Impact of M&A on Bank's Performance and its Shareholders Wealth: A Study of Merger of BOR with ICICI Bank

Abstract

Mergers and Acquisitions (M&A) as an external growth strategy can create ample amount of value for the organizations when carried out in a premeditated way. Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location. The present study aims at studying the impact of mergers on the operating performance of the merged entity by examining pre-merger and post-merger ratios. It also studies the behavior of share prices and returns by creating an event window of 15 days before and after the announcement of the merger of Bank of Rajasthan (BOR) with ICICI Bank. The study highlights that shareholders of BOR has gained abnormal returns around the announcement period. The operational performance of ICICI bank has also improved as they expanded their business in the region of northern and western India through this merger which was indicated by improvement in the ratios like Return on Average assets, Capital adequacy ratio, CASA ratio and reduction in the operating cost to asset ratio and NPA to net advances ratio.