On the date when an M&A are, announced stock prices normally jump abnormally from the acquiring bank to the target company (Banerjee & Cooperman, 2000). In addition, M&A’s which resulted into the creation of diversification of the business in which the banks operate resulted into very high returns. However, other M&A types resulted neither into creation nor into destruction of the shareholders’ wealth or share values. This is majorly due to the sole reason that stock prices alone cannot be used to depict the value that is created by a merger and acquisition. Therefore, Accounting performance technique and stock prices analysis will be employed to help in the understanding the likelihood of stability of value creation (Banerjee & Cooperman, 2000). There are various reasons for merger and acquisitions with value creation being the major or primary reason. Other cases present other banks to merge or acquire with the others if they consider the others as having potential for potential gains in the future. Some instances, partners to an M&A found themselves in the situation after they were salvaged from financial crisis hence M&A was a solution to their predicaments resulting into such companies being for good bargains once their financial problems are taken care of by the M&A arrangements. Considering that the banking industry is highly regulated, it is worthwhile to note that smaller banks could engage in mergers with larger banks to guarantee them their profitability. Those banks that intend to engage in acquisitions mostly consider the banks that they intend to acquire to be of greater value addition to them at some speculated future time (Amihud & Travlos, 1990). Therefore, there are a variety of financially motivating reasons why one bank may choose to engage into an M&A agreement with the other bank whether small or big. From research, it is quite evident that large scale M&A’s in the banking industry in the past have helped the banks out of stiff competition hence securing even a greater market share locally and abroad. Hence, apart from the fundamental reasons for M&A, one can rest assured that at least be sure that either of the parties will gain from such arrangements. In most of the cases, mutual benefits are realized with the new formed firm becoming more profitable. As typical reasons of starting banks for long-term profitability, some findings have it that some were created to be sold out for cash revenue to the owners. M&A to create larger banks in both the EU and the US have given room to drastic change in structure of the banking industry in the two regions (Amihud & Travlos, 1990). On whether these changes are good or bad is a large question to be answered on the long run through the consideration of the influences on the main players in the arrangements. This because shareholder value is only a single aspect of the value creation expected through the arrangements under M&A. in the methodology therefore, the study focuses through empirical analysis that mergers and acquisitions creates the value for shareholders in both the target and the acquirers of the banks that are involved. The data also conducts an examination of the reactions of shareholders when share prices are manipulated in relation to gains or losses created due to the instability (Banerjee & Cooperman, 2000). The data set to be used is that from two sources: that of Thomson One Banker M&A for data on the operations of M&A. the other source will be that of the non-involved banks as a control for
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Date DATA AND METHODOLOGY Data sample The research as defined examines M&A of the banking industry in both the US and EU banking industry that has lead to the formation of mega banks in the mentioned regions (Amihud & Travlos, 1990)…
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Table of Contents
CHAPTER ONE 4
1. Introduction 4
1.1 Background of the Study 5
1.2 Problem Statement 6
1.3 Aim and Objective of the Study 6
1.4 Significance of the Study 7
1.5 Scope and Limitation of the Study 8
1.6 Definition of Terms 9
CHAPTER TWO 10
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4 pages (1000 words)Research Paper
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