An analytical study on value creation in Indian bank mergers

B. Rajesh Kumar and K.M. Suhas

Afro-Asian Journal of Finance and Accounting, 2010, vol. 2, issue 2, 107-134

Abstract: This study, based on Indian banking mergers, examines the impact of mergers on both the stock market wealth creation and operating performance. The study also analyses the performance of the merged banks in relation to a control group based on financial ratios. The results of cumulative abnormal returns analysis signify that merger announcements are value-creating activities for the acquirer banks. At the same time, merger announcements erode shareholder wealth for the target banks. The framework of pre-merger and post-merger comparison of the operating performance of the acquirer banks was based on three models whereby the cash flow was deflated by market value of assets, book value of assets, and income. The result does not provide evidence to support the view that corporate performance improves after mergers.

Keywords: bank mergers; cumulative abnormal returns; CAR; acquirer banks; target banks; cash flow models; value creation; banking industry; India; stock market wealth creation; operating performance; financial ratios; shareholder wealth. (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (3)

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