Capital Structure Before and after merger and Acquision: Banking Industry in Malayisa

Author(s)

Ong Tze San , Ng Phing Phing ,

Download Full PDF Pages: 01-22 | Views: 484 | Downloads: 111 | DOI: 10.5281/zenodo.3402048

Volume 2 - January 2013 (01)

Abstract

During the Asian financial crisis in year 1997, countries under International Monetary Fund (IMF) programmes are required to close down the small and weakest banking institutions. However, Malaysia government denied and initiated a robust bank merger programme to restructure all the fifty four financial institutions into ten anchor banks in year 1999. By the end of 2011, there were only eight anchor banks in Malaysia. Today, Malaysian Government still encourages companies in Malaysia to participate in the merger and acquisition activities. Previously, many studies were done according this issue by using Data Envelopment Analysis (DEA). However, the impact of merger and acquisition of Malaysian Bank is still vague. Hence, this paper attempts to examine the impact of merger and acquisition of Malaysian bank by using capital structure. This paper focuses on seven pairs of anchor banks which merged and acquired other minor banks in Malaysia from year 1999 until 2006. This paper uses descriptive statistic to compare the capital ratios and profitability ratios of 5 years before and after merger and acquisition to identify the impact. Besides, regression analysis used to determine the relationship of independents variables and dependent variables. The overall result of this study proved that merger and acquisition in Malaysian anchor banks do not significant increment the capital structure of bank. However, the result of ROA and ROE indicate performance of banks will improve after merger and acquisition. On the other hand, EPS indicate the shareholder’s value will slightly diminished after the merger and acquisition. Moreover, the result in more attentive view (changes of capital structure and performance of each pair of bank) indicates not all bidders and targets will had better performance after the consolidation. This proved that merger and acquisition do not solely brought benefit to the bank and country’s economy. The impact of merger and acquisition will affect by the bidder and target condition, economic condition and other external factors. 

Keywords

Capital Structure, Banking Industry 

References

         i.            Akintoye.(2008). Sensitivity of Performance to Capital Structure. European Journal of Social Sciences.Volume 7(1).pp 23-31.

       ii.            Allen and Boobal (2005). The Role of Post-Crisis Bank Mergers in Enhancing   Efficiency Gains and Benefits to the Public in the Context of A Developing Economy: Evidence        from Malaysia”, Conference Proceeding Modeling and Simulation Society of Retrieved from: http://www.mssanz.org.au/modsim05/papers/allen_2.pdf

     iii.            Altunbas and David. (2004). Merger And Acquisition And Bank Performance In Europe: The Role of Strategic Similarities. European Central Bank Working Paper. No. 398/2004.

      iv.            Amel, Barnes, Panetta, Salleo (2002), Consolidation and Efficiency in the Financial Sector: A Review of the International Evidence.

        v.            Beitel, Schiereck and Wahrenburg (2003). Explaining the M&A-success in European bank mergers and acquisitions.


      vi.            Berens, Cuny (1995). The Capital Structure Puzzle Revisited. The Review of Financial Studies. Vol 8 (4).

    vii.            Berger and Bouwman. (2009). Bank Capital, Survival, and Performance around Financial Crises.

  viii.            Booth, Aivazian, Demirguc-Kunt, Maksimovic (2001). Capital Structure in Developing Countries. The Journal of Finance. Vol 5(1). 87-130.

      ix.            Bouwman. (2009). Bank Capital, Monitoring and Bank Performance. Case Western Reserve University and Wharton Financial Institutions Center.

        x.            Brigham and Houston (2007). Essential Of Financial Management. Singapore: Cengage Learning Asia Pte Ltd.

      xi.            Bruner . (2003). Does M&A Pay? Journal of Applied Finance.Version 2.6.

    xii.            Byoun. (2007), Financial Flexibility, Firm Size and Capital Structure.

     xv.            Campa and Hernando (2006). Merger and Acquisition Performance in The European Financial Industry. Journal of Banking and Finance. Vol.30 (12). pp. 3367-                  3392.

   xvi.            Carey, Dennis.(2000). “A CEO Roundtable on Making Mergers Succeed.” Harvard Business Review. pp. 145- 154.

 xvii.            Chou and Lee. (2008). The Research on The Effect of Capital Structure on Firm Performance and Evidence From The Non-Financial Industry of Taiwan 50        and Taiwan Mid-Cap 100 from 1987 to 2007.

xviii.            Crouzille, Lepetit and Bautista (2005). How Did The Asian Stock Markets React To Bank Mergers After The 1997 Financial Crisis? Pacific Economic Review . Vol. 13, no. 2, pp. 171-182.

   xix.            Cybo-Ottone, Murgia (2000). Mergers and shareholder wealth in European Banking. Journal of Banking & Finance. 24 pp.831-859.

     xx.            Ezeoha (2007). Structural Effects of Banking Industry Consolidation in Nigeria. Journal of Banking Regulation. Vol. 8 No.2, pp.159-76.

   xxi.            University of Guelph (2006). SPSS: Mean Comparison. SPSS Base 15.0 User’sGuide: Edwards

 xxii.            Focarelli, Panetta, Salleo (2003). Why Do Banks Merge? Centre for International Studies on Economic Growth.vol(3). Gadiesh, Ormiston. Six rationales to guide merger success.

xxiii.            Goh and Lim (2010). The Impact of the Global Financial Crisis: The Case of Malaysia. Singapore: Third World Network.

xxiv.            Graham, Zweig and Buffett (2003). The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition). New York:Harper Collins Publisher.

  xxv.            Gropp, Heider (2009). The Determinants Of Bank Capital Structure. European Central Bank, Working Paper Series 2009.

xxvi.            Gyimah, Oscar (2011). Effects of Share Pricing on Firms’ Performance in Ghana. Journal of Economics and Sustainable Development,Vol.2, No.4,pp. 140-          153.

xxvii.            Harford (2004). What Drives Merger Waves? Journal of Financial Economics.  University of Washington Business School. Retrived from: http://faculty.bschool.washington.edu/jarrad/OldSit e/papers/harfordwhat_driv es_merger_waves.pdf

xxviii.            Hazlina, Zarehan and Muzlifah (2010). Productivity of Malaysian Banks after Mergers and Acquisition. European Journal of Economics, Finance and Administrative Sciences. Issue 24.pp. 111-122.

xxix.            Hoang, Lapumnuaypon, Kamolrat (2007), Critical Success Factors in Merger &  Acquisition Projects. Master Thesis.

  xxx.            Hoang, Nga, Lapumnuaypon, Kamolrat (2008). Critical Success Factors in

xxxi.            Hoberg, Phillips (2010). Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis. The Review of Financial Studies. Vol 23.Pp.3774-3811.

xxxii.            Huang, Ritter (2004). Testing the Market Timing Theory of Capital Structure.

xxxiii.            Jagdev, (2010, November 25). Takeover and merger mania in Malaysia. The Star Online. Retrieve from. http://biz.thestar.com.my/news/story.asp?file=/201 0/11/25/business/7497139 &sec=business

xxxiv.            Karels, Lawrence and Yu (2011), Cross-Border Mergers And Acquisitions Between Initialized And Developing Countries, International Journal of Banking and Finance, Vol 8(1).

xxxv.            Kester (February 2004). The Impact of Design on Stock Market Performance An Analysis of UK Quoted Companies 1994-2003.

xxxvi.            Kim, Haleblian (2011). When Firms Are Desperate to Grow via Acquisition: The Effect of Growth Patterns and Acquisition Experience on Acquisition Premiums.Administrative Science Quarterly (56).pp. 26-60.

xxxvii.            Komoto (1999). The Effect of Mergers on Corporate Performance and Stock Prices. NLI Research Institute. No.136.

xxxviii.            Kurshev, Strebulaev (2006). Firm Size and Capital Structure.

xxxix.            Leary (2005). Bank Loan Supply, Lender Choice, and Corporate Capital Structure.

      xl.            Leland (2007). Financial Synergies and the Optimal Scope of the Firm: Implications for Mergers, Spinoffs, and Structured Finance, The Journal of Finance. Vol 2(2). p.p765-807.

    xli.            Lewellen (1971).A Pure Financial Rationale for the Conglomerate Merger. Journal of Finance.Vol 26, pp.521- 537.

 xliv.            Lim, (2008, December 23). Malaysia: Opportunities Still There for Merger & Acquisition Activities. My Sin Chew. Retrieve fromhttp://www.mysinchew.com/node/19509.

   xlv.            Loong, (2008). Merger and acquisition, Getting The Real Through, 201- 204.

 xlvi.            Loth (2006). Evaluating A Company's Capital Structure.Investopedia. Retrieved on December 8, 2011, from http://www.investopedia.com/articles/basics/06/capitalstructure.asp#axzz1u0 BnRkmz.

xlvii.            Lum, Koh (2004). Corporate Governance of Bank in Malaysia. Published for Asian Development Bank Institute.

xlviii.            Mantravadi and ReddyWhich. (2007). Relative Size in Mergers and Operating   Performance: Indian Experience. Economic and Political Weekly.September 29, 2007.

 xlix.            Margaritis and Psillaki. (2008). Capital Structure, Equity Ownership and Firm Performance.

         l.            McDonald, Coulthard, and Lange (2005). Planning For A Successful Merges Or Acquisition: Lessons From An Australian Study. Journal of Global Business and Technology. Vol 1(2).

       li.            McGowan and Zunaidah (2008). A Note On The Effect Of M&A Announcements On Stock Price Behavior And Financial Performance Changes: The Case Of Arab Malaysian Bank Berhad And Hong Leong Bank Berhad.International Business & Economics Research Journal, pp.17-22.

     lii.            Milken (2009). Why Capital Structure Matter?

   liii.            Milner (2010). Success in Mergers and Acquisitions Lessons from M&A anlysis since 1967.

    liv.            Minton and Wruck (2001). Financial Conservatism: Evidence on Capital Structure from Low Leverage Firms. Dice Center Working paper. Ohio State University.No.2001(6). Retrieved from: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=269608

      lv.            Mueller and Sirower(2001). The Causes of Mergers: Tests Based on the Gains to Acquiring Firms' Shareholders and the Size of Premia.

    lvi.            Murzali, (2008). “The World Is Yours”, Malaysia Companies Look Abroad For Growth.

  lvii.            Ng, (2011, September 10). M&As leading to new landscape? The Star Online. Retrieve from http://biz.thestar.com.my/news/story.asp?file=/2011/9/10/business/9455581&sec=business

lviii.            Nissim and Penman. (2001). Ratio Analysis and Equity Valuation: From Research to Practice. Review of Accounting Studies.Vol. 6. pp. 109 - 154.

    lix.            Noormala, Faizah, Raedah, Jeslyn, (2011). What Drives and Crushes Merger and Acquisition? A Review of Merger and Acquisition Exercise of Major Companies in Malaysia.International Conference on Business and Economic Research, Vol.2. pp. 591-600.

      lx.            Noriza (2010). Corporate Governance Compliance and the Effects to Capital Structure inMalaysia. International Journal of Economics and Finance.Vol2(1).pp.105-114.

    lxi.            Obaid and Sabeeh (2010). Post-merger Performance of Atlas Investment and Al-Faysal Investment Bank Ltd. in Pakistan. International Journal of Economics         and Finance. Issue 60.pp.168-174.

  lxii.            Ooi (2010). Global Financial Crisis: Implications On Malaysian Economy. International Conference on Business and Economic Research. Paper 156.

lxiii.            Pasiouras, Tanna, Gaganis (2011). What Drives Acquisitions in the EU BankingIndustry? The Role of Bank Regulation and Supervision Framework, Bank Specific and Market Specific Factors. New York University Salomon Center   and Wiley Periodical.pp. 29-49.

 lxiv.            Phatheepkanth (2011) Capital Structure And Financial Performance: Evidence FormSelected Business Companies In Colombo Stock Exchange Sri Lanka. Journal of Arts, Science & Commerce. Vol 2(2). pp. 171-183.

   lxv.            Porteous and Tapadar. (2008). The Impact of Capital Structure on Economic Capital and Risk Adjusted Performance. Astin Bulletin. 38(1). Pp341-380.

 lxvi.            Rasidah , Fauzias, Low, and Aisyah (2008). The Efficiency Effects of Mergers and Acquisitions in Malaysian Banking Institutions. Asian Journal of Business and Accounting, 1(1), 2008, 47-66.

lxvii.            Rossi and Volpin (2004). Cross-Country Determinants of Mergers and Acquisitions. Journal of Financial Economics.Vol. 74.P.p 277–304.

lxviii.            Rubi (1999). A Note on the 1999-2002 Malaysian Banking Consolidation.

 lxix.            Sofian, Tayles, Pike (2002). The implications of intellectual capital on performance measurement and corporate performance. pp.13-24.

lxxii.            Somoye (2008). The Performances of Commercial Banks in Post-Consolidation  Period in Nigeria: An Empirical Review. European Journal of Economics,Finance and Administrative Sciences. Issue 14. Pp. 62-73.

 

lxxiii.            Song, Kueh, Chu, and Rasidah(2010). Performance of Cross–border Mergers and Acquisitions in Five East Asian Countries. International Journal of Economics and Management . 4(1). pp. 61-80.

lxxiv.            Sufian and Habibullah, (2009).Do mergers and acquisitions leads to a higher technical and scale efficiency? Counter evidence from Malaysia. African         Journal of Business Management. Vol. 3 (8), pp. 340-349.

lxxv.            Sufian, Fadzlan (2004). The Efficiency Effects Of Bank Mergers And Acquisitions In A Developing Economy: Evidence From Malaysia, International Journal of Applied Econometrics and Quantitative Studies. International Journal of Applied Econometrics and Quantitative Studies. Vol.1-4. pp.53-74.

lxxvi.            Suhaila, Kila, Mahmood, and Mansor (2008). Capital Structure and Firm Characteristics: Some Evidence from Malaysian Companies. Retrieved from. http://mpra.ub.uni-uenchen.de/14616/

lxxvii.            Tampakoudis (2010). Exploring Market Efficiency and Structural Differences    between the Greek and the Western Capital Markets in the Context of                     Mergers and Acquisitions. International Research Journal of Finance and Economics.Issue 40. pp.127-145.

lxxviii.            Taxation of Cross-Border Mergers and Acquisitions 2010 Edition. KPMG Tax Services Sdn.Bhd.

lxxix.            Terjesen, (2009). Mergers and Acquisitions: Patterns, Motives, and Strategic Fit, Q Finance http://www.qfinance.com/contentFiles/QF02/glus0fcl/12/0/ mergers-and-acquisitions-patterns-motives-and-strategic- fit.pdf

lxxx.            Uysal (2009), Deviation from the Target Capital Structure and Acquisition Choices.

lxxxi.            Vandeburg, Fulton, Hine, McNamara (2004). Driving Forces and Success Factors For Mergers, Acquisitions, Joint Ventures, and Strategic Alliances Among Local Cooperatives. USDA Rural Development Research Report 202.

lxxxii.            Vermaelen, Xu (2010). How do Firms Make Capital Structure Decisions?

lxxxiii.            Wong and Soo (November 23, 2011). PwC Upbeat on Financial M&A. The Sun Daily. Retrive on May 6, 2012 from.   http://www.thesundaily.my/news/217256.

lxxxiv.            Yap, (2011, June 4). Can Smaller Bank Survive? The Star Online. Retrieve from http://biz.thestar.com.my/news/story.asp?sec=busin ess&file=/2011/6/4/busin ess/8833057

lxxxv.            Yap, (2011, September 5). Malaysian Bank Losing Appeal? The Star Online. Retrive from http://biz.thestar.com.my/news/story.asp?file=/201 1/9/5/business/9421425&s ec=business

lxxxvi.            Zeti, (2004). Towards World-Class Banking - Efficient, Effective and Resilient Banking System. Governor's Keynote Address at the Malaysian Banking Summit 2004 .http://www.bnm.gov.my/index.php?ch=9&pg=15&ac=150

Cite this Article: