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Mergers And Acquisitions (M&As) In The Banking Sector: A

Comparative Review Of The Indian And International Literature

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Journal of Banking, Information Technology and Management
Volume 15 No. 1 • January-June 2018

Mergers And Acquisitions (M&As) In The Banking Sector: A

Comparative Review Of The Indian And International
Literature
Ruchita Verma and Janaki Singh Rathore

Abstract
The purpose of this paper is to make a comparative assessment of the status of Banks' Mergers and
Acquisitions (M&As) research in India and in other countries (International). Another objective of the
present study is to organise the literature and investigate the different tools (variables) employed by
researchers to analyse similar issues of banking industries around the world. A range of sources were
searched to review the literature on Banks' M&As and out of those, 82 research papers form the sample
for the present study. Out of these 82 research papers, 22 papers are based on Indian banking industry
and 60 pertain to banking industry of the other countries. The study focuses on empirical papers that
were published during the period 2001-2017 (first quarter). A comparison is made between the Indian
and International studies on bases of 'Prime Focus of the study' and 'Variable utilised for empirical
analysis. This paper finds substantial differences between the research works done in India and in other
countries, during the selected period. While comparing Indian and International studies, it is observed
that the majority of research work on Banks' M&As is concentrated in USA and Europe. However, a few
other countries have indicated recent interest in the subject matter. It concludes that Indian research has
not been able to keep up with the International standards in the field of Banks' M&As.
Keywords: Mergers and Acquisitions, Banking sector, Banks' M&As, Classification, Comparison,
National & International Review

JEL classification: G21, G34

1. Introduction
Mergers and Acquisitions (M&As) take place in a number of ways (merger, acquisition,
divestiture, spin-off, split-off, or equity carve-out), and there are various types of M&As. Each
type gives an indication of the parties involved in the process, the motive behind the deal, and
the expected benefits from the transaction. It can be a horizontal integration where two or more
companies (or competitors) at the same level of production merge in pursuit of market power
or economies of scale; or in the form of a vertical integration which involves a move up or down
the supply chain to merge with the company's own suppliers or customers. The merger deal
may also be undertaken with the motives of cost reduction and pooling of complementary
resources of two or more businesses; or a company may use conglomerate takeover to acquire
another company engaged in totally different line of business (Sudarsanam, 2003). Apart from
Mergers And Acquisitions (M&As) In The Banking Sector: A Comparative Review Of The Indian ... 23

the apparent benefits of each type of merger, the management of a company may be willing to
enter a business combination for some subsidiary motive such as to accelerate growth (Baser &
Brahmabhatt, 2011), derive taxation benefits (Kuriakose & Raju, 2013), or employ its excess
funds in acquiring an undervalued target unit (Hernando, Nieto, & Wall, 2009). The primary
objective of any company is to increase its shareholders' wealth (Anand & Singh, 2008). All its
operations must be aimed towards achieving this objective and all the decisions made by its
management must support this ultimate goal. The same applies to contracts of mergers and
acquisitions. In M&A transactions, achievement of synergy is vital. The combined expected
present values of future cash flows of the combination of the two companies involved should
be greater than the sum of the expected present values of future cash flows of the two individual
companies, in order to create additional shareholder value (DePamphilis, 2009). Whatever may
be the specific motive behind an M&A deal, the deciding factor should always be the expected
value creation for shareholders.
Banks' M&As in countries other than India have garnered much more academic attention even
though qualitative issues like cultural incompatibility (Ongena & Penas, 2009), downsizing
and innovation are as much Indian problems as other nations. This comes as a greater surprise
when most domestic M&As in India have been found to perform better when compared to the
situation in other countries (Patel & Shah, 2016; Das, 2015; Patel & Patel, 2015). Why the topic is
not getting sufficient attention? The main reason appears to be the inconsistency in results of
published studies (Halkos & Tzeremes, 2013; Chellasamy & Ponsabariraj, 2014; Kalaichelvan,
2014; Vallascas & Hagendorff, 2011). But the researchers must keep in mind that any discrepancy
in their computations is because of a variable they failed to account for. The solution is to look
for a way to identify these extraneous variables and devise methods to eliminate or control
their effects. With the intention of assisting future researchers in the accomplishment of this
objective, the present study has conducted a literature review to identify the gaps in existing
knowledge pool of the subject.
The present study reviews the published research work collected for the period starting from
2001 to 2017. The rest of this paper is structured as follows: section 2 puts forward the objectives
of the study. Section 3 discusses the data and methodology employed for achieving the objectives.
Section 4 describes the literature review and results obtained, Section 5 provides conclusions
for the study, and Section 6 presents a summary of utility of the study and scope for future
research.
2. Objectives
The primary objective of this study is to make a comparative assessment of the status of banks'
M&As research in India and outside India. Another objective of the present study is to organise
the literature and investigate the different tools employed and variables considered by
researchers to analyse the similar issues of banking industries around the world. In other words,
the aim is to identify the differences between popular research themes studied in India and in
other countries. This objective is achieved by reviewing the published research work on the
banks' M&As. The findings and conclusion of this study are helpful to the researchers and
practitioners alike, and also provide a roadmap for future research prospects.
3. Data And Methodology
A. Data
The present study consists the review of 82 research papers on Banks' M&As, published in
24 Journal of Banking, Information Technology and Management

the various nations around the world. Out of these 82 research papers, 22 papers are based
on Indian banking industry and 60 pertain to banking industry of the other countries. The
study focuses on empirical papers that were published during the period 2001-2017 (first
quarter). Due to the limitation of accessibility and feasibility, not all studies published during
the selected time period could be reviewed. The research papers from different countries are
first categorised into Indian and International studies and then organised on bases of main
attributes of primary focus of study and the variables used for analysis in the study.
Additionally, the research papers have also been classified on bases of their year of publication
and the country in which the research work took place.
B. Methodology
This paper is an effort to present the dynamics of research work published on M&As in the
banking industry around the world during the period between 2001 and 2017 (first quarter).
The literature search was constructed on the keyword descriptor "Banks' M&As", and also
included other variants of the term like "banks' mergers and acquisitions, bank mergers, and
bank combination". This search produced thousands of results but the abstracts were reviewed
to select those papers that were actually related to M&As between banks, were empirical in
nature, and full-texts were feasibly accessible. Respecting all the aforesaid considerations,
the number of studies included in the present paper was reduced to below hundred and we
finally obtained 82 research papers related to Banks' M&As. Therefore, we have made an
attempt to study Indian and international researches on the selected topic with this final
sample set of 82 research paper published for the defined time period. The full texts of these
82 research papers were meticulously studied to identify the suitable divisions and categories.
A comparison has made between the Indian and International studies on bases of two main
'Divisions'. These two divisions are 'Prime Focus of the Study' and 'Variable Utilised for the
Empirical Analysis'. Firstly, the 'Prime Focus' division was used to make a distinction between
thrust areas (themes) of Indian research papers and International research papers. The present
study is segmented into 12 categories on basis of their primary objectives. Secondly, the
'Variables Utilised' division identified the different variables that are used in the research
papers. The research papers are then segmented into 7 categories on the basis of the variables
used for empirical analysis. Lastly, the data is analysed using tables, charts and percentages
to derive findings and present conclusions on the comparative assessment of Indian and
international research papers. It was felt that for accomplishing the objectives of the present
study, organisation of the whole Banks' M&As literature data on the basis of a simple model
would prove to be helpful. Accordingly, a model is derived as shown in Figure I, with
additional details in Figure II.
Figure I. Bases of Classification of Reviewed Literature
Mergers And Acquisitions (M&As) In The Banking Sector: A Comparative Review Of The Indian ... 25

Figure II. Details of Bases of Sub-classification of Reviewed Literature

The present study has followed the process of review, tabulation (Indian and International),
division (prime focus and variables utilised), classification (into 12 segments of prime focus,
and 7 segments of variables utilised), and analysis (percentages and charts). The following
section explains the classification of the whole Banks' M&As literature on the bases of the
foundations mentioned in the above model.
4. Review and Analysis
This section of the paper presents the findings of literature review. The review and analysis
was done on the basis of Model presented in Figure I and II. The results obtained are given as
under:
A. Sampling Area
The sampling area for the present study has been classified into Indian research papers and
International (countries other than India) research papers. This has done to facilitate the
comparison between the thrust areas and progress of Indian research studies and International
research studies. Out of the total 82 research papers considered for the present study, 26.83%
(22 papers) are Indian studies and 73.17% (60 papers) are international studies. It can be
seen that Banks' M&As is a very popular research agenda at the International level.
B. Prime Focus
Table I shows the frequencies of various primary themes or thrust areas of research papers
reviewed for the present study. As a single research paper can focus on more than one
theme, multiple 'prime focus' segments have been allocated to each study. At one side, Onoh
and Sarah (2017), Patel and Shah (2016), Rahman, et al. (2016), Das (2015), Patel and Patel
(2015), Bassi and Gupta (2015), Ganesan and Parthasarathy (2012), Killic (2011), Baser and
Brahmbhatt (2011), Behr and Heid (2011), Georgios and Georgios (2011), Ravichandran et
al. (2010), Figueira and Nellis (2009), Ismail et al. (2009), Knapp et al. (2006), Koetter (2005),
Drake and Hall (2003) concentrated exclusively on 'Performance Analysis' theme.
26 Journal of Banking, Information Technology and Management

Table I. Classification of Reviewed Literature on Basis of "Prime Focus"

Prime focus (Themes) Frequency of the theme in research papers

Performance analysis 30
Market reaction/Shareholders' wealth 25
Determinants, motives, benefits, and consequences 13
Human Capital 6
Hypothetical/Proposed mergers 5
Industry-level issues 4
Global issues 3
Merger process/Valuation 6
Country-level issues 3
Targets vs acquirers 3
Voluntary vs compulsory mergers 2
Others 4

On the other hand, many authors dealt with multiple themes such as Performance Analysis,
Market reaction, Human capital, Merger process, etc. all in a single research paper (Dunn et al.,
2015; Senthil, 2015; Patel, 2014; Chellasamy & Ponsabariraj, 2014; Kalaichelvan, 2014; Akinbuli
& Kelilume, 2013; Adebayo & Olalekan, 2012; Çolakoglu & Yesildag, 2011; Olivero et al., 2011;
Sufian et al., 2007; Ismail & Davidson, 2007; Campa & Hernando, 2006; Mylonidis & Kelnikola,
2005; Hart & Apilado, 2002). Four papers considered under the present study focused on the
rare themes included under 'Others' category (Chimere & Chukwunyere, 2017; Prusty, 2015;
Adebayo & Olalekan, 2012; Sharma et al., 2012).
It can be seen that the most frequent theme is Performance Analysis, followed by Market
reaction/Shareholders' Wealth, and Determinants (including motives, benefits, consequences).
These three themes were the most popular thrust areas of research in Banks' M&As during
2001 to 2017. Other common focus areas included Human Capital, Hypothetical/Proposed
mergers, and Merger process/Valuation. A few studies were also conducted to solve industry-
level, country-level and global issues in M&As in the banking industry. Comparative studies
between Targets & Acquirers and Voluntary & Compulsory mergers seldom attracted the interest
of researchers. Table II provides details of various themes grouped under each aforementioned
category.
Table II. Details of Prime Focus Categorization

Performance analysis
Determinants, motives,
benefits, and consequences
Human Capital
Hypothetical/
Proposed mergers
Industry-level issues
Financial Performance; Efficiency; Profitability; Operating performance; Financial growth
Market reaction/Shareholders' wealth Market reactions; Shareholders' wealth;
Determinants of market reaction
Determinants; Motives; Consequences; Scale economies; Synergies
Effects of M&As; Perspective; CEO compensation
Determinants of efficiency; Scale economies; Short-run operating efficiency; Technical
efficiency
Solution for distress; Industry concentration; Domestic in-market mergers
Mergers And Acquisitions (M&As) In The Banking Sector: A Comparative Review Of The Indian ... 27

Global issues Crisis period; Regulatory capital

Merger process/Valuation
Country-level issues
Targets vs acquirers
Voluntary vs compulsory
mergers
Others
Merging process; Risk; Valuation procedure
TSIF banks; Pro-cyclical and counter-cyclical mergers; Monetary policy transmission
Comparative efficiencies; Strategic similarities and dissimilarities
Comparison; Valuation procedure for swap ratio
Agri-business credit; Sustainable growth; Effects on consumers; Firm-specific contributors
to efficiency and productivity

C. Variables Utilised In Reviewed Studies

Table III shows the frequencies of various variables utilised for analysis in the research papers
reviewed for the present study. As a single research paper employs numerous variables to
analyse the data and achieve its objectives, multiple "variables utilised" segments have been
allocated to each study. For instance, while Goddard, Molyneux, and Zhou (2012) used only
Stock market variables, Chimere and Chukwunyere (2017) analysed Input/Output variables
and External variables in his study and Olivero, Li, and Jeon (2011) evaluated Input/Output
variables, Performance variables and External variables.
Table III. Classification of Reviewed Literature on Basis of "Variables Utilised"

Variables utilised Frequency of variable in research papers

Performance variables 48
Input/output variables 40
Stock market variables 27
Business variables 27
Employee variables 19
Merger variables 8
External variables 7

It can be seen that the most frequent variables used are Performance variables, followed by
Input/output variables, and Stock market variables and Business variables. Other common
variables analysed included Employee variables and Merger variables. The lowest number of
studies employed External variables for data analysis and interpretation. Table IV provides
details of various variables grouped under each aforementioned category.
Table IV.Details of Variables Utilised Categorization

Input/output variables
Performance variables
Stock market variables
Employee variables
Merger variables
Credit; Agri-business output; Capital; Loans and deposits; Assets; Income and expenses;
Interest; Tax
Profitability; Efficiency; Liquidity; Leverage; Market share; Operating performance;
Solvency; Sensitivity
Stock reactions; Shareholder characteristics; Shareholders' protection
Compensation; Management; Unemployment; Commission; Human emotions; HR
expenses; HR productivity; CEO characteristics; Communication; HRM practices
Merger characteristics; Merger premium; Merger rationale: Mean reversion
28 Journal of Banking, Information Technology and Management

Business variables Size; Bankruptcy; Safety net; Risk; Default risk; Growth; Product mix; Location; Prudence;
Net worth
External variables Consolidation policy; Monetary policy; Economic state; Customer characteristics; Cultural
difference; National income; Risk-free rate

D. Comparison of 'Sampling Areas' on Basis of 'Prime Focus'

Table V and Figures III and IV show comparative data of Indian and International research
papers with respect to the primary themes of these studies. The sum total of frequencies of
all the identified themes was 104.
Table V. Comparison of 'Sampling Areas' on Basis of 'Prime Focus'

Prime focus/Theme International Indian Total

Frequency Percentage (%) Frequency Percentage (%)

Performance analysis 19 25.33 11 37.92 30

Market reaction/Shareholders' wealth 20 26.67
Determinants, motives, benefits, 11 14.67
and consequences
Human Capital 4 5.33
Hypothetical/Proposed mergers 4 5.33
Industry-level issues 3 4.00
Global issues 3 4.00
Merger process/Valuation 4 5.33
Country-level issues 3 4.00
Targets vs acquirers 2 2.67
Voluntary vs compulsory mergers 0 2 6.90
Others 2 2.67
5 17.23 25
2 6.90 13
2 6.90 6
1 3.45 5
1 3.45 4
0 3
2 6.90 6
0 3
1 3.45 3
2
2 6.90 4

Total 75 29 104

Figure III. Percentage of Total Frequency of Themes Identified In Indian Studies

Mergers And Acquisitions (M&As) In The Banking Sector: A Comparative Review Of The Indian ... 29

It can be observed that Performance analysis and Market reaction/Shareholders' wealth form
the top two research themes in Indian as well as international research platforms. While a few
comparative studies between Targets & Acquirers (Du & Sim, 2016; Kuriakose & Kumar, 2010;
Altunbas & Marqu´es, 2008) were conducted, Voluntary & Compulsory merger (Narwal &
Pathneja, 2013; Kuriakose et al., 2009) studies were conducted only in India during 2001-2017.
Also, the data shows that none of the Indian studies addressed Country-level (Molyneux et al.,
2014; Guo & Yang, 2013; Olivero et al., 2011) and Global issues (Dunn et al., 2015; Voesenek,
2014; Valkanov & Kleimeier, 2007) relating to M&As in the banking industry.
Figure IV. Percentage of total frequency of themes identified in International studies

E. Comparison of 'Sampling Areas' on Basis of 'Variables Utilised In Reviewed Studies'

Table VI and Figures V and VI show comparative data of Indian and International research
papers with respect to the various variables utilised for analysis in the research papers
reviewed for the present study. The sum total of frequencies of all the identified variables
was 176.
Table VI. Comparison of 'Sampling Areas' On Basis of 'Variables Utilised In Reviewed Studies'

International Indian Total

Frequency Percentage (%) Frequency Percentage (%)

Input/output variables 28 21.71 12 25.53 40

Performance variables 32 24.81 16 34.04 48
Stock market variables 20 15.50 7 14.89 27
Employee variables 13 10.08 6 12.77 19
Merger variables 8 6.20 0 8
Business variables 21 16.28 6 12.77 27
External variables 7 5.42 0 7
Total 129 47 176
30 Journal of Banking, Information Technology and Management

Figure V. Percentage of Total Frequency of Variables Utilised In Indian Studies

It can be observed that Input/output variables and Performance variables form the top two
research variables in Indian as well as international research platforms. While Merger variables
(Wanke et al., 2017; Molyneux et. al, 2014; Guo & Yang, 2013; Gomes et al., 2012; Ongena a&
Penas, 2009; Altunbas & Marqu´es, 2008; Bliss & Rosen, 2001) seem to be popular in international
research papers, Indian research community seems to doubt the efficiency of these variables.
Also, the data shows that none of the Indian studies utilised External variables (Chimere &
Chukwunyere, 2017; Colombo & Turati, 2014; Guo & Yang, 2013; Harada & Ito, 2011; Olivero et
al., 2011; Ongena & Penas, 2009; Knapp et al., 2006; Lindblom & Koch, 2002) to analyse data
pertaining to M&As in the banking industry.
Figure VI. Percentage of Total Frequency of Variables Utilised in International Studies

F. Other Observations and Findings

This section presents some additional descriptive findings about the research papers
consideredfor the present study.
Mergers And Acquisitions (M&As) In The Banking Sector: A Comparative Review Of The Indian ... 31

FigureVII. Year-wise Classification of Studies on Banks' M&As

Figure VII shows the year-wise classification of Indian as well as International studies on Banks'
M&As. The number of Indian studies (Ravichandran et al., 2010; Kuriakose & Kumar, 2010;
Bassi & Gupta, 2015; Sentil, 2015; Prusty, 2015; Patel & Patel, 2015; Das, 2015; Patel & Shah,
2016; Chatterjee, 2016; Rahman, et al., 2016) was greater than number of International studies
(Cyree, 2010; Dunn et al., 2015; Doukas & Zhang, 2015; Du & Sim, 2016) in years 2010, 2015 and
2016. It can be seen that the period 2011-2015 saw a boon in the number of Banks' M&As research
around the world. 2001-2010 shows a wavy pattern with highest number of published research
papers in 2007 and 2009, and lowest number in 2001. Although 2016 saw a major drop in
popularity of the topic, it should be noted that the present study includes papers published
only till the first quarter of 2017. Hence, the rest of year 2017 could see significant improvements
in the area.
Figure VIII. Country-wise Classification of International Studies on Banks' M&As
32 Journal of Banking, Information Technology and Management

Figure VIII presents a country-wise classification of International studies on Banks' M&As. It

can be seen from the figure that majority of the studies were conducted either for USA banking
industry or for a sample of more than two countries (European Union, Asian, Asian & Latin
American countries). Apart from these, a few prominent researches were also conducted for
Banks' M&As in Greece (Antoniadis et al., 2014; Halkos & Tzeremes, 2013; Georgios & Georgios,
2011; Vergos & Christopoulos, 2008; Mylonidis & Kelnikola, 2005), Germany (Behr & Heid,
2011; Koetter et al., 2007; Koetter, 2005), Japan (Harada & Ito, 2011; Kaoru & Koji, 2007; Drake &
Hall, 2003) and Nigeria (Chimere & Chukwunyere, 2017; Onoh & Sarah, 2017; Akinbuli &
Kelilume, 2013; Gomes et al., 2012; Adebayo & Olalekan, 2012).
5. Conclusion
The present study reviewed 82 research papers published in various journals during the period
2001-2017 (first quarter), collected from various web sites and online databases. The review
revealed that there is a sharp decline in the research work associated with Banks' M&As in
2016. However, it should be noted that the present study includes papers published only till the
first quarter of the year 2017. Hence, the rest of year 2017 could bring significant improvements
in the area.
While comparing Indian and International studies, it is observed that the majority of research
work on Banks' M&As is concentrated in USA and Europe. However, a few other countries
have indicated recent interest in the subject matter, including Pakistan (Rahman et al, 2016)
and South Africa (Wanke et al., 2017). The growing attraction of the field can be attributed to
the fact that M&As have been accepted as the most feasible route to inorganic growth in the
globally competitive market. So far, the research activities in India as well as on international
platform have been focused on performance analysis of merged banks and analysis of stock
market reactions to bank merger announcements. These objectives are indisputably justified in
their popularity as they provide a direct insight into the profitability of a merger deal and gains
to the shareholders. But there are other facets of the subject matter that cannot be rationally
disregarded. International researchers have therefore been moving toward cross-country
samples (Du & Sim, 2016; Molyneux, Schaeck, & Zhou, 2014; Vosenek, 2014) that would expand
the scope of their research. On the other hand, Indian researchers seem to overlook the
importance of such studies in addressing the global issues in Banks' M&As. Furthermore, the
comparison of variables utilised in Indian and International studies uncovered a major deficiency
in Indian researchers' approach. They do not acknowledge the effects and implications of
economic and policy variables (external variables) on M&A deals, and also fail to control for
business variables during analysis. Such insufficiency could be the reason for continued
inconsistency in results of many Indian studies. Therefore, it can be concluded that Indian
research has not been able to keep up with the international standards in the field of Banks'
M&As. It is apparent that there are shortcomings in case of Indian literature which provide
scope for future research agendas.
6. Utility Of The Study And Scope For Future Research
The present study provides a detailed and organised review of empirical studies in the field of
Banks' M&As. It can be utilised as a reference manual by researchers and save them valuable
time during the review of related literature for their studies. Also, decision makers of the specific
banks as well as the banking industry can utilise the results of the reviewed studies to plan and
execute more efficient mergers and acquisitions in the future.
Mergers And Acquisitions (M&As) In The Banking Sector: A Comparative Review Of The Indian ... 33

Future studies in the field of Banks' M&As can focus on country-level and global issues by
analysing variables such as characteristics of the merging banks, risk component involved in
the deal, monetary and consolidation policies of the government, and effects of M&As on
customers of the banks. Analysing cross-border M&A deals, comparing banks' performance
data during crisis and non-crisis periods, and demergers in different industries can also be
promising research prospects.
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Dr. Ruchita Verma, Assistant Professor, Department of Commerce, Central University of Rajasthan, Ajmer, Rajasthan,
India.
Janaki Singh Rathore (Corresponding Author), Research Scholar, Department of Commerce, Central University of
Rajasthan, Ajmer, Rajasthan, India.

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