An empirical investigation of the effects of mergers and acquisitions on stock performance of acquiring banks from 1999 to 2008

College

Ramon V. Del Rosario College of Business

Department/Unit

Accountancy

Document Type

Conference Proceeding

Source Title

2015 International Conference on Multi-stakeholder Approach in Advancing

Publication Date

10-2015

Place of Publication

Cebu, Philippines

Publisher

Asia Pacific Business and Economics Research Society

Abstract

The Philippine banking sector has experienced increased merger activity in the 1990s the as well as in the early 2000s (BSP, 2000). This was partly due to increased incentives provided for by regulatory bodies for mergers in the said industry. Recently, the BSP has further improved the incentive system for mergers in order to encourage further consolidation in the industry. The BSP believes that merger and acquisition activities shall result in stronger players in the market that will help stabilize the financial industry of the country. However, the benefits of mergers and acquisitions on firm performance are not that evident. Mixed results were obtained from past studies about the effect of mergers and acquisitions on the stock performance of acquiring firms. This study examined mergers and acquisitions from 1999 to 2008 in the Philippine banking industry and its effect on stock performance as measured by the cumulative abnormal returns. Results in this study indicated that acquiring banks generally experience a decline in their abnormal stock returns for up to six months after merger announcement. This decline is caused by the decrease in profitability of the acquiring banks. The decrease in profitability may be caused by earnings management technique such as big baths (Weinstein, as cited in Sikora, 1999) and significant organization costs associated with the merger. Furthermore, the results suggest that stock trades in the PSE are generally risk-averse and usually trade for short-term capital gains.

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Disciplines

Finance and Financial Management

Note

Abstract only

Keywords

Bank mergers—Philippines; Stock exchanges—Philippines

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