Post M&A Accounting Performance of Romanian Banks

Abstract

The purpose of this paper is to assess the financial performance of Romanian banks involved in M&A activities, as target banks, over a period of 10 years (1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008). Performance is analyzed in terms of profitability by using traditional accounting measures: ROE, ROA and NIM. Post-M&A performance for a 3-year period is compared with the aggregate ratios from all Romanian banks. The findings are mixed. On one hand, bank M&A in Romania does not result in improved ROE or ROA in the post M&A 3-year period under review. On the other hand, merged banks report media NIM above industry.

Investigating the relationship between bank performance and accounting standards: evidence from M&As in European banking

“…The equity ratio (ETA) is the portion of total assets financed by shareholders. It reflects the bankruptcy risk of the bank (Huian, 2012). Brissimis et al (2008) report that the impacts of bank credit risk on bank performance is usually negative, while increased liquid assets seem to reduce bank performance.…”

“…For this investigation, we apply a method based on accounting and financial data for the European banking industry. We discuss our procedure in the subsequent text, which borrows from Huian (2012) and Abbas et al (2014). We assess bank performance using accounting information derived from annual financial statements.…”

“…Calculated as the difference between interest income and interest expenses over total assets, NIM shows the amount by which the interest received from the loan portfolio exceeds the interest paid on deposits. It is a key indicator of asset efficiency, because a high NIM indicates an effective use of earning assets and a sensible mix of interest-bearing liabilities (Brissimis et al , 2008; Huian, 2012). Additionally, Chortareas et al 's (2012) empirical evidence suggests that higher capital ratios are also linked with greater costs in terms of NIM.…”

“…In addition, the most common way to assess profitability is to use the traditional accounting performance measures of ROE (Altunbas et al , 2007; Huian, 2012; Chortareas et al , 2013). A firm's ROE is the ratio of net income to the book value of equity at the beginning of the financial year.…”

“…Similarly, Abbas et al (2014) report no positive improvement in the post-M&A financial performance of the banks in Pakistan. In addition, Huian (2012) finds that bank M&As in Romania do not result in improved financial performance in terms of ROE. Some studies report deterioration in performance induced by the bank M&As.…”