1.

Analysing Mergers and Acquisitions in European Financial Services:An Application of Real Options
http://liveweb.livjm.ac.uk/AFE/AFE_docs/cibef0502.pdf Dunis and Klein (2005) considered an acquisition as an option of potential benefits. Hence, assuming semi-efficient capital markets, the market capitalisation reflects the market participant s view on the value of those benefits once the merger is announced. In this case, the share price, equivalent to the option, is the cumulated market value of both companies without the merger. They applied the real option pricing theory model to a sample of 15 European bank mergers announced between 1995 and 2000 to examine if these were possibly overpaid. The results showed that the option premium exceeded the actual takeover premium suggesting that, those acquisitions were not on average overpaid.

2. Banking performance in domestic and cross-border acquisitions

http://.brain.net.pk/articles/Mergers%20And%20Acquisitions%20Current%20Issues.pdf#page=2 13 Diaz, Olalla and Azofra (2004) examined the bank performance derived from both the acquisition of another bank and acquisition of non-banking financial entities in the European Union. The sample consisted of 1,629 banks, where 181 acquisitions were noted over the period 1993-2000. They found that the acquirer obtains some efficiency gain in bank mergers. They also found some evidence on the impact of takeover on the acquirer when acquiring non-bank firms and when the sample was split by type of acquirer (i.e. commercial banks, savings banks, cooperative banks). In particular their results revealed that the acquisition of financial entities by European banks can increase their profitability. However, a lag of at least two years between the acquisition and the increase in performance was observed. The acquisition of other banks had an effect on acquirers ROA as was revealed by the increase in the long-term profitability.

3. Inter-Country Differences in a Merger and Acquisition Announcement

http://pure.au.dk/portal/files/8188/Thesis.pdf Beitel and Schiereck (2001) examined the value implications of 98 large M&As of publicly traded European banks that occurred between 1985 and 2000. They found that for the entire sample the shareholders of targets earned significant positive cumulated abnormal returns in all intervals studied, while the shareholders of the bidding banks did not earn significant cumulated abnormal returns. From a combined view of the target and the bidder, European bank M&As were found to significantly create value on a net basis. The study of Beitel, Schiereck and Wahrengoug (2002) builds on and extends the study of Beitel and Schiereck (2001) by examining the same data set but with a different objective. They analysed the impact of 13 factors that include relative size, profitability, stock efficiency, market-to-book ratio, prior target stock performance, stock correlation, M&A-experience of bidders and the method of payment on M&A-success of European bank mergers and acquisitions, in an attempt to identify those factors that lead to abnormal returns to target shareholders, bidders shareholders, and the combined

entity of the bidder and the target around the announcement date of M&A. Results showed that many of these factors have significant explanatory power, leading the authors to the conclusion that the stock market reaction to M&A-announcements can be at least partly forecasted.

4. Effets of Merger and Acquisition in European Banks

http://repub.eur.nl/res/pub/6843/2001-0883.pdf Huizinga et al. (2001) examined the performance effects of European banks M&As using a sample of 52 bank mergers over the period 1994-1998. Revealed results provided evidence of substantial unexploited scale economies and large X-inefficiencies in European banking. Comparing merging Banks exhibited a lower degree of profit efficiency than average, while small merging banks exhibited a higher level of profit efficiency than their peer group. The dynamic merger analysis indicated that the cost efficiency of merging banks was positively affected by the merger, while the relative degree of profit efficiency improved only marginally. Finally, they found that deposit rates tended to increase following a merger, suggesting that the merging banks were unable to exercise greater market power

5. POST MERGER PERFORMANCE ANALYSIS OF STANDARD CHARTERED BANK PAKISTAN http://journal-archieves24.webs.com/164-173.pdf

The first branch of Standard Chartered had been opened in Karachi in 1863. Today there are 176 branches across 41 cities. 2006 was the beginning year for the transformations of Standard Charterers operations in Pakistan. During this year the Bank announced its acquisition of Union Bank that was the eighth largest banks in Pakistan with US$2 billion in assets, and about 400,000 customers. The acquisition was for US$ 487 million in December 2006. Bank settled effectively cemented position as the largest and fasted growing international bank in Pakistan. In 2007 the merged bank had 115 branches across 22 cities in Pakistan. A year later in mid of 2008, the bank had 176 branches across 41 cities. After the acquisition of the Union Bank by Standard Chartered bank, many foreign banks reached to Pakistan and acquired other small and medium sized banks or financial institutions to expand their network and business in Pakistani market. The main intention behind this study is to analyze the post merger performance of the Standard Chartered bank. The Union bank was acquired by Standard chartered bank in December 2006. Before merger Union Bank was the eighth largest bank in Pakistan. After merger Standard chartered bank achieved awards. The main objective was to study and review the existing system of merger and by accessing the gap was to suggest some measures to meet the gap. The research resulted with unavailability of before merger and after merger financial statements, just focused on merger effect with limited applicability of ratios. No study conducted on this bank ever before. From banking system review it was also seen that merger of banks is adapted to increases the return on capital, that further lead towards increment in equity. The recent trend of mergers and

acquisitions of local banks by the foreign banks is also intended to extend their outreach to maximize return on their capital (Malik, 2006). Banks attained the performance improvement after merger on the basis of decrease in cost of production and increase in production level. Scope of economies or changes in product mix are another potential way in which mergers might help improve bank performance (Berger & Humphrey, 1994). Another source of cost efficiency behind merger was that efficient banks acquires the inefficient banks and run their managing rules over the inefficient. In this case all talents of superior management are spread over there with the help of different resources. Thus efficient business gets required results. Merger and acquisition is adopted to attain the operating and financial efficiencies. Most of the places it was seen that merger is mostly used to reduce the cost and proper management which will ultimately lead to wards efficiency. Mergers between entities are often motivated with arguments on cost reduction, input savings, better management and therefore efficiency enhancement (Gjirja, 2003). On another side it was seen that horizontal mergers mostly cause the efficiency. The mergers selected were generally large horizontal mergers that are thought to be the kind of merger most likely to yield efficiency gains (Rhoades, 1997).

6. Factors Affecting Bank Profitability in Pakistan:

http://rejournal.eu/portals/0/arhiva/gul%20et%20al%20-%20je%2039.pdf The financial system of Pakistan is dominated by the commercial banks. Privatization of public sector banks and the ongoing process of merger/consolidation brought visible changes in the ownership, structure, and concentration in the banking sector (State Bank of Pakistan, 2009). The Pakistani banking system since it has a completely diversified banking structure presents an interesting case. A quick look at net income before tax over total assets of all banks (operating throughout the time period under study) yield very low profitability levels (Ramlall,2009). The purpose of this research is to examine the relationship between bank-specific and macroeconomic characteristics over bank profitability by using data of top fifteen Pakistani commercial banks over the period 2005-2009. This paper uses the pooled Ordinary Least Square (POLS) method to investigate the impact of assets, loans, equity, deposits, economic growth, inflation and market capitalization on major profitability indicators i.e., return on asset (ROA), return on equity (ROE), return on capital employed (ROCE) and net interest margin (NIM) separately. The empirical results have found strong evidence that both internal and external factors have a strong influence on the profitability. The results of the study are of value to both academics and policy makers. This study investigates the impact of bank-specific characteristics and macroeconomic indicators on banks profitability in the Pakistans banks for the 2005-2009 periods. Individual bank characteristics (internal and external factors) are considered as determinants of bank profitability in Pakistan. Banks with more equity capital, Total Assets, Loans, Deposits and macro factors i.e., economic growth, inflation and stock market capitalization are perceived to have more safety and such an advantage can be translated into higher profitability. For this purpose, two hypotheses have been developed for analyzing banks profitability over specific determinants i.e., Hypothesis 1 states that microeconomic factors have significant impact on profitability. Whereas, hypothesis 2 states that external factors of the banks have significant

impact on the profitability. The result shows that both hypotheses have accepted and have a significant impact on profitability of the Banks in Pakistan.

7. The Effect of Mergers & Acquisitions and Greenfield FDI on Income Inequality:
http://www2.southeastern.edu/orgs/ijae/index_files/iIJAE%20MARCH%20HONG%20Z HUANG%202013%205-6-2013.pdf Since the surge in foreign direct investment (FDI) across the world in the 1980s, FDI is considered as a conduit of transferring physical capital and intangible assets, such as technology, skills and human capital development. The greater mobility of factors of production stimulated by the presence of multinational corporations (MNCs) affects the income distribution within the host country and therefore generates interests in studying the effect of FDI on income inequality. This paper contributes to the existing literature by distinguishing and comparing the effects of different types of multinational activities on income distribution within the host country. Using a sample of 93 countries from 1990 to 2009, we find that greenfield investment is positively associated with income inequality while M&As present an insignificant effect. However, in contrast to the positive effect of average greenfield investment, we find that greenfield investment in Latin America and Caribbean region decreases income inequality. The remainder of the paper proceeds as follows. Section II lays out the econometric model. Section III discusses the data and section IV presents the analysis of empirical results. Section V concludes. This paper investigates the differential effects of cross-border mergers & acquisitions (M&As) and greenfield investment on income distribution within the host country. Using a sample of 93 countries from 1990-2009, our results show that M&As have an insignificant impact on income inequality, while greenfield investment exhibits a significantly positive effect on income disparity. There has been a concern that the inflows of FDI may affect the income distribution within the host country. Although the theoretical studies have not reached a consensus, most of the empirical results imply a deleterious effect of FDI on income equality. The production of MNCs in host countries involves two forms: M&As and greenfield investment. The two modes of FDI may exhibit different economic consequences, though most of the empirical and theoretical literature has not distinguished between them (Nocke and Yeaple, 2007). Therefore, the purpose of this paper is to investigate whether these two forms of FDI have differential effects on income inequality. Our findings suggest a policy implication to policymakers in terms of evaluating the cost of greenfield investment. Traditionally, host countries often favor greenfield investment as it creates jobs and adds to local employment. However, it is a caution to host countries government that the production of MNCs in the form of greenfield investment is associated greater income disparity. Furthermore, polices are necessary to alleviate the exacerbation of income inequality when receiving greenfield investment.

8. Effect of Mergers and Acquisitions on Market Concentration and Interest Spread:

http://mpra.ub.uni-muenchen.de/37311/1/MPRA_paper_37311.pdf

Difference between banks earning on assets and interest paid on deposits is termed as interest spread, which has been on a growing trend in the last few years. There are so many factors, which influences the net interest spread. The particular characteristics of commercial banks that are typically considered to have an effect on their spreads include the size of the bank, ownership pattern, the quality of the loan portfolio, capital sufficiency, overhead costs, operating expenses, market share and shares of current and fixed assets. Market concentration is number of firms and their respective shares in a market. Interest Spread: Interest Spread is measured as the difference between the average interest rate earned on loans and paid on deposits (Tennant, 2007). It was calculated as: Interest Spread = Return on average assets - cost of average funds Return on average assets = Total interest income earned over average assets Average assets = Average loans and advances + Liquid, interest earning investments Average cost of funds = Total interest paid by the bank over all borrowed funds i.e. Deposits plus Borrowings (Khawaja and Musleh, 2007) Market Concentration: Market Concentration is calculated by using Herfindahl-Hirschman Index or HHI (Khawaja and Musleh, 2007). It is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. This study investigates the relationship of mergers & acquisitions with the interest spread of the banking industry in Pakistan. To assess whether the merger of Pakistani banks were a success or otherwise, profitability, liquidity ratios, and net interest spread are computed which are considered essential to judge the financial performance of any bank. Market Concentration is calculated by using Herfindahl-Hirschman Index or HHI. Findings show that the profitability and net interest spread of two merged banks declines as a result of mergers. It is also revealed that Concentration of the banking industry shows a rising trend during 2008 and 2009 after mergers occurred during 2007 as a result of merger. However, it shows the level that almost approaches the threshold i.e. 1000. One or two more mergers can push up threshold level of HH index. It means that it is the right time for banking industry of Pakistan to be reviewed by any antitrust authority to maintain the optimum level of competition. This study assessed the relationship of M&A and industry concentration with the interest spread. Findings disclosed that the industry concentration shows a rising trend as a result of merger. Concentration of the banking industry increases during 2008 and 2009 after mergers occurred during 2007. However, net interest spread of the merged banks shown a declining trend in these years which means that concentration do not lead to high interest spread. Pakistan needs a competition policy in the wake of the merger movement as well as because of privatization, deregulation, and liberalization, which have occurred in its domestic economies. Mostly, regulators interest inclined towards greater market concentration in order to maintain a smooth and stable banking system. However, public want to maximize their return and they call for a high degree of competition which suits their intentions. This difference in approach requires that SBP should not review

the proposal from antitrust outlook. Rather, for this purpose an Antitrust Authority/body must be introduced/ organized having sufficient powers to decline any merger proposal that they think will post considerable negative impacts on competition in Pakistan banking industry.

9. The Impact of Merger and Acquisition on Bank Governance on Bank Performance in Pakistan:
http://121.52.153.179/JOURNAL/LJE%2016%20se/12%20Abid_Burki%20Shabbir_Ahmad%20 -%2017th%20Septem.pdf During the last two decades, Pakistans banking sector has undergone structural changes as part of the phased reforms in the financial sector that were initiated in 1990/91. These reforms paid attention to, among other things, prudential regulations that authorized (i) the opening of several new private and foreign banks, (ii) the restructuring and downsizing of state-owned banks before being privatized, and (ii) reforms relating to mergers and acquisitions (M&A) that helped consolidate private and foreign banks. Empirical research on the impact of bank governance on bank performance remains limited, but it does have a wider appeal. The vast body of literature on banking efficiency and productivity provides insights into variables that have significantly affected banks performance in the past. This study attempts to investigate the impact of changes in bank governance on bank performance in Pakistan. Governance changes entail the privatization and restructuring of stateowned banks, and the merger and acquisition of private and foreign banks. Using the concept of frontier efficiency, we adopt an empirical framework that allows us to study the impact of all governance reform variables in the same model. First, we estimate a stochastic cost frontier model using unbalanced panel data on commercial banks for the period 19912005. Second, we decompose banks total factor productivity (TFP) change into its different components, using the estimated frontier. In general, the results show an improvement in banks cost efficiency following changes in bank governance. We note that governance changes bring about an improvement in banks TFP vis--vis that of banks that did not undergo governance changes. We find a declining trend in TFP change (TFPC), which could be a consequence of the banking industrys increased profitability. We also note that bank selection for governance changes has a mixed effect on TFPC, while bank consolidation seems to be more effective in improving TFPC. Our results have also shown that banks selected for M&A were technically less efficient than private banks, and that, following ownership change, these banks demonstrated improved technical efficiency. If these trends continue, this group of banks is expected to hold on to the gains in technical efficiency even in the long run. We have also found that most of the TFPC in Pakistans banking sector was driven by technical change. The declining trend in TFP growth could be an indication of the increasing profitability of the banking sector. Finally, selection variables brought about partial effects by bank ownership, while the more significant effects were related to bank consolidation.

10.Post-Merger Profitability: A Case of Royal Bank of Scotland (RBS)

http://www.ijbssnet.com/journals/Vol._2_No._5_%5BSpecial_Issue_-_March_2011%5D/20.pdf In todays globalize economy, mergers and acquisitions (M&A) are being increasingly used the world over for improving competitiveness of companies through gaining greater market share, broadening the portfolio to reduce business risk, for entering new markets and geographies, and

capitalizing on economies of scale etc. The motives behind mergers and acquisitions are economy of scale, economy of scope, increase market share and revenues, taxation, synergy, geographical and other diversification. Due to these reasons banks merged with one another or targeted by acquiring bank. This article also measure the extra efficiency derived from the comparison with a benchmark. Merged banks seems to have increased their efficiency in the years after the merger and it is true when the deal of merger of two banks operating on the same local markets and when the size of the new bank is not so big. In this study, used accounting ratios to analyze the financial performance of Royal Bank of Scotland (RBS) in Pakistan after merger. And analyzed their financial statements for four years (2006-2009) by using 20 vital ratios. In spite of certain limitations, accounting ratios are still considered as a convenient and reliable analytical tool. Ratio analysis, being a time-tested technique, is most frequently employed in all financial decision-making processes. The results show that the financial performance of RBS in the areas of profitability, liquidity, assets management, leverage, and cash flows has been quite satisfactory before the merger deal. It means that merger deal fails to improve the financial performance of the bank. The main limitation of this research study is the non availability of financial data before 2006. The data before 2006 is not available on internet and stock exchange (KSE) which are the utmost sources of information regarding financial data. Another limitation is that it only talks about the diversification effect of banks mergers and acquisition it totally ignores the other corporate sectors of the economy. There must be an impact of possible differences in accounting methods adopted by these foreign banks. Customer Service Officer of RBS does not give the full information about the banks merger. Although this study explain the efficiency effects of banks mergers and acquisition but it did not cover the other effects of mergers and acquisition in banking sector like cognizable efficiencies effect which are related to specific mergers in banking sector. There are certain suggestions for this research study are RBS has to follow same policies and incentive plans that central bank have to maintain in order to boost up the profits in Pakistans banking sector. This bank has to use same reporting standards like IFRS and IAS. The bank has to minimize the cost of capital in order to maximize the returns.

11.Do bank mergers lead to efficiency gains? The Case Study of bank mergers in Pakistan (working paper)
http://saicon2011.ciitlahore.edu.pk/11-1003%20mushtaq%20ur%20rehman.pdf

Jalal D. Akhavein et al (1997) finds that merged banks realized statistically significant increase in profit efficiency relatively to other banks, and these improvements are high for the banks that are inefficient prior to merger. According to Crispi et al (2004) pre merge efficiency of merged and acquired bank is relatively low. Cornett et al (2006) finds that after merger revenue enhancement and cost reduction improved performance of banks and these results are more significant for large banks relatively to small ones.

Facarelli Dario et al (2002) finds that strategic objective of merger is expanding revenues from financial services. He finds that economies of scale or cutting costs are difficult to implement in country where labor laws are rigid. According to Ryngaert D. Michaelet al (2001) most of the estimated value gains from bank mergers stem from the opportunity to cut cost by eliminating overlapping operations and consolidating backroom operations. For a typical bank merger estimated revenues enhancement are significantly less important. According to Peristiani Stavros (1997) banks that participate in a merger realized a small but significant decline in pro forma X- efficiency 2 to 4 years, and acquiring bank achieves moderate improvements in scale efficiency. He also finds that profitability and operating cost performance of surviving banks after merger are greatly influenced by balance sheet attributes and other bank characteristics. According to Len, Ping-wen (2005) that banks relating to different cultures can achieve better results from merger regarding cost efficiency in Taiwan. While banks with same set up cant explore new business grounds so cant achieve cost efficiencies from merger. According to Huizinga, H.P. (2001) checked the efficiency effect of 52 horizontal bank mergers in Europe, the cost efficiency of bank mergers is substantial while profit efficiency is marginal. According to GARY A. DYMSKI (2002) U.S experience that mergers are efficiency driven is unique and cant be applicable on all banking industry. In developing countries such mergers are not efficiency driven but actually due to changes in macro structural changes and due to change in banking strategies over time. Rhoades Stephen A. (1998) used case study methodology in order to find out the cost and efficiency results of merger. Sixteen financial ratios consisted on expense ratios, profitability ratios, and balance sheet ratios, were applied on nine case studies on USA banking industry. Data for pre merger and post merger activity were analyzed. Ratios of peer group were used as control variable, to check the observed changes are due to economic variables or due to combined firm effect. Results of studies showed that on average mergers reduced cost but not necessarily brought efficiency gains. Moreover size of acquiring firm and premerger efficiency of acquiring firm cant predict the results of merger.

12. Effects of merger and acquisition on the performance of selected Commercial Banks in Nigeria
thejournalofbusiness.org index.php site article download 2 2 Several studies discussed, tested and proposed empirical validations on mergers and acquisitions (M&A) in last many decades. These researches have tested the economic impact of M&A through their pre and post-performance analysis, on industry, shareholders and company their

selves. Moreover, they also proposed different methods for analyzing and attaining the success from mergers. And these proposals have positive impact on short-term and long-term both. Rhoades (1993) studied the impact of mergers in banking industry on efficiency and profitability considering both the domestic and cross border mergers. It discussed the cost and profit efficiency analysis of 33 bank-to-bank mergers which shows that the most of the domestic mergers improves the cost efficiency and little improvement of profit efficiency whereas little improvement in the profit efficiency and no improvement in the cost of efficiency in the cross border mergers Sufian (2004) focused on the efficiency effects of M&A of banks in Malaysia. For this purpose Malaysian commercial banks were taken to analyze the technical efficiencies during the merger year, and study pre and post-merger period. Their results proved an overall increase in efficiency in the sample period which is around 95.9%. They also concludes that merger program was successful and the small size Malaysian banks. Although the financial sector especially banks took advantage and got benefits from mergers but some of the large banks faced certain inefficiencies of large scale from this. Kumar & Bansal, (2008) explored the impact of M&A on corporate performance in India. They investigate that whether all the claims which are made about the mergers are achieved in India or not. This study used financial data, tables and different ratios to make analysis of correlation etc. and found that in most of the cases the company who acquire other through M&A got so many benefits and generate synergy in long run like increase in cash flow, larger business, competitive advantage, diversification and reduction in cost etc. Mantravadi & Reddy (2008) studied pre and post-merger performance in India and target the acquiring firms from diverse sectors and different industries but their major emphasis was on measurement of operating performance of the firms through financial ratios. They select the sample of all the mergers between public limited ad trading firms during 1991-2003. The findings of this study did not show much impact in the post-merger operating performance of the firms in different industries in India. Badreldin & Kalhoefer, (2009) research is based on Egyptian banks which have faced Merger or acquisition during the era of 2002-2007. They calculated companies Return on Equity (RoE) in order to the level of progress and success of banking reforms in strengthening and consolidating this sector. Their analysis suggested an increase in the performance when companies are compared with the pre-merger performance. It is concluded in the study that M&A in the Egyptian banking sectors profitability showed a significant improvement and a small positive impact on the credit risk position. But these observations are not similar to the current process.

Obaid-ullah, Sabeeh-ullah & Usman, (2010) investigated the effects of mergers on the financial performance of Atlas Investment and Al-Faysal Investment Bank Ltd from Pakistan. Study employed three financial measures; profitability and earning, capital adequacy and solvency. It found that for Faysal bank limited average improvement is recorded in the post-merger period. It is concluded that in post-merger period of sample both the banks improved their financial performance. Authors commented that M&A is a good strategy to increase the performance of the bank. Merger increase the financial performance due to improved attention to business, improved management, better credit assessment, and easy access to the new and expensive technology. Kemal (2011) discussed post-merger profitability for Royal Bank of Scotland. Researcher used accounting ratios to analyze the financial performance of Royal Bank of Scotland (RBS) after merger. Study analyzed financial statements for four years (2006-2009) by using 20 vital ratios. Results shown that the financial performance of RBS in the areas of profitability, liquidity, assets management, leverage, and cash flows have been quite satisfactory before the merger deal. It means that merger fails to improve the financial performance of the bank