Does Earnings Accretion Matter in Bank Merger Decisions? An Empirical Analysis in the Context of Sebi Listing Regulations, 2015

Abstract

While an impressive body of literature exists on mergers in the international context, few studies are conducted in India particularly in the financial sector. Further, these studies are confined to market performance and efficiency gains. Most of the prior studies on announcement wealth effects of bank mergers have found that returns for the target bank shareholders are significantly positive and have reported inconsistent or negative results for bidder banks. While addressing the issue of negative returns of the bidder banks, it is imperative to know that whether the valuation is detrimental to the interest of the bidder banks or not. Though the valuation is more of a strategic kind and is a function of many variables, it would be interesting to make out the impact of valuation on the earnings of bidder and target banks. Thus, the present study examines the impact of the bank mergers on the shareholders’ wealth in terms of earnings. To be more specific, the study checks whether valuators have considered earnings accretion or dilution as a criteria while taking bank merger decisions. The study is important especially in the context of SEBI Listing Regulations, 2015.