اثرات ادغام ها و اکتساب ها در رفتار قیمت سهام در بخش بانکداری پاکستان The effects of mergers and acquisitions on stock price behavior in banking sector of Pakistan

1. Introduction Organizations need financial resources to expand their operations or growth.1 Growth can be achieved through launching new products and services or expanding operations beyond the existing resources. There are two resources used for achieving growth, i.e. internal resources and external resources.2 The business organizations mostly rely on internal sources (retained earnings) for expansion of the business. However, any significant growth opportunity will motivate organizations to rely on external resources, if there are limited internal resources. The external sources may include loans from banks, partnerships, merger with another company or acquiring other organization. The Mergers and Acquisition (M&As) are the emerging strategies adopted for expansion of the business in the corporate world. Due to its rapid growth, many organizations adopted these strategies for expanding their business and approximately four thousand transactions are recorded each year in the business world.1 Literature indicates numerous reasons for occurrence of Merger and Acquisitions1 between organizations. It includes organizational synergy where the merged venture receives high value than each individual firm.3 It may decrease expenses of the new ventures, maximize shareholder wealth, survival in the dynamic environment and structure, achieve economies of scale and scope, reduce costs and increase returns on equity.4 The M&As remained a favorite subject among researcher because of its significant importance in the corporate world.5 At the beginning of the era, the early M&As transactions have been reported in US in the eighteen century. Afterwards these transaction have been found in European markets in the nineteenth century.6 These strategies were adopted by many successful businesses of the world. The M&As strategies has been mostly practiced in developed countries, while less often in the developing countries. In addition Hoyle et al.,7 found a total of 9602 M&As in the corporate world since 2000. They concluded that most of these transactions were recorded in developed countries of the United States and European market, that’s why most studies in this field have been conducted in the developed economies.8 However, in a developing country like Pakistan, these strategies are less practiced and therefore less literature is available in this context. However, in a developing country like Pakistan, M & As have not much used in early nineties, but it is now becoming a useful strategy for growth and expansion in businesses. About one hundred and twenty one events were announced in the financial and non-financial sector during the years 1995 to 2011.2 The financial sector reported fifty seven mergers and acquisitions from the year 2002e2011 due to competitive environment and changes in regulations from time to time by the Central Bank to improve the banking sector in Pakistan.9 The State Bank Pakistan, for instance, has changed the minimum capital3 requirement for schedule banks from time to time. The paid-up capital was first increased and then decreased to financially strengthen the scheduled banks (SBP, 2008, 2009). In order to fulfill the minimal capital requirement, banks have two options to either issue new shares or to acquire or merge with other banks or firms to meet criteria set by the central bank. The changes in policies and some other factors like political and financial crises have increased transactions4 of M & As in the banking sector of Pakistan. It is necessary to measure the impacts of these transactions. The study therefore attempts to analyze the pre and post impacts of the phenomenon of mergers and acquisition. The main objective of this study is to analyze the impacts of mergers and acquisitions on the shareholders wealth as well as on the financial performance of banks after mergers and acquisitions in Pakistan.