MERGERS AND ACQUISITIONS-THE GAME OF PROFIT AND LOSS: A STUDY OF INDIAN BANKING SECTOR

Abstract

INTRODUCTION:The Indian banking sector is a spine of Indian economy. In the last few years, the Indian banking sector has made brisk growth in terms of revenue due to favourable factors, but few banks were not able to perform well. To improve performance, many banks were merged with other banks. Apart from this objective, the merger is to improve banking services, create operational and financial synergy, market share gain, value maximization, market expansion & creation of large identity. Among all this, the matter that needs much concern is how the merger affects the overall financial performance of banks.In 1980, merger and company performance was an important issue in front of management thinkers. An empirical study (Michael Lubatkin, 1983) has made an argument that merger results in improvement of the firm's performance. Studies in 90's have also examined the performance of the firm. (Healy, 1992) has studied the performance of firms using a sample of the 50 largest mergers between U.S. public, industrial firms completed in the period 1979 to 1983. A Study has revealed that after the merger, there was improvement in performance in terms of assets utilization, productivity and long-term investment. (Marcia, 1991) had analysed the post-merger financial performance of largest banks merged during 1982 to 1987& enhanced that after merger, assets growth and employee productivity has improved. Some argue that mergers and acquisitions activities create agency problems, resulting in less than optimal returns (Jensen, 1986) where as others argue that M&A create synergies that result into benefit for firm (Weston et al, 2004).This is a comprehensive review of the merger and firm's performance. Again, there is no systematic literature review of merger and firm's performance which has been measured from different parameters. Given the fact that, the merger and firm's performance has scope for further studies. Thus, there is a need to analyses pre & post-merger impact of merger on financial performance. Research Gap can be seen at various points in present studies where there are scope for further study. So, to fulfil this gap, this present study will address the Comparison of pre & post-merger financial performance using Economic Value Added (EVA). The main objective of this study is to Analyse the comparative position of pre & post-merger financial performance of selected banks.The remainder of this paper is organized as follows. Section 2 explains the theoretical background of different literature on merger and firm's performance. The methodology is presented in Section 3. Empirical evidence and discussion on data analysis is presented in Section 4. Conclusion is presented in section 5.Below given table 1 shows various merger happen in Indian banking industry.RESEARCH QUESTION:RQ. - Does the financial performance of all banks involved in merger gets improve after merger?LITERATURE REVIEW:Many researchers have analysed pre & post-merger performance of merged firm. Researchers from all over the world has taken various industries & carried out research work on merger & firm's performance. The detailed literature reviews are discussed for the merger happened in Canada, Dubai, Finland, France, Germany, Greece, Hungary, India, Ireland, Italy, Japan, Latvia, Lithuania, U.K & U.S.A. Some researchers have made an argument that mergers and acquisitions result in negative outcome (Jensen, 1986) where as others argues that M&A improves the firm's performance (Weston et al, 2004). Here, this section contains the Theoretical background on merger and firm's financial performance.Financial performance of firm refers to measurement that how well a firm can able to manage its assets for generation of revenue and profit. There are various measures to study the financial performance such as income, assets, profit and profitability ratios. …