Does Operating Performance Really Improve Following Mergers? The Case of Malaysian Banks

Abstract

This study examines whether the recent bank mergers in Malaysia did create synergies as reflected in corporate operating performance measures. Four accrual operating performance measures are used, i.e. Return on Assets (ROA), Return on Equity (ROE), Profit Margin (PM), and Earnings Per Share (EPS). Using a sample of eight anchor banks for a sample period beginning 1997 through 2002, the results show that bank mergers had a significant post-merger improvement that is consistent with the findings of Neely and Rochester (1987) who also employed accrual performance measures in their study on savings and loan institutions in the US. The findings suggest that even though the mergers are 'forced' in nature, it can contribute to synergistic benefits. The gain in the post-merger operating performance was mainly due to the provisions for loan loss, which on average was much lower during the post-merger period compared to the pre-merger period. The study also finds that there is insignificant continuance of pre-merger performance into the post-merger period.

Keywords: M41, G21, G34

JEL Classification: banks,bank mergers, synergy, operating performance