Analyzing the Financial Performance of Banks Before and After Mergers and Acquisitions

Abstract

Mergers and Acquisitions in the banking industry are now recognized as a make-or-break plan to increase visibility in the market, productivity, and value for shareholders. Nevertheless, the issue of the post-M&A banking financial performance issue still raises concerns, as the results of these transactions may differ due to numerous factors. This review seeks to evaluate the pre and post-M&As banks’ financial performance using the following indicators; Return on assets (ROA), Return on equity (ROE), Earnings per share (EPS), and Net interest margin (NIM). It examines the role of internal M&A factors such as management actions and integration activities, and external factors including economic environment, regulatory environment, and competition on post M&A performance. Furthermore, the article presents methodological concerns like data constraints and problems in establishing the impact of M&As on financial performance. The results stress the need to assess the pre-acquisition environment and to implement the post-acquisition integration plans successfully to achieve the desired financial performance. The management of M&A transactions is a critical success factor as evidenced by the fact that well-managed M&As result in enhanced financial performance while on the other end of the spectrum poorly managed M&As result in poor financial performance and loss of market share. This review calls for more empirical studies to investigate the long-run financial effects of M&As in the banking sector, which provides important information for banking managers and policymakers to improve M&A strategies.