A critical study of Corporate Governance in Mergers and Acquisitions vis-

a-vis Financial Institutions

Dissertation – (Synopsis)
Under the
Guidance of Dr.
Vidya Ann Jacob

in Partial Fulfilment of the Requirements for the Award of the

Degree of MASTER OF LAW IN CORPORATE AND
COMMERCIAL LAW (LLM CCL)

Submitted to:
Dr. Vidya Ann Jacob

Faculty, School of Law

Christ Deemed to be University

Submitted by:
Simran Sondhi

LLM CCL

Register No: 2357148

 TENTATIVE CHAPTERISATION

CHAPTER NO. PARTICULARS PAGE NO.

Chapter: 1 Introduction
1.1 Rationale
1.2 Statement of Problem
1.3 Research Questions
1.4 Research Objections
1.5 Research Methodology
Chapter: 2 Literature Review
Chapter: 3 Legal Perspective of Corporate Governance in M&A
in Financial Institutions
3.1 Regulatory Framework and Compliance
3.2 Governance Mechanisms and Practices
3.3 Board Structures and Composition
3.4 Executive Compensation
3.5 Case Studies
Chapter: 4 The Intersection of Corporate Governance and
M&A
4.1 Importance of Corporate Governance in M&A
4.1.1 Impact and Challenges
4.2 Due Diligence in M&A
4.3 Risk Management and Compliance
4.4 Case Studies
Chapter: 5 Role of Financial Institutions in M&A
5.1 Financial Institutions as Key Players
5.2 Investment Banking Services
5.3 Advisory and Financing Roles
Chapter: 6 Suggestions and Conclusions
CHAPTER 1- INTRODUCTION
 1.1 RATIONALE
Corporate Governance plays a pivotal role in shaping the strategic decision-making and
performance of businesses across various industries. However, within the complex and highly
regulated world of financial institutions, corporate governance takes on added significance.
This is particularly true when we consider its impact on Mergers and Acquisitions (M&A).
The confluence of Corporate Governance and M&A in the context of financial institutions
presents a multifaceted challenge and opportunity. As the heart of the global economy, the
financial sector's stability and sound governance are of paramount importance. In this
introduction, the paper embark on a journey to explore the intricate relationship between
corporate governance and M&A activities within financial institutions.
Corporate Governance represents the framework of rules, practices, and processes by which a
company is directed and controlled. It encompasses the relationships between an
organization's management, its board of directors, shareholders, and other stakeholders. In
essence, it serves as the foundation for transparency, accountability, ethical decision-making,
and responsible leadership within corporations. The implications of corporate governance
extend far beyond the boardroom, affecting shareholders' trust, investor confidence, and,
ultimately, the financial institution's success and the broader economic stability.
Mergers and Acquisitions are transformative events that involve the consolidation of two or
more entities, either through mergers, acquisitions, or takeovers. These transactions can be
motivated by a myriad of factors, such as strategic expansion, synergies, market positioning,
or cost-efficiency. In the financial sector, M&A activities are not only high-stakes but also
subject to rigorous scrutiny by regulators, shareholders, and the public. The outcome of an
M&A deal can significantly influence the landscape of the industry, market dynamics, and the
health of the financial institution itself.
Financial institutions, including banks, investment firms, insurance companies, and others,
operate within a unique regulatory framework. Given their role as intermediaries between
savers and borrowers, their governance directly impacts market stability and investor
confidence. Moreover, the complexity of financial products and services, the sensitivity of
customer data, and the systemic importance of these institutions amplify the importance of
strong governance practices.
The intertwining of Corporate Governance and M&A in financial institutions forms the core
of our study. M&A decisions and outcomes are influenced by the governance structures and
principles within these institutions. In turn, M&A activities present both challenges and
opportunities for corporate governance, demanding a delicate balance between regulatory
compliance, shareholder interests, risk management, and strategic vision.
This critical study embarks on an exploration of how corporate governance principles and
practices shape M&A decisions and outcomes in financial institutions. It seeks to uncover the
unique challenges faced by financial institutions in the context of M&A transactions, while
also highlighting the opportunities for optimizing governance practices in these complex and
dynamic environments. The study aims to contribute to a deeper understanding of the
dynamic interplay between corporate governance and M&A within the financial sector,
offering insights that can inform best practices, regulatory reform, and sustainable growth in
this critically important industry.
 1.2 STATEMENT OF PROBLEM
The intricate relationship between corporate governance and Mergers and Acquisitions
(M&As) has garnered significant attention in recent years, given its profound implications for
financial institutions. Financial institutions play a pivotal role in the global economy, and
their corporate governance practices influence not only their own stability and performance
but also the broader financial landscape. Within this context, M&A transactions represent
pivotal moments where governance practices significantly impact decision-making processes
and outcomes.
While corporate governance is widely recognized as a cornerstone of responsible
management and ethical decision-making, there remains a pressing need to critically examine
its application within financial institutions engaged in M&A activities. The complexities
inherent in M&A transactions, often characterized by substantial financial risks, strategic
decision-making, and regulatory scrutiny, pose unique challenges to governance practices.
The problem at hand is twofold:
 The effectiveness of corporate governance practices within financial institutions
during M&A transactions remains inadequately understood. There is a lack of
comprehensive research that critically assesses how governance principles shape
decision-making processes and influence the outcomes of M&A activities within the
financial sector.
 Financial institutions face distinctive challenges and opportunities in the context of
M&A transactions compared to other sectors. These challenges may stem from
regulatory constraints, the complexity of financial instruments, or the potential impact
of M&As on market stability. Understanding the specific issues faced by financial
institutions in relation to corporate governance in M&A is essential for fostering
responsible financial sector practices.

1.3 RESEARCH QUESTIONS

1. How do corporate governance principles influence decision-making processes in
Mergers and Acquisitions within financial institutions?

2. What are the unique challenges and opportunities faced by financial institutions in the
context of M&A transactions?

3. To what extent does corporate governance impact the outcomes and financial
performance of M&A deals in the financial sector?

4. What is the role of regulatory and legal frameworks in shaping corporate governance
and M&A practices in financial institutions?
 1.4 RESEARCH OBJECTIVES

1. To critically evaluate the application of corporate governance principles in M&A

decisions within financial institutions.

2. To identify and analyze the specific challenges and opportunities inherent to M&A
transactions in financial institutions.

3. To assess the impact of corporate governance on the outcomes and financial

performance of M&A activities in the financial sector.

4. To examine the role of regulatory and legal frameworks in shaping corporate

governance and M&A practices in financial institutions and propose
recommendations for improvement.

1.5 RESEARCH METHODOLOGY

The research methodology employed is primarily doctrinal. Given the subject matter’s
intricacies, which predominantly involve the analysis of laws, principles, legal
frameworks involved in corporate governance in mergers and acquisitions in financial
institutions, a doctrinal research approach is most suitable. This research approach
allows for a comprehensive examination of legal texts, statutes, bills, standards and
case studies relevant to the domain of corporate governance and mergers and
acquisitions in India.
CHAPTER 2- LITERATURE REVIEW
1. Anant K. Sundaram, MERGERS AND ACQUISITIONS AND CORPORATE
GOVERNANCE
The provided study by Anant K. Sundaram explores the intricate relationship
between mergers and acquisitions (M&A) and corporate governance. Sundaram
begins by highlighting the historical connection between the market for corporate
control and M&A, emphasizing the role of efficient management in takeover
attractiveness. The paper touches on various themes established through extensive
research, such as the gains for target shareholders, challenges in capturing
takeover gains, and the prevalence of motivations like hubris and overconfidence.
The author underscores the significance of M&A decisions in a firm's life,
stressing their impact on strategy, operations, and overall existence.
The paper outlines the chapter's goals, posing questions about M&A's role in
corporate governance, its interaction with other governance mechanisms, and the
alignment of theoretical postulates with practical outcomes.
The structure then delves into a detailed analysis of M&A activity during the
1980s and 1990s, emphasizing the global scale and impact on corporate
governance. Market reactions to M&A announcements are explored, with a
distinction between public and non-public target acquisitions.

2. Umakanth Varotti, CORPORATE GOVERNANCE IN M&A TRANSACTIONS

The paper under review delves into the symbiotic relationship between corporate
governance and mergers and acquisitions (M&A), shedding light on the crucial
governance mechanisms that influence the success of these transactions.
Emphasizing the significant role of boards of directors, the study contends that
their decision-making processes are under heightened scrutiny in the current
corporate landscape, particularly post-global financial crises.
In the context of M&A risk management, the author highlights the growing
importance of considering compliance risks in cross-border acquisitions, such as
those related to anti-corruption laws. Independent directors are portrayed as
essential "watchdogs" in M&A transactions, tasked with ensuring impartiality, and
special committees of independent directors are advocated for their role in
scrutinizing related-party transactions.
The research acknowledges the vital role of external advisors, including
accounting firms and investment banks, in mitigating cognitive biases in decision-
making. It also recognizes the evolving landscape of shareholder participation,
with the emergence of independent proxy advisors in India, thereby introducing
shareholder activism in M&A markets.
Specific M&A transaction types are explored, with a focus on the extensive use of
schemes of arrangement under the Companies Act, 1956, for mergers, demergers,
and corporate restructuring in India. The essay lauds the pioneering role of Indian
courts in developing jurisprudence on these arrangements.
The dynamics of takeovers are discussed in light of new SEBI regulations (2011)
that grant a more active role to target boards, requiring reasoned recommendations
to shareholders and introducing a committee of independent directors. The essay
concludes by examining the corporate governance issues arising from squeeze-out
 transactions, emphasizing the need for adherence to fairness standards in both
process and price.

3. Tahira Awan, Syed Zulfiqar Ali Shah, Dr. Muhammad Yar Khan, IMPACT OF
CORPORATE GOVERNANCE, FINANCIAL AND REGULATORY FACTORS
ON FIRMS’ ACQUISITION ABILITY

The research explores the evolving landscape of corporate control in capital

markets, emphasizing the surge in global acquisitions amid the shift to a
worldwide economy. It aims to contribute by investigating the factors influencing
a firm's acquisition ability (AA), addressing a gap in existing research.

The findings highlight the significance of firm-specific variables in shaping

acquisition decisions. Notably, CEO duality and the presence of institutional
shareholders on the board emerge as pivotal factors influencing the acquiring
firms. Financial strength proves to be a critical consideration in corporate control
transactions, with bidding firms demonstrating better AA. The empirical results
underscore the importance of factors such as minimum capacity usage, lower
intangible assets, reduced debt levels, and lower advertising expenses in
enhancing AA.

Surprisingly, regulatory influence is found to play an insignificant role in firms'

AA, suggesting that other internal dynamics hold more sway in this context. This
insight challenges conventional assumptions about the regulatory landscape's
impact on acquisition strategies in the examined period.
By shedding light on the interplay between financial strength, corporate
governance, and regulatory factors, the research provides valuable insights for
managers, regulators, and policymakers navigating the complex terrain of
acquisitions.

4. Dr. Nidhi Srivastava, A STUDY OF MERGERS AND ACQUISITIONS IN

INDIAN BANKING SECTOR

The purpose of this study is to gain an understanding of the subsequent

cooperative synergies and the long-term outcomes of the merger by analysing the
Mergers and Acquisitions (M&A) that have taken place in the Indian financial
sector. The article does more research and focuses on prominent tendencies that
have emerged in the Indian financial system as a result of mergers and
acquisitions. It then offers some actions that banks ought to think about taking for
the future. Following an analysis of the flow and patterns within the Indian
banking sector, the article concludes that M&As have a negative impact. In order
to evaluate and appraise the performance of mergers and acquisitions in the Indian
financial sector, the study made an effort to delve into past studies. According to
 the findings, mergers and acquisitions in the Indian financial sector have been
nicely carved out, but the economy has only made minimal gains from them up
until this point. Consolidating strong banks with weaker banks could have a
detrimental effect on the assets of the strong banks, thus the government and the
policymakers in charge of financial matters should proceed with extreme caution
if they want to protect the interests of bothered banks as well as their own. In
addition to that, the focus of the study is placed on banks that have recently
undergone consolidation and newly established businesses. The study makes use
of secondary data that is already available and makes some suggestions based on
those facts.

5. Ronald W. Masulis, Cong Wang, and Fei Xie, CORPORATE GOVERNANCE

AND ACQUIRER RETURNS
The working paper delves into the impact of corporate governance mechanisms,
particularly anti-takeover provisions (ATPs), on the profitability of firm
acquisitions. The study finds that acquirers with more ATPs experience lower
announcement-period stock returns, suggesting that such provisions weaken
discipline from the market for corporate control. The paper also notes that firms in
competitive industries or those separating the positions of CEO and chairman of
the board have higher abnormal announcement returns.
The study aims to provide insight into how ATPs impact shareholder value by
examining their influence on a firm's investment efficiency, specifically in the
context of acquisitions. Corporate acquisitions, being substantial firm investments,
can exacerbate conflicts of interest between managers and shareholders. The free
cash flow hypothesis is referenced to explain how managers may prioritize empire
building over shareholder value maximization.
The primary hypothesis is that managers protected by more ATPs are more likely
to engage in value-destroying acquisitions due to weaker discipline from the
market for corporate control.

6. Cyril Lin, OECD Development Center, CORPORATE GOVERNANCE IN

DEVELOPING COUNTRIES AND EMERGING ECONOMIES
This paper delves into the challenges of corporate governance development,
emphasizing the historical context and macroeconomic impact. Dr. Cyril Lin,
 from the University of Oxford, discusses the agency problem dating back to Adam
Smith and highlights the evolution of corporate governance studies in mature
market economies. The focus then shifts to transition and emerging economies,
particularly in the Former Soviet Union and Central and East Europe, where weak
micro foundations, exacerbated by mass privatization, hindered economic
recovery.
The literature also addresses the purpose and determinants of corporate
governance, noting the conceptual ambiguities surrounding this emergent issue.

7. Jens Hagendorff, Michael Collins, Kevin Keasey, BANK GOVERNANCE AND

ACQUISITION PERFORMANCE

The limited attention given to the influence of corporate governance on bank

mergers, despite the crucial role of banks in economies, is noteworthy. Despite
widespread bank M&A activity globally, empirical studies consistently suggest
that these mergers often result in value destruction for acquiring bank
shareholders. This phenomenon is particularly surprising given the pivotal role
banks play in modern economies.

Recent consolidation trends in the financial services industry have further

highlighted the negative wealth implications for acquiring institution shareholders,
emphasizing the potential impact of inadequate bank governance structures. The
banking sector stands out due to its unique characteristics, including the opaque
nature of many core activities and the pervasive influence of industry regulations.
These factors can potentially undermine established monitoring mechanisms
designed to safeguard shareholder interests. The article advocates for an expanded
empirical focus on the relationship between governance attributes of banks and
the success of mergers.

8. Douglas Cumming, Varun Jindal, Satish Kumar, Nitesh Pandey, MERGERS AND
ACQUISITIONS RESEARCH IN FINANCE AND ACCOUNTING: PAST,
PRESENT, AND FUTURE

The study undertakes a thorough examination of the expansive body of research

on mergers and acquisitions (M&As) within the realms of finance and accounting.
Opening with a contextual backdrop, the study underscores the pivotal role M&As
play in corporate growth, restructuring, and diversification. It delineates the
intricate network of stakeholders involved, from acquirers and targets to advisors
and regulators, emphasizing the far-reaching consequences of these transactions.
Notably, the review traces the roots of M&A research back to Manne's influential
work in 1965, setting the stage for a detailed exploration of the evolving
landscape.

The research questions (RQs) serve as guiding pillars for the study, shaping the
subsequent analyses. Methodologically, the study adopts a rigorous bibliometric
approach to sift through the vast expanse of literature.
9. Priya Bhalla, MERGERS & ACQUISITIONS IN INDIA: A SECTORAL
ANALYSIS
The research highlights the global trends in M&A activity, emphasizing the
impact of globalization, deregulation, and technological advancements. It notes
the extensive literature on M&A in advanced economies, contrasting it with the
limited information available on M&A in India. The study aims to fill this gap by
conducting a sector-wise analysis, focusing on sectors like financial services and
pharmaceuticals that exhibit higher M&A activity.

The conceptual section delves into the nature of M&A, distinguishing between
mergers and acquisitions and discussing their role in corporate strategy. It
emphasizes how M&A can be a response to various factors, including strategic,
technological, economic, or organizational considerations. The role of joint
ventures, strategic alliances, and outsourcing as alternatives to M&A is also
highlighted.

The section on trends in M&A in India provides an overview of studies from the
late 1990s onwards, indicating a significant uptick in M&A activity in the latter
half of the 1990s. Various studies, such as those by Basant, Kumar, Beena, and
Agarwal, are summarized, revealing the growth in the number of M&A deals over
the years. However, it points out a lack of exclusive attention to the financial
sector in existing studies.

The role of the financial sector is then discussed, emphasizing its vital role in fund
allocation, which has evolved beyond traditional financial intermediation. The
sector is expected to provide diverse facilities, including trading, risk
management, and corporate control, contributing to economic growth. The link
between finance and economic growth is explored, with references to studies by
King and Levine, Gomes, and others.

The final section identifies and explains factors contributing to the rising
importance of M&A in the financial sector. Deregulation, driven by the decline of
the Bretton Woods System, is highlighted as a significant force. Examples from
advanced economies, such as the USA, demonstrate how deregulation opened
avenues for cross-border mergers. In the Indian context, gradual financial sector
reforms since 1991, including interest rate deregulation and reduced entry barriers,
are noted as contributing factors.

10. Abdul Rahim Ahmad, CORPORATE GOVERNANCE IN BANKS

UNDERGOING MERGER AND ACQUISITION
This paper explores the significance of corporate governance in banks undergoing
mergers and acquisitions (M&A), emphasizing its role in ensuring higher
profitability and employee satisfaction. The author underscores the transformation
of the banking sector in Pakistan and the need for effective governance practices.
The narrative introduces six key tools of corporate governance applicable to
address challenges during M&A. It highlights the historical shortcomings of M&A
strategies that overlooked factors beyond financial gains, emphasizing the
importance of anticipating issues when integrating diverse employee groups.
 The paper argues that sound corporate governance practices are essential for
achieving increased profitability and adequacy ratios in banks. The
implementation of corporate governance is depicted as vital for maintaining
transparency, accountability, and positive stakeholder relationships during M&A.
The paper addresses business practices, emphasizing the need for explicit job task
definitions, fair employee treatment, and optimization of operational processes. It
also highlights the importance of disclosure, transparency, and effective
communication, leveraging technology for information dissemination.

11. Toru Yoshikawa, Abdul A. Rasheed, CONVERGENCE OF CORPORATE

GOVERNANCE: CRITICAL REVIEW AND FUTURE DIRECTIONS
The discourse on corporate governance convergence across nations has spurred
considerable interest and debate across disciplines. In exploring this complex
subject, several key questions arise. First, what defines convergence in corporate
governance? Second, what factors drive corporations in different countries
towards convergence? Third, what obstacles impede progress in this direction?
Fourth, is there empirical evidence supporting the movement towards or away
from convergence? Lastly, what avenues exist for further research on this topic?

Theoretical insights emerge, pointing to the increasing influence of integrated

product and capital markets on global corporate governance. However, these
changes may not necessarily equate to convergence. Yet, local dynamics such as
institutional embeddedness and political factors can either impede governance
changes or result in the emergence of "hybrid" practices.

12. Shavin Malhotra, Horatio M. Morgan, Pengcheng Zhu, CORPORATE

GOVERNANCE AND FIRMS’ ACQUISITION BEHAVIOR: THE ROLE OF
ANTITAKEOVER PROVISIONS

The research explores the link between antitakeover provisions and firms'
acquisition behavior from a managerial risk-aversion perspective. Antitakeover
provisions serve as defense mechanisms, such as "poison pill" tactics, against
unwelcome bidders. The study responds to calls for a broader conceptualization of
corporate governance.

The discussion and conclusion emphasize the managerial risk-aversion

perspective in predicting the impact of antitakeover provisions on acquisition
frequency. Notably, the positive impact is attenuated for firms led by CEOs with
larger equity ownership and those in highly competitive industries. These findings
align with the study's hypotheses and the outlined managerial risk-aversion
perspective, contributing to a nuanced understanding of the relationship between
antitakeover provisions and firms' acquisition behavior.
13. Maria Maher and Thomas Andersson, CORPORATE GOVERNANCE: EFFECTS
ON FIRM PERFORMANCE AND ECONOMIC GROWTH
The discourse on corporate governance convergence across nations has spurred
considerable interest and debate across disciplines. In exploring this complex
subject, several key questions arise. First, what defines convergence in corporate
governance? Second, what factors drive corporations in different countries
towards convergence? Third, what obstacles impede progress in this direction?
 Fourth, is there empirical evidence supporting the movement towards or away
from convergence? Lastly, what avenues exist for further research on this topic?

Examining research findings reveals a nuanced landscape. Despite vocal advocacy

for convergence, the evidence suggests limited actual occurrence. Even instances
of apparent convergence often pertain more to form than substance, highlighting
the context-dependent nature of governance convergence.

Theoretical insights emerge, pointing to the increasing influence of integrated

product and capital markets on global corporate governance. However, these
changes may not necessarily equate to convergence. Governance transformations
appear driven by a quest for efficiency and enhanced legitimacy in capital
markets. Yet, local dynamics such as institutional embeddedness and political
factors can either impede governance changes or result in the emergence of
"hybrid" practices.

14. Sohini Ghosh, Sraboni Datta, M&A Deals and Corporate Governance Framework:
A Study in Indian Telecom Sector
This paper explores the intersection of mergers and acquisitions (M&A) and
corporate governance in the context of Indian telecom companies from 2000 to
2012. The study employs panel data regression techniques to analyze the impact
of corporate governance mechanisms and firm-specific variables on performance
measured by Return on Capital Employed (ROCE), Tobin's Q, and Human Capital
Return on Investment (HCROI).
Key findings indicate that board size and firm size positively correlate with ROCE
and HCROI, while chairperson-CEO duality shows a positive association with
ROCE. Institutional investors' shareholding percentage is negatively related to
HCROI. Tobin's Q is significantly affected by board independence, firm size, and
market share.
Corporate governance, defined as exercises governing corporate behavior, is vital
in promoting healthier practices and preventing misconduct. The fiduciary duty of
a firm's board of directors plays a crucial role in decision-making and can
influence overall firm performance.
Global corporate governance guidelines, such as the Cadbury Committee Report
(1992) and The Sarbanes-Oxley Act (2002), highlight the growing importance of
governance mechanisms. In India, SEBI and the Ministry of Corporate Affairs
have implemented changes, including disclosure requirements and the role of
independent directors.
The literature also emphasizes the significance of M&As as tools for corporate
restructuring, though success rates are often below predictions. The authors stress
the need to examine whether effective corporate governance, including board
structure and institutional investor roles, can enhance post-merger corporate
performance and shareholder value. In the evolving Indian corporate governance
landscape, initiatives by SEBI, regulatory changes, and investor activism have
contributed to improved standards. The study underscores the academic interest in
understanding the evolving governance framework and its implications in
developing nations like India, particularly in the context of M&As.

15. Ashish Srivastav, Governance in Financial Institutions: Key Elements and

Preventing the failures
The presented paper emphasizes the critical importance of robust governance
standards in financial institutions and addresses recurring instances of governance
failures globally. The author employs a descriptive design and a behavioral
approach to delve into governance issues, identifying key elements and evaluating
reasons for failures.
The findings underscore the insufficiency of relying solely on board structures,
best practices, and regulatory guidelines for failsafe governance. Suggestions
include an effective whistle-blower policy, a focus on organizational culture, and
aligning individuals with systems.
The paper contributes an original perspective, acknowledging the recurrent nature
of governance failures despite evolving internal controls, audit mechanisms, and
regulatory structures. Governance failures in the Indian financial system are
discussed, often revealed by whistle-blowers with subsequent financial and
reputational damage. The challenges faced by supervisory mechanisms are
highlighted, especially the tendency to circumvent regulations rather than
adhering to their spirit.
The paper delves into corporate governance in financial institutions, referring to
structures, processes, and relationships that define objectives, set processes, and
monitor activities. The BCBS principles for banks in 2015 are summarized,
providing a comprehensive guide for suitable corporate governance systems.
The Indian context is explored, detailing regulatory architecture implemented by
financial sector regulators (RBI, SEBI, IRDAI, and PFRDA) to strengthen
governance in regulated entities. Regulatory focus includes board constitution,
conduct, committees, directors' roles, code of conduct, and ethical norms. Reasons
for governance and control failures are discussed, citing instances of misconduct
and financial imbroglio globally. The paper concludes with a call for
strengthening governance in financial institutions, addressing the raised questions
and proposing steps to enhance governance effectiveness.