Bank Performance and Stability: The Mediating Role of Market Structure in Pre-and Post-Merger and Acquisition

Abstract

Objective: The paper studies the mediating role of market structure on bank performance and stability before and after Merger and Acquisition (M&A).   Theoretical Framework: Mergers and acquisitions (M&As) are an alternative way for business expansion and brings benefits for expansion of the market, generation and exploitation economies of scale and scope, gain of market power, proper diversification of products and services and overall improved performance.   Method: The study applies advanced panel techniques and Structural Equation Modelling (SEM) on quarterly panel data (2004Q1 to 2020Q4) of 14 conventional banks from GCC and Pakistan.   Results And Discussion: The results show that the bank performance and stability have improved significantly in post M&A. However, no significant change has been observed in pre-M&A. Most importantly, we have identified clear mediating role of market structure on performance and stability in post M&A.   Research Implication: Merger and acquisition more potential for Islamic banks than conventional banks. Secondly, they should take into consideration the market structure since it mediates the relationship between M&As and operational performance and stability of both types of banks.   Originality/Value: The study add value to the area of Islamic banking sector. Moreover, market structure is studied in case of the merger and acquisition.