Factors Determining Mergers of Banks in Malaysia's Banking Sector Reform
31 Pages Posted: 26 Jun 2015
Date Written: June 26, 2015
What was termed government-guided merger was a unique banking sector reform implemented in 2002 by the central bank of Malaysia guiding a larger number of depository institutions to form 10 large banks. This paper identifies the factors entering this massive merger exercise. Similar to the finding in bank merger literature, we find larger banks became acquirers. Also, low risk banks had higher probability of becoming an acquiring bank while high-risk banks became targets for takeover. Surprisingly managerial performance — financial ratios and changes in productivity reported as significant factors in prior market-based merger studies — was not significant in this study. Banks closely connected to government had greater chance of becoming acquiring banks while the reverse is true of target banks. These findings have not been reported in other studies of mergers, and are likely to be useful to central banks considering similar reforms.
Keywords: bank mergers; acquiring banks; managerial performance; government connections
JEL Classification: G21, G34
Suggested Citation: Suggested Citation