The roles of mergers and acquisitions in the banking sector

Abstract

Mergers and acquisitions (M&As) are means of corporate reconstruction. This paper was conducted to define the main motivations of M&As in the banking sector and the main factors that may lead M&As in the banking sector to succeed and examine the profitability change after M&As in the U.S banking sector. The variables used in the analysis to measure the profitability change are financial ratios including Net profit margin ratio and Return on capital employed. The sample was selected as the 9 public banks at top M&As deals in the U.S in 2016. The data was analyzed using a descriptive statistical test and hypothesis test. This paper used paired difference in mean test to compare the financial ratios of the sample banks two years before and two years after M&As in Excel. The results from this paper show that the Net profit margin ratio has increased significantly after M&As, but the Return on capital employed has decreased significantly after M&As, which means the banks generated more money from its revenue but the efficiency of using the capital decreased. The significance of this paper is to let readers have better understandings and overall views about the M&As and help bank managers to decide whether they should do M&As or not.