Factors Determining Mergers of Banks in Malaysia's Banking Sector Reform

31 Pages Posted: 26 Jun 2015

See all articles by Mohamed Ariff

Mohamed Ariff

Bond University; University Putra Malaysia

Michael T. Skully

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Rubi Ahmad

University of Malaya (UM)

Date Written: June 26, 2015

Abstract

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

Ariff, Mohamed and Skully, Michael T. and Ahmad, Rubi, Factors Determining Mergers of Banks in Malaysia's Banking Sector Reform (June 26, 2015). Multinational Finance Journal, Vol. 11, No. 1/2, p. 1-31, 2007, Available at SSRN: https://ssrn.com/abstract=2623485

Mohamed Ariff

Bond University ( email )

Gold Coast, QLD 4229
Australia

University Putra Malaysia ( email )

Selangor Darul Ehsan
Serdang, Selangor 43400
Malaysia

Michael T. Skully

Monash University - Department of Banking and Finance ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia
+61 3 9903 2407 (Phone)
+61 3 9903 1443 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Rubi Ahmad (Contact Author)

University of Malaya (UM) ( email )

Kuala Lumpur, Wilayah Persekutuan 50603
University of Malaya (UM)
Kuala Lumpur, Wilayah Persekutuan 50603
Malaysia
+603 79673961 (Phone)

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