Does Merger and Acquisition of banks lead to value creation A case Dissertation

Does Merger and Acquisition of banks lead to value creation A case study of US and EU firms - Dissertation Example The paper tells that the current financial crisis engulfing the whole developed world has made financial institutions specially banks more vulnerable to takeovers and mergers. The constant decline in the performance of banks and resulting negative attitude of investors has made banks a lucrative target for acquiring. Banks work in a highly regulated and supervised environment therefore the number of stakeholders is generally higher as compared to other industries. The failure of the banks therefore can create significant political as well as economic issues. It is because of this reason that the banks are often put through the phase of consolidation in order to strengthen their equity base so that they can sustain external shocks. The implementation of regulatory environments such as Basel II and III is also considered as a step ahead in highlighting the importance of protecting the banks from complete failure. The current crisis resulted into the acquisition of banks not only by the respective governments but by the private equity firms also. This tendency therefore outlines that the merger and acquisitions within the banking industry can be one of the healthiest signs as the same can allow banks to strengthen their equity base and become more responsive towards external shocks. Consolidation either through the mergers or acquisitions is often done with the purpose of achieving greater market power, expense reduction as well as scope and scale economies. These gains therefore also believed to be translated into the value creation proposition for the firms. ... ng industry can be one of the healthiest signs as the same can allow banks to strengthen their equity base and become more responsive towards external shocks. Consolidation either through the mergers or acquisitions is often done with the purpose of achieving greater market power, expense reduction as well as scope and scale economies. These gains therefore also believed to be translated into the value creation proposition for the firms. As such there are two important implications of the bank mergers in terms of value creation i.e. whether the merger will create value for the shareholders of the banks or whether it will fail to translate those gains into credible and sustained value creation for the shareholders of the banks. This proposal will therefore outline the proposed research study on the performance of banks after their consolidation in Europe and US and how it has translated into value creation. Primarily, the proposed research will focus upon performance of banks in their post consolidation phase and whether such efforts actually result into improvement in performance. Literature Review Banks are considered as one of the highly regulated industries with multiple supervisors supervising different aspects of the banks. Since failure of the banks has a direct impact on the overall financial system of a country, it is therefore always considered as desirable to have stable and strong banking sector. There are different reasons as to why banks merge with each other and some of them are also similar to other industries. One of the key reasons as to why banks merge with each other is to increase their efficiency, achieve economies or expand into new and existing markets. These motives therefore allow banks to look for opportunities to consolidate and become bigger