Research On The Issue Of Bank Mergers And Acquisitions

With the economic globalization and financial deregulation, a new wave of bank mergers and acquisitions (M&A) during which a couple of mega-sized banks formed have been surging throughout the world, making some impacts on the world's financial structure especially the financial industries in developing countries. After China's entry into WTO, the domestic financial industry is faced with more severe challenges as well as unprecedented opportunities. China will gradually lift the various restrictions on foreign financial institutions; therefore the bank M&A worldwide will inevitably affect the domestic financial industry. Under this circumstance, one of the effective approaches to strengthen the domestic financial industry is to seek scale economy effect and scope economy effect through bank M&A, enhancing its capabilities of contending with multinational banks.China's financial industry is now in the crucial time when the system is being transferred, the policy of opening to the outside world being continuously enforced and capabilities of financial industry being strengthened. With the deepening reform and development in financial industry, bank M&A in China also kicked off. In 1996, Guangdong Development Bank acquired Trust & Investment Company, BOA. In 1998 and in 1999, the National Development Bank and Guang Da Bank of China merged Investment Bank of China respectively. All these marked the beginning of M&A in domestic banking industry. But on the other side, we should see that there are some problems during the process of its development. These problems set some obstacles for bank M&A and reconstruction, at the same time pose new requirements. Therefore, the financial industry in China is now at the crossroads. We can neither stand by nor follow the suit blindly. When drawing on the experience of worldwide bank M&A, we should consider the present situation of domestic financial industry and make rational decisions. Therefore, this paper tries to provide an alternative approach for china's bank M&A.This paper utilizes dialectical materialism of Marxism, using historical and logic methods, and drawing on the valuable viewpoints and methods of western economic theories. This paper deeply analyzes the impetus and effects of bank M&A, coupling the characteristics of worldwide bank M&A with the status quo of China's banking industry,then providing a tentative idea for China's bank M&A, making some suggestions on how to lower the risks during the process of bank M&A.This paper consists of five parts. In the part of introduction, the background and significance of the study are presented , some concepts concerned explained, and research methods and train of thought brought forward.Chapter 2 discusses the theoretical basis of the topic. This part introduces and comments on some typical theories on bank M&A, such as transaction cost theory, principal-agent problem and management theory, and diversification theory. The transaction cost theory applies to vertical M&A to some extent. The principal-agent problem and management theory explains M&A from the respect of agent, while the diversification theory discusses the impetus of mixed M&A.Chapter 3 analyzes the impetus and effects of bank M&A. Firstly, this part discusses the external and internal impetus of bank M&A. The external driving forces mainly include economic globalization, enterprises multinationlization, economic regionalization, financial deregulation and regulatory relaxation. The internal motives are as follows: to break through the barriers of entry into a new industry and to widen the operational scope; to enhance the market power and to enlarge the market share; to acquire "PE ratio illusion" by using expectation effect; and to help the ineffective banks out of crisis. Secondly, this paper reviews the effects of bank M&A, which include both positive and negative ones. The positive effects mainly include appreciation effect and diversion effect. The former is reflected on scale economy and scope economy, while the latter is embodied...