Financial Institutions Mergers : A strategy Choice of Wealth Maximisation and Economic Value. / Hassan, Mohamad; Giouvris, Evangelos.

In: Journal of Financial Economic Policy, 04.09.2019.

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Financial Institutions Mergers : A strategy Choice of Wealth Maximisation and Economic Value. / Hassan, Mohamad; Giouvris, Evangelos.

In: Journal of Financial Economic Policy, 04.09.2019.

Research output: Contribution to journalArticle

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@article{98320e57dfcb4b448358af1cc25618ac,
title = "Financial Institutions Mergers: A strategy Choice of Wealth Maximisation and Economic Value",
abstract = "This study examines the short and long horizons wealth maximisation effect of financial institutions mergers, and their determinants in the pre- and post-merger periods. Results show that FIs mergers destroy share value for the bidding firms pursuing a Market penetration strategy. FIs are advised to pursue Market Development and Product Development strategies because they enable shareholders’ value creation in short and the long horizons. Local bank to bank mergers create shareholders value and enhance liquidity and economic value in the short run. Bank to Bank cross border mergers create value for bidders’ in the long term but are associated with high costs and higher risks. Shareholders value drives long-run economic value for North American banks, but it is adversely affected by credit risk appetite in Australasian bank focused mergers.",
keywords = "Shareholder Value, Financial crisis impact, Ring-fencing, Diversification Strategies, Economic Value Addition, Event Study and Buy and Hold methods",
author = "Mohamad Hassan and Evangelos Giouvris",
note = "This study investigates: • Shareholders value adjustment; in response to FIs M&A deals announcements in the immediate event window and in extended event windows through Buy and Hold abnormal returns. • Accounting measures performance; comparison of post-merger to pre-merger, including several cash flow measures and not just profitability measures, as the empirical literature review suggest. • Which FIs mergers orientations of diversification and focus create more value for shareholders (in the immediate announcement window and several months afterwards) and/or generates better cash flows, profitability and less credit risk. This study examines financial institutions merger effect on bidders’ shareholder's value and on their observed performance. This examination deploys three techniques simultaneously: 1. An event study analysis; to estimate and calculate abnormal returns (ARs) and cumulative abnormal returns (CARs) in the narrow windows of the merger announcement. 2. Buy and Hold event study analysis; to estimate abnormal returns in the wider window of the event, +50 to +230 days after the merger announcement. 3. An observed performance analysis; of financial and capital efficiency measures before and after the merger announcement; return on equity (ROE), Liquidity, cost to income ratio, capital to total assets ratio, net loans to total loans, credit risk, Loans to deposits ratio, other expenses and total assets, Economic value addition (EVA), weighted average cost of capital (WAAC) and return on invested capital (ROIC).",
year = "2019",
month = "9",
day = "4",
doi = "10.1108/JFEP-06-2019-0113",
language = "English",
journal = "Journal of Financial Economic Policy",
issn = "1757-6385",
publisher = "Emerald Group Publishing Ltd.",

}

RIS

TY - JOUR

T1 - Financial Institutions Mergers

T2 - A strategy Choice of Wealth Maximisation and Economic Value

AU - Hassan, Mohamad

AU - Giouvris, Evangelos

N1 - This study investigates: • Shareholders value adjustment; in response to FIs M&A deals announcements in the immediate event window and in extended event windows through Buy and Hold abnormal returns. • Accounting measures performance; comparison of post-merger to pre-merger, including several cash flow measures and not just profitability measures, as the empirical literature review suggest. • Which FIs mergers orientations of diversification and focus create more value for shareholders (in the immediate announcement window and several months afterwards) and/or generates better cash flows, profitability and less credit risk. This study examines financial institutions merger effect on bidders’ shareholder's value and on their observed performance. This examination deploys three techniques simultaneously: 1. An event study analysis; to estimate and calculate abnormal returns (ARs) and cumulative abnormal returns (CARs) in the narrow windows of the merger announcement. 2. Buy and Hold event study analysis; to estimate abnormal returns in the wider window of the event, +50 to +230 days after the merger announcement. 3. An observed performance analysis; of financial and capital efficiency measures before and after the merger announcement; return on equity (ROE), Liquidity, cost to income ratio, capital to total assets ratio, net loans to total loans, credit risk, Loans to deposits ratio, other expenses and total assets, Economic value addition (EVA), weighted average cost of capital (WAAC) and return on invested capital (ROIC).

PY - 2019/9/4

Y1 - 2019/9/4

N2 - This study examines the short and long horizons wealth maximisation effect of financial institutions mergers, and their determinants in the pre- and post-merger periods. Results show that FIs mergers destroy share value for the bidding firms pursuing a Market penetration strategy. FIs are advised to pursue Market Development and Product Development strategies because they enable shareholders’ value creation in short and the long horizons. Local bank to bank mergers create shareholders value and enhance liquidity and economic value in the short run. Bank to Bank cross border mergers create value for bidders’ in the long term but are associated with high costs and higher risks. Shareholders value drives long-run economic value for North American banks, but it is adversely affected by credit risk appetite in Australasian bank focused mergers.

AB - This study examines the short and long horizons wealth maximisation effect of financial institutions mergers, and their determinants in the pre- and post-merger periods. Results show that FIs mergers destroy share value for the bidding firms pursuing a Market penetration strategy. FIs are advised to pursue Market Development and Product Development strategies because they enable shareholders’ value creation in short and the long horizons. Local bank to bank mergers create shareholders value and enhance liquidity and economic value in the short run. Bank to Bank cross border mergers create value for bidders’ in the long term but are associated with high costs and higher risks. Shareholders value drives long-run economic value for North American banks, but it is adversely affected by credit risk appetite in Australasian bank focused mergers.

KW - Shareholder Value

KW - Financial crisis impact

KW - Ring-fencing

KW - Diversification Strategies

KW - Economic Value Addition

KW - Event Study and Buy and Hold methods

U2 - 10.1108/JFEP-06-2019-0113

DO - 10.1108/JFEP-06-2019-0113

M3 - Article

JO - Journal of Financial Economic Policy

JF - Journal of Financial Economic Policy

SN - 1757-6385

ER -