Examines Mergers and Acquisitions of the Banking Industry in Both the US and EU Banking Industry - Dissertation Example

On the date when an M&A are, announced stock prices normally jump abnormally from the acquiring bank to the target company (Banerjee & Cooperman, 2000). In addition, M&A’s, which resulted in the creation of diversification of the business in which the banks operate, resulted in very high returns. However, other M&A types resulted neither in the creation nor in the destruction of the shareholders’ wealth or share values. This is majorly due to the sole reason that stock prices alone cannot be used to depict the value that is created by a merger and acquisition.

Therefore, Accounting performance techniques and stock prices analyses will be employed to help in understanding the likelihood of stability of value creation (Banerjee & Cooperman, 2000). There are various reasons for mergers and acquisitions with value creation being the major or primary reason. Other cases present other banks to merge or acquire with the others if they consider the others as having potential for potential gains in the future. In some instances, partners to an M&A found themselves in the situation after they were salvaged from the financial crisis; hence M&A was a solution to their predicaments resulting in such companies being for good bargains once their financial problems are taken care of by the M&A arrangements.

Considering that the banking industry is highly regulated, it is worthwhile to note that smaller banks could engage in mergers with larger banks to guarantee them their profitability. Those banks that intend to engage in acquisitions mostly consider the banks that they intend to acquire to be of greater value addition to them at some speculated future time (Amihud & Travlos, 1990). Therefore, there is a variety of financially motivating reasons why one bank may choose to engage in an M&A agreement with the other bank, whether small or big.

From research, it is quite evident that large scale M&A’s in the banking industry in the past has helped the banks out of stiff competition hence securing even a greater market share locally and abroad. Hence, apart from the fundamental reasons for M&A, one can rest assured that at least be sure that either of the parties will gain from such arrangements. In most cases, mutual benefits are realized, with the newly formed firm becoming more profitable. As typical reasons for starting banks for long-term profitability, some findings have it that some were created to be sold out for cash revenue to the owners.

M&A to create larger banks in both the EU and the US have given room to a drastic change in the structure of the banking industry in the two regions (Amihud & Travlos, 1990). Whether these changes are good or bad is a large question to be answered in the long run through the consideration of the influences on the main players in the arrangements. This is because shareholder value is only a single aspect of the value creation expected through the arrangements under M&A. in the methodology; therefore, the study focuses through empirical analysis that mergers and acquisitions create the value for shareholders in both the target and the acquirers of the banks that are involved.

The data also conducts an examination of the reactions of shareholders when share prices are manipulated in relation to gains or losses created due to the instability (Banerjee & Cooperman, 2000). The data set to be used that from two sources: that of Thomson One Banker M&A for data on the operations of M&A. the other source will be that of the non-involved banks as a control for the study (Houston & Ryngaert, 1999). As per the second banking directive, the sources will have to present data for purely credit institutions. Such data will therefore attempt to respond to the question as to whether the creation of large banks through M&A arrangements is good for shareholders.