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Impact of Bank Mergers on Shareholders’ Wealth: A Review of Literature

Author

Listed:
  • Odero Naor Juma

    (Masinde Muliro University of Science and Technology)

  • Peter T. Wawire

    (Masinde Muliro University of Science and Technology)

  • John Byaruhanga

    (Masinde Muliro University of Science and Technology)

  • Ochieng Okaka

    (Masinde Muliro University of Science and Technology)

  • Odhiambo Odera

    (Masinde Muliro University of Science and Technology)

Abstract
The main motive of any Merger and Acquisitions (M&As) is to increase of the wealth for the shareholders which in turn forms the main goal of any firm. The main categories of motives identified include those that increase shareholder value and those that destroy shareholder value. Motives which increase shareholder value include; synergy, achievement of economies of scale and scope, increased market power and revenue growth, improvement of managerial efficiency. Motives which decrease shareholder value include managerial hubris, agency and diversification. There are three main types of M&As which are horizontal, vertical and conglomerate. The study lastly examines the methods of financing M&As, the relative size and the number of bidders of the target firms.

Suggested Citation

  • Odero Naor Juma & Peter T. Wawire & John Byaruhanga & Ochieng Okaka & Odhiambo Odera, 2012. "Impact of Bank Mergers on Shareholders’ Wealth: A Review of Literature," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 2(4), pages 162-172, October.
    • Handle: RePEc:hur:ijaraf:v:2:y:2012:i:4:p:162-172
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    References listed on IDEAS

    as
    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    2. Sayan Chatterjee, 1986. "Types of synergy and economic value: The impact of acquisitions on merging and rival firms," Strategic Management Journal, Wiley Blackwell, vol. 7(2), pages 119-139, March.
    3. Yakov Amihud & Baruch Lev, 1981. "Risk Reduction as a Managerial Motive for Conglomerate Mergers," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 605-617, Autumn.
    4. Adel Al-Sharkas & M. Hassan, 2010. "New evidence on shareholder wealth effects in bank mergers during 1980-2000," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 34(3), pages 326-348, July.
    5. Caves, Richard E., 1989. "Mergers, takeovers, and economic efficiency : Foresight vs. hindsight," International Journal of Industrial Organization, Elsevier, vol. 7(1), pages 151-174, March.
    6. Robert DeYoung & Douglas Evanoff & Philip Molyneux, 2009. "Mergers and Acquisitions of Financial Institutions: A Review of the Post-2000 Literature," Journal of Financial Services Research, Springer;Western Finance Association, vol. 36(2), pages 87-110, December.
    7. Becher, David A., 2000. "The valuation effects of bank mergers," Journal of Corporate Finance, Elsevier, vol. 6(2), pages 189-214, July.
    8. Berkovitch, Elazar & Narayanan, M. P., 1993. "Motives for Takeovers: An Empirical Investigation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(3), pages 347-362, September.
    9. repec:bla:jfinan:v:53:y:1998:i:2:p:773-784 is not listed on IDEAS
    10. Agrawal, Anup & Jaffe, Jeffrey F & Mandelker, Gershon N, 1992. "The Post-merger Performance of Acquiring Firms: A Re-examination of an Anomaly," Journal of Finance, American Finance Association, vol. 47(4), pages 1605-1621, September.
    11. Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Manoj Kumar Bhatta, 2016. "Effect of Bank Merger on the Shareholders Wealth and Post-Merger Situation of Nepalese Banking Industry," Information Management and Business Review, AMH International, vol. 8(4), pages 41-51.

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    More about this item

    Keywords

    Mergers; acquisitions; organisational factors;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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