Consolidation Of Financial Institutions Research Articles

Is Inefficiency a Matter of Consolidation of Licensed Finance Companies in Sri Lanka?

This paper investigates the efficiency of licensed finance companies in Sri Lanka by applying the non-parametric Data Envelopment Analysis method in view of the recent discussions on consolidation of financial institutions. Annual financial data of all the operating finance companies for the period of 2009–2013 was used for the study. The results revealed that the mean technical efficiency, pure technical efficiency and scale efficiency were in decreasing trend over the period of study in contrast to the increasing trend of number of finance companies. The efficiency scores indicate that the increasing trend of number of finance companies has reduced the mean efficiency scores. Further, it was revealed that finance companies in Sri Lanka operated in variable returns to scale rather than constant returns to scale during the period and there were scale inefficiencies. Size of an LFC is a matter of the efficiency since large three LFCs were efficient in terms of pure technical efficiency throughout the period. Therefore, proposed consolidation of financial institutions in Sri Lanka may improve the efficiency of combined financial institutions.

Financial Determinants of Bank Performance in Taiwan

As the consolidation of financial institutions is one of the highlights in recent financial territory, we examine whether banks being subordinated under the financial holding company (FHCs) outperform to independent banks in Taiwan, covering 15 FHCs banks and 18 independent banks in our sample for the period from 2005 to 2010. Using the CAMEL approach, we also investigate empirically further the financial determinants of banks’ performance regarding FHCs banks and independent banks respectively, and examine whether the financial determinants of banks’ performance differ before and after the financial crisis. Results show that ROA is strongly related to certain CAMEL ratios, such as the total capital ratio, loan loss reserve/gross loans, the burden ratio, and net interest income divided by total assets. Moreover, the positive significant capital adequacy ratio in the post-crisis period in our sample is mainly driven by subordinated banks. Finally, asset quality factor has explaining power for the pre-crisis and post-crisis periods, meaning prevention safety net built predominantly in refraining from external shocks.

The Impact of Past Syndicate Alliances on the Consolidation of Financial Institutions

The impact of past syndicate alliances on the consolidation of financial institutions is examined. The odds of two lenders combining increases with the intensity and exclusivity of their prior syndicated loan alliances. The impact is higher for international mergers and acquisitions (M&As) and for prior syndicate co‐relationships where the acquirer and target were participant and lead, respectively. The odds of a particular lender being a target decreases as its return on equity (ROE) and earnings/price (E/P) ratios increase and as its size and growth opportunities decrease. The intensity and exclusivity of the syndicated loan alliances leading up to M&A announcements are significantly higher for non‐US versus US M&As. The significantly lower short‐ and long‐term performances for both acquirers and targets with prior syndicate co‐involvements disappear in the presence of control variables that account for the less frequent use of cash payments, the greater incidence of divestitures, and the higher percentage of shares acquired through their M&As. Acquirers with versus those without past syndicate target co‐involvements exhibit greater outperformance for control‐firm benchmarked ROEs and lower underperformance for control‐firm and prior‐to‐M&A benchmarked ROEs.

Financial services in an increasingly integrated global financial market

This paper discusses aspects of global financial services. As part of financial globalisation, financial institutions have evolved both nationally and internationally. FDI is becoming an important vehicle for multinational banks to enter developing countries. This in turn is changing the composition of trade in financial services. The experience of regional integration in Europe and the emergence of large multinational European banks signal a new era of global competition and consolidation of financial institutions. Home bias in international financial services is much less where financial integration is taking place. With financial globalisation, one should expect more diversification of ownership of multinational banks around the world, particularly when China and India are now able to have strategic investment in some of the key investment banks around the world. Financial globalisation requires stronger and more effective international institutions as a way of monitoring the activities of multinational financial institutions at both the national and international levels.

Efficiency Barriers to the Consolidation of the European Financial Services Industry

Cross‐border consolidation of financial institutions within Europe has been relatively limited, possibly reflecting efficiency barriers to operating across borders, including distance; differences in language, culture, currency, and regulatory/supervisory structures; and explicit or implicit rules against foreign competitors. EU policies such as the Single Market Programme and European Monetary Union attenuate some but not all of these barriers. The evidence is consistent with the hypothesis that these barriers offset most of any potential efficiency gains from cross‐border consolidation. Banks headquartered in other EU nations have slightly lower average measured efficiency than domestic banks and non‐EU‐based foreign banks.