach This study examines FIs merger effect on bidders’ shareholder’s value and on their observed performance. This examination deploys three techniques simultaneously: a) an event study analysis, to estimate and calculate abnormal returns (ARs) and cumulative abnormal returns (CARs) in the narrow windows of the merger announcement, b) buy and hold event study analysis, to estimate ARs in the wider window of the event, +50 to +230 days after the merger announcement and c) an observed performance analysis, of financial and capital efficiency measures before and after the merger announcement; return on equity, liquidity, cost to income ratio, capital to total assets ratio, net loans to total loans, credit risk, loans to deposits ratio, other expenses and total assets, economic value addition, weighted average cost of capital and return on invested capital. Deal criteria of value, mega-deals, strategic orientation (as in Ansoff (1980) growth strategies), acquiring bank size and payment method are set as individually as control variables. Findings Results show that FIs mergers destroy share value for the bidding firms pursuing a market penetration strategy. Market development and product development strategies enable shareholders’ value creation in short and long horizons. Diversification strategies do not influence bidding shareholders’ value. Local bank to bank mergers create shareholders’ value and enhance liquidity and economic value in the short run. Bank to bank cross border mergers create value for bidders’ in the long term but are associated with high costs and higher risks. Originality/value A significant advancement over the current literature is in assessing mergers, not only for bank bidders but also for the three pillars FIs of the financial sector; banks, real-estate companies and investment companies mergers. It is an improvement over current finance literature because it deploys two different strategies in the analysis. At a univariate level, shareholder value creation and market reaction to merger announcements are examined over short (−5 or +5 days) and long (+230 days) windows of the event. Followed by regressing, the resultant CARs and BHARs over financial performance variables at the multivariate level.

The Effect of Acquirer Net Operating Losses on Acquisition Premiums and Acquirer Abnormal Returns

ABSTRACT This study examines whether acquirer NOL-related tax benefits generated in an acquisition are shared with the target. For a sample of 1,959 acquisitions, we find that acquisitions of profitable targets by acquirers with NOLs are associated with higher acquisition premiums than acquisitions by non-NOL acquirers. This result indicates that potential post-acquisition tax benefits from use of acquirer NOLs are shared with the target in the form of higher transaction prices. We also find that the acquirer's merger announcement stock price response is positively associated with these tax benefits, which is consistent with the conclusion that acquirers retain part of these potential tax benefits.

Event Study of Effect of Merger Announcement on Stock Price in Nepal

Events like merger and acquisition affect the value of merging firms and also generate a positive or negative wealth effect for shareholders of firms involved. The purpose of this study is to investigate whether a merger announcement has generated wealth effects for the shareholders of bidding and target firms as well as it has aimed to assess the impact on overall banking sector. Two models; mean adjusted model and market risk adjusted model has been used in the study employing the ‘event study’ methodology to examine whether there is presence of abnormal return associated with merger announcement. In this method, 50 days premerger and 30 days post merger period is assumed as estimation period and (-15 and +15) days are taken as the window period. Fifteen financial institutions which entered into merger between years 2010 to 2012 are selected as sample. The findings of this study demonstrated that surrounding the announcement of merger proposals, the premerger abnormal return of individual firms is not significant to zero i.e. return is not affected by the merger announcement. Similarly, the abnormal return of bidding and target firms is not significant which indicates there is no impact of merger announcements on shareholder wealth in Nepalese capital market. Finally, the abnormal return during the premerger and post merger period of individual firms as well as the overall banking sector shows the same result, there is no significant difference on return before and after the merger announcement.

How might your staff react to news of an institutional merger? A psychological contract approach

Purpose The purpose of this paper is to understand the nature of staff/employee (i.e. learning and teaching, curriculum support and administrative staff) perceptions, anxieties and worries about early merger change in the UK further education (FE) sector. Design/methodology/approach Survey data were collected from 128 out of 562 employees to examine perceptions of psychological contract (post-merger announcement) on an FE college in England. Paired t-tests were used to analyse quantitative data. Additionally, a content analysis of open-ended questions was incorporated as part of a combined methods survey evaluation approach for discussion and triangulation purposes. Findings Quantitative results from t-tests showed there had been a decrease in the perception of fulfilled obligations in nine of the ten areas of the psychological contract. Qualitative results indicated that communications, job security and uncertainty were common negative outcomes post-merger announcement. Implications for education managers from the case study include: a need for improved organizational communication; developing trust and mentorship for greater employee support, as well as; promoting further employee training and new opportunities for teamwork. Research limitations/implications Psychological contract theories for evaluating organizational change are useful given the recent interest in sharing public services and institutional mergers in the UK. This research demonstrates the benefits of using psychological contract, as well as how to apply such an evaluation for understanding staff concerns. Originality/value The paper demonstrates a usable (psychological contract) survey evaluation approach for studying the impact of early merger change on staff in the FE, or higher education sectors in the UK (or elsewhere).