||The majority of financial institution merger and acquisition (M&A) cases in the past belonged to “relief types” lead by the government to relieve target banks from financial problems. Target banks in those cases are basic tier financial institutions in unfavorable financial conditions. Acquiring banks did not have the right to select targets. As a result, acquiring bank’s performance got worse after M&A, because acquired and acquiring banks’ business are too similar in nature to create synergy.
This research focused on M&A cases after the “Financial Holding Company Act” was passed. Financial ratios are utilized to do research on the effect of bank’s M&A strategies on management performance after M&A and explore latent drivers of M&A. The topics we study are as follow:
1.The type of M&A on synergy.
2.The effect of loan volume, deposit to loan ratio and number of domestic branches on return on asset.
3.The effect of deposit volume, deposit to loan ratio and number of domestic branches on net earning before tax and employee’s contribution respectively.
4.The effect of loan volume, market share of operational income and number of domestic branches on management profitability.
The results of this research are listed below:
1.The type of M&A on synergy is obvious after merger for two years.
2.Market share of loan monthly average balance, deposit to loan ratio and number of domestic branches have positive effect on M&A synergy of return on asset.
3.Deposit monthly average balance, deposit to loan ratio and number of domestic branches have positive effect on M&A synergy of net earnings before tax.
4.Market share of deposit monthly average balance, deposit to loan ratio and number of domestic branches have positive effect on M&A synergy of employee contributions.
5.Market share of loan monthly average balance and number of domestic branches have positive effect on M&A synergy of management profitability.
6.The operational income market share on M&A synergy have negative effect.
This research shows that number of branches has significant effect on profitability indicators. It means that the more branch channels a bank has; the more effect this factor has on bank’s profitability indicators. On the other hand, bank’s market share of deposit average balance, market share of loan average balance and deposit to loan ratio has considerable effect on profitability indicators. However, the market share of operational income has reverse relations with management profitability. When a bank over expands its business, interest spreads will be reduced and the profitability will be sacrificed. This situation shows that the current banking market is saturated and competitors tend to expand their market shares by cutting prices.
In such a highly competitive domestic financial market, number of domestic branches is the driving factor of M&A and is critical to improve compatibility. In strategic point of view, financial holding companies can increase their operational channels and service territory to gain economies of scale and improve management performance. Empirical research also finds that the type of M&A on synergy is significant its effect after merging or acquiring for two years. This conclusion may help management to formulate business strategies to develop their business, relieve the weaknesses and strengthen the competitive advantages to create or increase synergy at a fast pace.