The Impact of Merger and Acquisition Motives on Value-Based Financial Performance of Banks

Abstract

The study investigates the impact of merger and acquisition (M&A) motives on the value-based financial performance (VBFP) of acquirer banks on Ghana Stock Exchange (GSE). This study utilized a cross-sectional and quantitative research design. Principal Component Analysis (PCA) was used to identify the key M&A motives that add value to shareholders. The findings show that M&A motives (MAM) enhance shareholder value (EVA, MVA and CVA). Strengthening market power, financial synergy; Synergy Gain (Cost Saving); and desiring control to replace incompetent management are the five main motives behind the acquisitions in the Ghanaian Banking Sector. MAM such as Pre-emptive and Defensive Motive, Solving/Avoiding Banking Crises, Empire Building and Hubris and Risk Spreading all negatively affect VBFP. Thus, they have high tendencies of destroying shareholder value in the banking sector. Prior work clearly shows that M&A performance depends on pre-merger issues and post-merger matters. Therefore, this study introduces another construct – MAM to the existing two above to form a holistic M&A success framework. The study provides an in-depth analysis of the effect of MAM on the success of acquisitions regarding VBFP. The wrong reasons for M&A can undermine the success of the agreement, which is why it is necessary to find the right motives that positively affect shareholders' wealth. The findings highlight the importance of taking a broad perspective in studying M&A performance from the viewpoint of shareholders instead of reliance on traditional accounting performance indicators. The study was restricted to listed acquirer banks in GSE. To test the operability of the MAM, further studies should be carried out on other non-financial firms listed on the GSE involved in M&A activity over the years using the same VBFP.