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An analytical study on value creation in Indian bank mergers

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  • B. Rajesh Kumar
  • K.M. Suhas

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.

Suggested Citation

  • B. Rajesh Kumar & K.M. Suhas, 2010. "An analytical study on value creation in Indian bank mergers," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 2(2), pages 107-134.
    • Handle: RePEc:ids:afasfa:v:2:y:2010:i:2:p:107-134
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    Citations

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    Cited by:

    1. Reddy, K. Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2012. "Corporate mergers and financial performance: A new assessment of Indian cases," MPRA Paper 60425, University Library of Munich, Germany, revised 2013.
    2. P. A. Padmanabhan, 2018. "Do Demerger Announcements Impact Shareholders Wealth? An Empirical Analysis Using Event Study," Vision, , vol. 22(1), pages 22-31, March.
    3. Reddy, Kotapati Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2013. "Indian economic-policy reforms, bank mergers, and lawful proposals: The ex-ante and ex-post ‘lookup’," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 601-622.

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