Banking mergers – an application of matching strategy

Abstract

Purpose

ASEAN region has emerged as a major hotspot for banking mergers and acquisitions (M&A) in Asia. This paper aims to examine the determinants of acquisitions for 47 acquired banks and 33 acquiring banks in ASEAN from 2003 to 2011 by applying matching strategy.

Design/methodology/approach

Three binary logistic regressions are estimated in the study to identify the determinants of acquisitions in the ASEAN banking industry. Furthermore, the paper examines the ex ante bank-specific and country-specific characteristics of acquiring and acquired banks which motivate bank acquisitions.

Findings

The division of the sample into sub-samples reflects significant changes in the determinants of the likelihood of being acquired over different time periods. In the normal period prior to the financial crises, acquired banks are also found to have greater loan activities. Asset quality and liquidity played important roles in determining the likelihood of being acquired in the period after the onset of the 2007 global financial crisis and the European sovereign debt crisis. Larger banks with higher growth and greater profitability are more likely to engage in acquisitions as acquiring banks rather than as acquired banks. The study indicates that financial crises bring about a change in the determinants of bank acquisitions.

Research limitations/implications

The results for the bank-specific determinants are consistent with the growth-resource and inefficient management hypotheses. It is obvious that the involvement of ASEAN banks in acquisitions is strongly motivated by the pursuit of growth, consistent with the rapid economic growth in the region.

Originality/value

The study identifies the bank-specific and country-specific characteristics of acquiring and acquired banks which influence their involvement in M&A. The uniqueness of this paper lies in the applied methodology on matching strategy.

Citation

Alam, N. and Lee Ng, S. (2014), "Banking mergers – an application of matching strategy", Review of Accounting and Finance, Vol. 13 No. 1, pp. 2-23. https://doi.org/10.1108/RAF-12-2012-0124