Strategic and financial similarities of bank mergers

Abstract

Purpose – Consolidation through mergers and acquisitions indicates one of the major outcomes of the financial transformation process and contemporary trend in the Indian banking sector. Literature suggests that the pre-merger financials of banks are crucial in deciding the post-merger performance of merged entities. In this context, the aim of the present study is to provide insights on the strategic and financial similarities of merging partners in the bank mergers that occurred in the post-liberalization India. Design/methodology/approach – This paper considers all bank merger deals in the post-liberalization period, which involve purchase consideration either in the form of stock or cash. Hypotheses about the strategic similarities and dissimilarities are tested. The study considers all important aspects such as relative size of targets, diversity of earnings, efficiency, financial leverage, prudential norms and profitability. Findings – The study finds that banks are dissimilar in most of the key areas, and these might have an adverse impact on the post-merger performance. Originality/value – The study is original because we take into account all the bank merger deals in the period, which involve purchase consideration either in the form of stock or cash.