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Effect of Mergers and Acquisitions on Market Concentration and Interest Spread

Author

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  • Khan, Mehwish Aziz
  • Kayani, Ferheen
  • Javid, Attiya Yasmin

Abstract

This study investigates the relationship of mergers & acquisitions with the interest spread of the banking industry in Pakistan. To assess whether the merger of Pakistani banks were a success or otherwise, profitability, liquidity ratios, and net interest spread are computed which are considered essential to judge the financial performance of any bank. Data is taken for the period of 1997-2010 and this data have been used to calculate the interest spread and market concentration. Market Concentration is calculated by using Herfindahl-Hirschman Index or HHI. Findings show that the profitability and net interest spread of two merged banks declines as a result of mergers. It is also revealed that Concentration of the banking industry shows a rising trend during 2008 and 2009 after mergers occurred during 2007 as a result of merger. However, it shows the level that almost approaches the threshold i.e. 1000. One or two more mergers can push up threshold level of HH index. It means that it is the right time for banking industry of Pakistan to be reviewed by any antitrust authority to maintain the optimum level of competition.

Suggested Citation

  • Khan, Mehwish Aziz & Kayani, Ferheen & Javid, Attiya Yasmin, 2011. "Effect of Mergers and Acquisitions on Market Concentration and Interest Spread," MPRA Paper 37311, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:37311
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    References listed on IDEAS

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    5. Benjamin Esty & Bhanu Narasimhan & Peter Tufano, 1996. "Interest Rate Exposure and Bank Mergers: A Preliminary Empirical Analysis," Center for Financial Institutions Working Papers 96-45, Wharton School Center for Financial Institutions, University of Pennsylvania.
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    More about this item

    Keywords

    Mergers & Acquisitions; Market Concentration; Banking industry; Interest Spread; and Profitability;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • A1 - General Economics and Teaching - - General Economics
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • G0 - Financial Economics - - General

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