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Emerging banking systems- Mergers and acquisitions, foreign bank entry and productivity change

Zhou, Mi (2009) Emerging banking systems- Mergers and acquisitions, foreign bank entry and productivity change. PhD thesis, Prifysgol Bangor University.

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Abstract

This thesis studies three related issues regarding recent banking reforms in emerging markets, namely mergers and acquisitions (M&As), foreign bank entry and productivity change. First of all, we analyse 84 banking M&A transactions in Asian and Latin American emerging markets between 1998 and 2005. Two event study methodologies that use the OLS market model and GARCH model are applied to examine the value effects of these transactions on bank shareholders. The results suggest that these transactions are moderately successful as targets' shareholders gain significant abnormal returns, whereas acquirers, on the other hand, tend not to lose value. When we take account of time-varying beta using the GARCH model approach this provides statistically similar findings to the OLS market model. However, different event study methodologies tend to yield different results in terms of the determinants of value creation. Secondly, we also examine the impact of foreign bank entry on banking competitive conditions in Argentina, Brazil, China and India between 2000 and 2006. We use the Lerner index to measure banking sector competition. As well as using a fixed effects estimator, the generalised method of moments (GMM) dynamic panel data estimator is applied to obtain the Lerner index in order to mitigate possible misspecifications due to long-run equilibrium assumption imposed by the fixed effects estimator. Our results tentatively suggest that the Lerner index estimated using the dynamic procedure is the preferred measure of competitive conditions. Using a dynamic panel regression model, we then examine the impact of foreign bank presence and other bank and country specific factors on banking competition. Overall, our results show that foreign bank entry does not appear to significantly influence banking sector competition. We also suggest that there well may be a limit to the competitive influence of foreign banks over the short-term. Finally, we investigate the productivity change in these four emerging market banking systems over the period 2000-2006. We employ a parametric approach to examine banks' optimisation processes (cost minimisation and profit maximisation); and then decompose the total gross changes of variable costs and profits to measure the cost and alternative profit productivity change respectively. The results show that all these banking systems suffered a slight decrease in cost productivity (apart from India) but also enjoyed profit productivity gains over the same period. This suggests that banks in the countries under study focused more on revenue generation compared to cost minimisation over the period. We also find some evidence that banks may have also exerted their market power to improve their profit productivity.

Item Type: Thesis (PhD)
Subjects: Degree Thesis
Departments: College of Business, Law, Education and Social Sciences > Bangor Business School
Degree Thesis
Date Deposited: 14 May 2015 05:13
Last Modified: 19 May 2016 09:32
URI: http://e.bangor.ac.uk/id/eprint/4462
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