This document provides an overview of the dissertation topic, thesis flow and structure, motivation, research questions, objectives, hypotheses, literature review, and experimental design for a study analyzing acquirer gains from bank mergers and acquisitions in Asia. Specifically: - The study will examine bank M&A transactions across 10 Asian countries from 2005-2016 to determine if acquirers experience abnormal returns. - The dissertation will utilize event study methodology to analyze returns around acquisition announcements and decompose factors influencing returns. - Characteristics of successful acquirers and targets will be predicted and compared before and after the 2007 Global Financial Crisis to determine its impact on deal characteristics.

1. IDENTIFYING AND ANALYSING ACQUIRER
GAINS: EVIDENCE FROM BANK MERGERS
AND ACQUISITIONS IN ASIA
Amit Mittal
Area: Finance & Accounting
TAC
Prof Ajay Kumar Garg
Prof Vikas Srivastava
Prof Mrityunjay K Tiwary
MARCH 16, 2017

2. DISSERTATION THEME
• M&A in the Banking sector - An analysis of recent bank transactions across
India, China, Hong Kong,Taiwan, Singapore, Malaysia,Thailand, Indonesia, Korea
and Philippines
• Ten year sample period January 2005 – December 2016 produces 270 changes
in control (Markets for Corporate Control)
• Target Sample: 200 transactions > $35 MM from Reuters SDC
Platinum/Datastream database with >20% stake acquisition / change in control
• Acquirer/Target listed in one of ten markets
• Market model utilizes markets data of home of acquirer/target
• Ten year sample : >200 deals available

3. THESIS FLOW AND STRUCTURE
IDEA FLOW
Sample Identification: 90-
100 completed bank
acquisitions in Asia (10
countries) with value >
$50MM from 2006 – 2016
Research Problem:
Acquisitions and Mergers in
the Banking Sector in Asia
move the Event study
literature closer to
Corporate Finance Theory
showing material gains to
acquirers/bidders
Topic: M&A in
Banking Firms
Examine selected
transactions from
Asia for Abnormal
Returns
Decompose
Pertinent
Abnormal returns
for Sample into
pertinent factors
Predict
Target/Acquirer
characteristics
Predict successful
bank merger
characteristics
Examine the effects
of the GFC on the
deal flow
Problem Statement

4. MOTIVATION
• M&A strategy is an attractive inorganic option for banks to scale up in product
markets
• Banking M&A remains specialised because of industry specific features that
influence their valuation and treatment of capital including deposits and funds
as raw material for creating profit generating product
• Event studies provide mixed evidence with no gains to acquirers in the US and
limited gains in Europe.
• Mature markets may suppress evidence of profits because of subdued growth
• Banking M&A are frequently criticized as a large ticket strategy that does not
deliver gains

5. WHY M&AS DON’T WORK
• M&A investments are evaluated under overvaluation and undervaluation
hypotheses and thirdly as hubris including managerial self interest
• Event study results
• Agency explanations of M&A
• Real problems in post closing integration and lack of synergy gains
• Planned growth in profitability lapses
• Unseen roadblocks
• Intractable attempts at reduction in operating costs
• Issues around labour cuts

6. THEN, WHY DO ACQUIRERS ENGAGE IN
M&A?
• Horizontal Mergers likely to allow more positive abnormal returns for
“business as usual” and acquirer shows good governance/skills
• Banking industry mergers are always horizontal mergers
• In Asia, higher growth may allow M&A to be profitable in economies of scale
and scope.
• Longer term efficiencies are gauged by the market before and after deal
announcement and pursuant due diligence
• Thus the study selected Bank M&A in the recent period to test the M&A
announced and completed for Positive abnormal returns for Acquirers

7. ASIAN BANK M&A
• Previous study shows merger gains are neither obfuscated by near zero
returns to acquirers nor undervalued target walks away with gains
• Recent literature Ahern(2012) – Dollar Gains to Acquirers dominate targets
and quoting percentage gains may be the reason
• Rare studies in Asia
• Goddard, Molynex et al (2012)
• Kolaric and Schiereck (2013)
• Larger purpose of establishing M&A in the Banking Sector is viable and move
the event study literature closer to Corporate Finance

8. THE STUDY
• Market Model based event study including Information Leakage Period
• Diffusion of information in prices before the eventual announcement
• Success of an M&A strategy needs to be focused in 1 industry
• Regulatory complexity is minimized in transactions across Singapore, China
India, Hong Kong,Taiwan,Thailand, Indonesia, Korea and Philippines

9. RESEARCH PROBLEM
Can Acquisitions and Mergers in the Banking
Sector in Asia move the Event study
literature closer to Corporate Finance
Theory showing material gains to
acquirers/bidders?

10. RESEARCH QUESTION
• RQ 1. Do Bank acquisitions significantly accrue value to bidders? If they do
not accrue value, then why do acquirers undertake M&A?
• Bank Acquisitions may significantly accrue value to the Bidders, driven by horizontal mergers in
the Banking industry.
• Event study returns show combined value from a merger characterised by a complete
amelioration of acquirer gains in the US and very low returns in Europe.
• Can a sample from India, China, Singapore, Indonesia, Malaysia,Thailand, South Korea, Hong Kong
andTaiwan show differently from results in US/Europe for acquirer gains?

11. RESEARCH QUESTION
• RQ 2. What are the characteristics can help predict the bank as an
acquisition target or acquirer? Do these characteristics define unique
advantages to the acquirer and the target from the acquisition?
• Can we predict what will create a successful bidder/target/acquisition?
• Target characteristics (overvalued/undervalued, Focused vs Diversifying, Relative size to
acquirer, Financials)
• Acquirer characteristics (Ownership structure, size, leverage, Experience,Aggressive vs
Conservative, Overvalued/undervalued, Financials)
• Bid characteristics (Payment mode, friendly vs hostile, market vs. tender offers)
• Environmental factors (Role of a crisis, growth vs recession, merger waves, level of investor
protection)

12. RESEARCH QUESTION
• RQ 3. Did the specification of deal characteristics, i.e. the deal structuring
undergo a significant change because of the events of the Global Financial Crisis
of 2007?
• Was the crisis able to create value opportunities for Bank acquirers during the crisis?
• What were the features of acquirers that could create deals for themselves during the crisis?
• How did features of targets and acquirers change before and after the crisis in a different
macroeconomic environment?

13. OBJECTIVE
• Objective 1: Determine the reasons significant to an acquirer in choosing
M&A as a strategy. The merger and acquisition literature may have been
overtly influenced by event studies in mature markets showing insignificant
returns from the strategy
• To determine why acquirers, engage in M&A.To interpret Acquisition Events in a specific
Industry to expose their motives. Do acquirers need only deal and industry specific data
to value these deals and identify the targets?
• Bank Acquisitions may significantly accrue value to the Bidders, driven by horizontal
mergers in the Banking industry.
• A positive Abnormal return is more intuitive for acquirers to continue pursue M&A
strategy as investors translate valuation gains from the event into prices.

14. OBJECTIVE
• Objective 2: Determine the characteristics can help predict the bank as an
acquisition target or acquirer. Specific Financing, Size and profitability
characteristics may define sources of consistent Abnormal Returns
• To determine how these characteristics, define unique advantages to the acquirer and the
target from the acquisition.
• To predict the components of a successful bidder/target/acquisition and discuss the acquirer
and the target motives in alternate theoretical constructs.

15. OBJECTIVE
• Objective 3: Determine significant differences in the specification of deal
characteristics, i.e. deal structuring that have undergone a significant change
because of the events of the Global Financial Crisis of 2007
• To maintain relevance by comparing the post 2009 deal environment and structuring
with previous deal data
• To enumerate effects of the changes in the global macroeconomic environment can lead
to differences in the characteristics of acquirers and targets in successful deals.
• Recent studies have tried to assuage the same inferences from the event study literature
arrived in US and Europe on Asian and LatAm Bank M&A samples.These studies may
have ignored the impact of the GFC on transactions that have occurred after 2010.

16. LITERATURE REVIEW
• DeYoung (2010) review literature on Bank M&A and document that abnormal
returns for acquirers were achieved in the period of US consolidation
• DeYoung(2010) finds differences in Banking M&A in US and Europe.
• In Europe Bidders get some Abnormal returns as they engage in Cross Border
M&A and export their brand to earn franchise in Foreign markets (horizontal)
• Overall Literature on Bank M&A focuses on developed markets in the US and
Europe and finds evidence of negligible returns for acquirers
• Diversification strategy not a success – evidence (Maksimovic et al, 2001)

17. LITERATURE REVIEW
• Since the integration of Universal Banking memes in 1999, M&A has contributed to
significant part of bank expansion into new markets and products (Becher, 2009)
• Banking markets are largely horizontal, though studies have used differences
between product markets to show failures of a diversification strategy(citation tbd)
• Piskula(2011) uses a MSCI BARRA Index(ISS) of Corporate Governance to
establish amelioration of gains by weak governance in Financial institutions
• Graca et al(2016) recover a 2:1 Sharing of gains between acquirers and targets
using a Structural Event study methodology to separate the simultaneity

18. LITERATURE REVIEW
• Deal Financing has been found to be a critical parameter, with cash vs stock
trade-offs linked to time to completion, control issues
• Stock financing follows overvaluation (Rhodes Kropf andVishwanathan, 2004;
2005) or recent IPO (Hovakimian and Hutton, 2001)
• Derivatives / Earnouts are used as sweeteners to the target firms / managers /
shareholders
• Owners may favour leverage to keep control (Bouzgarro, 2013)

19. LITERATURE REVIEW
• Misvaluation is the primary driver for mergers (Rhodes-Kropf et al, 2005)
• Diversification leads to a valuation discount intuitively in Cross Border
Acquisitions from cultural and institutional distance.
• Cornett et al (2003) use diversifying merger differences as existing bias of
managers to commit to value destroying M&A in agency literature
• Information asymmetry seen as a major determinant of deal making. Reuer and
Ragazzino(2008) use proportion of stock in a deal to allocate risk of Adverse
selection and the use of alliances and IPOs as risk mitigation in the analysis of
this adverse selection risk

20. LITERATURE REVIEW
• Aktas et al (2012) reflect on the gains from M&A experience while Aktas et al (2013)
review the evidence from failure
• Fu, Li and Officer (2013) try to disaffect the overvaluation hypothesis analysing a sample
of stock financed acquisitions.They consider only one third of the stock swap
transactions to be concomitant with overvaluation.
• Weitzel and Kling (2012) show Acquirers can engender Positive Abnormal returns as in
more than 10% deals.
• An evaluation of the choice of market and tender offers in M&A by Offenberg and
Pirinsky (2015) is confined to the Western environment.

21. LITERATURE REVIEW
• Doukas and Zhang (2015) present the importance of managerial incentives in M&A
decisions. However, they find M&A to be positive value making strategies allowing equity
valuation to finance mergers and in favour of bigger premiums
• Lel and Miller (2015) show the disciplining effect of markets for corporate control on
weak firms
• Faccio and Masulis (2005) consider more than 3500 deals in a European Sample
• to determine the differentiating uses of a stock vs cash financing strategy and
• the impact of control and corporate governance variables.

22. LITERATURE REVIEW
• Masulis and Simsir (2013) compare target initiated deals and bidder initiated deals to document
that targets are better motivated to deal making during economy wide shocks and accounting
for much lesser returns.
• Hagendorff et al (2011) bidder premiums for high growth targets.This may account for
Negative Acquirer Returns
• Mathias andTanna (2013) in an investigation of 62 Banking mega mergers find Negative
acquirer returns
• Long run performance of Bank M&A – how to effectively analyse long term performance in the
M&A decision, we note considerable literature finding positive value accruing from an M&A
strategy.
• Gugler (2003), Sheen(2015) and Maksimovic et al(2015)
• Maksimovic(2015) Acquirers are likely to be higher productivity firms

23. LITERATURE REVIEW
• Hagendorff et al (2010) use selective variables to measure Good governance
• Valascas and Hagendorff (2011) try to measure the risk impact of the merger utilising a sample of 134
European bank mergers finding the mergers to be risk neutral. However,the Distance to Default measure
shows a significant increase in the Default risk for relatively safer banks.
• Beccalli (2007) translog function , Beccalli and Frantz (2013) measure the firm level determinants of Bank
M&A using a Proportional Cox Hazard model and a multinomial logit regression in a 15-year sample
• Hannan and Pilloff (2006) link the determinants of acquirers (using a proportional hazard model) during
consolidation in the US Banking industry
• Correa (2009) , Hernando, Nieto andWall (2009)
• Caiazza et al (2012) focus on bank M&A targets , Caiazza (2014) includes Acquirers and confirms that Bank
M&A share most characteristics in Domestic and Cross Border M&A and neither are different.
• Caiazza (2013) verifies the differences between home country governance and Foreign Acquirers

24. ASIAN EVIDENCE
• Asian evidence
• Alam and Ng (2014) use a matching strategy to construct 3 binary logistic models of ASEAN
Banks
• Pasiouras et al (2008) estimate the impact of regulatory approaches controlling for bank and
country characteristics in a logistic regression in 9 Asian regimes for variables including degree
of disciplinary authority, capital adequacy, disclosure requirements and deposit insurance.
• Lin and Chang (2015) discussTaiwan’s State-owned Banks’ consolidation efforts in Corporate
Governance changes.
• Shaban and James (2017) conduct a study of Indonesian acquisitions and find state owned
banks to be risky and less profitable. Domestic transactions target higher performers and end
with lower efficiency ex post.
• Anand and Singh (2008) (Private Banks) , Reddy, Nangia and Agrawal (2011), Gaur et al (2012)
(growth probability hypothesis) , Liao andWilliams (n.d.) (Win Win)

25. KEY HYPOTHESES
• Hypothesis 1: Mergers and Acquisitions are a value accruing strategy
where gains accrue to bidders in specific transactions
• Hypothesis 2: Banking M&A are economical and present low Opportunity
cost barriers for a large impact strategy making it extremely attractive
to managers, owner-promoters and shareholders.
• Hypothesis 3: Specific Deal characteristics such as Deal Financing and
Size of Acquirer andTarget will accrue higher abnormal returns to the
acquirer

26. KEY HYPOTHESES
• Hypothesis 4: Serial acquirers are likely to gain advantages in
constructing better M&A transactions leading to higher returns
• Hypothesis 5: Stock swap transactions can be encouraging for bank
acquirers. Stock swaps allow Acquirers to leverage their stock valuations
while investors adduce no ulterior motives given bank capital
requirements
• Hypothesis 6: Cash retains its advantages of signaling commitment and
quickly competing the transaction especially in cross border transactions
where the target is interested in exiting the regime.

27. KEY HYPOTHESES
• Hypothesis 7a: Target’s Overvaluation will lead to a negative effect
• Hypothesis 7a: Acquirer’s Undervaluation will lead to a negative effect
• Hypothesis 7b: Size of the Acquirer may allow him to signal better corporate
governance and score higher valuations and more successfully complete deals
• Hypothesis 7c: Acquirer may not be penalised for picking up distressed banks
or low quality of assets given the combined effects of encouragement by the
regulator and the acquisition of effective banking infrastructure given the
Acquirer’s performance.
• Hypothesis 7d: Both Acquirer andTarget Financials may disclose information
about the deal’s viability in parameters of business mix, quality of assets,
Loan portfolio and profitability
The characteristics will have a directional effect on the Acquirer’s Abnormal
returns

28. KEY HYPOTHESES
• Hypothesis 8:An Acquirer’s Private information may be valued by the stock
markets and give him an advantage in successful M&A

29. EXPERIMENT DESIGN
• Sample Selection
• Event Study
• Decomposing Abnormal Returns
• Predicting Acquirer Characteristics aligning with deal success
• Predicting Target Characteristics aligning with deal success
• Comparing the deal characteristics before and after crisis

30. SAMPLE SELECTION
• Choice of countries: Macroeconomic Growth and aWell established
regulatory environment
• Sub samples for South Korea, China , India and Singapore
• Size > $ 35 MM
• Initial extract yielded 270 transactions
• Final Sample 200 Transactions ( Fewer listed targets es in Korea/Taiwan
Privately/Govt owned )

31. BINARY LOGIT MODELS
• Multiple regression Analysis and Logistic model choices for Acquirers and
Targets
• Decomposing Abnormal Returns (Competing OLS models may be used to discover a
viable Logistic specification)
• Predicting Acquirer Characteristics aligning with deal success
• Predicting Target Characteristics aligning with deal success
• Comparing the deal characteristics before and after crisis

32. MARKET MODEL
Ri = ai + b1*(Rm – Rf) + b2* (y25 – y1m) +b3*(Corp10-Sov10)
Ri = ai + b1*MRP + b2*TERM + b3*DEF
ARit = Rit – (ai + b1*MRP + b2*TERM + b3*DEF)

33. BINARY LOGIT MODEL
• OLS using link function
logit(p) = log(Odds Ratio) = log ( p )
1 - p
• Thus probability of success = p = P[ Y=1 | X ] = O(Y)/[1 + O(Y)]
• O(Y) = Xb = b0 + b1*X1 + b2*X2 + b3*X3 + b4*X4+...
• Probit uses a Normal Distribution as link function ( N-1(Y) = Z = Xb + e )
• Logit function (thinner tails)
• Close to Normal
• DV is Constrained between 0 to 1
• No Distributional assumptions of IVs
• has a fixed variance of p2/3

34. BINARY LOGIT MODEL
• P (Y=success | X ) = p
Log ( p / (1- p) ) = b0 + b1*[STOCK/CASH] +b2*[RELVAL]
b3*[MARKET/TENDER] + b4*ACQSIZE +
b5*[FOCUSED/DIVERSIFYING] + b6*RSIZE +
b7*[DUMMY1]+b8*[DUMMY2]+ b9*[DUMMY3] + b10*[DUMMY4]

35. POSSIBLE IMPLICATIONS
• Significant Positive Returns to acquirers motivate mergers
• Good governance motivates mergers and enhances positive Abnormal returns
• Long term Returns can be measured using Barber and Lyon (1997) using
matched sample methodology
• Concerns about matched sample given high idiosyncratic variations of each Acquirer

36. CHALLENGES
• Literature Review and Methodology
• Incorporating a ready CG index/constructing using factor
analyses
• Control variables required from CG as well as
macroeconomic environment to be controlled
• RecentWork
• Molyneux et al(2013): Use 94 M&A till 2010 from East Asia
• Caiazza et al (various) :Work with Logit model
• Hagendorff (2008) Investor protection vs Abnormal returns: Our
hypothesis: Bank based/Market based and Investor protection may
not be relevant

37. AGENDA
• DissertationTheme
• Sample Data
• Experiment Design
• Other Thesis Structure
• Proposal
• Domestic and International Conferences
• Literature Review
• Methodology
• Analysis
• ThesisWriting

38. THANKS

39. AGENDA
• DissertationTheme
• Sample Data
• Experiment Design
• Other Thesis Structure
• Proposal
• Domestic and International Conferences

40. DOMESTIC AND INTERNATIONAL
CONFERENCES
• 4th Pan IIMWorld Management Conference, IIM Ahmedabad
• 6th India Finance Conference, IIM Ahmedabad
• 2nd SJMSOM Doctoral Consortium at IIT Bombay
• Acceptances:“Private information implications for Acquirers andTargets in
Horizontal Mergers” in
• Global Finance Conference, Hofstra U., Brooklyn NY May 4-6, 2017 and
• China meeting of the Econometric Society,Wuhan June 9 – 11, 2017

41. SELECTED REFERENCES
• DeYoung, R., Evanoff, D., & Molyneux, P. (2009). Mergers and Acquisitions of Financial
Institutions:A Review of the Post-2000 Literature. Journal of Financial Services
Research, 36(2-3), 87–110. doi:10.1007/s10693-009-0066-7
• Becher, D. (2009). Bidder returns and merger anticipation: Evidence from banking
deregulation. Journal of Corporate Finance, 15(1), 85–98. doi:10.1016/j.jcorpfin.2008.08.005
• Maksimovic,V., & Phillips, G. (2001).The Market for Corporate Assets:Who Engages in
Mergers and Asset Sales and Are There Efficiency Gains? Journal of Finance, 56(6), 2019–
2065.
• Piskula,T.J. (2010). Governance and merger activity in banking. Retrieved from
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1909271
• Doukas, J.A. & Zhang,W. (2015). Do equity mispricing and management
compensation incentives drive bank mergers? Review of Behavioral Finance, 7(1).

42. SELECTED REFERENCES
• Graça,T., & Masson, R. (2016).A structural event study for M&As: an application in corporate
governance. Applied Economics, 48(45), 1–16.
• RHODES-KROPF, M. &Vishwanathan, S. (2004). MarketValuation and MergerWaves. The
Journal of Finance, 59, 2685-2719.
• Rhodes–Kropf, M, & Robinson, DT. (2005).Valuation waves and merger activity:The empirical
evidence. Journal of Financial Economics, 77, 561-663.
• Hovakimian,Armen and Hutton, Irena,(2009). Merger – motivated IPOs, Available at SSRN,
http://ssrn.com/abstract=1145535.
• Bouzgarrou, H., (2013). Financing Decisions in Acquisitions:The role of family control, Procedia
Economics and Finance, 13, 3-13.
• Cornett, M., Hovakimian, G., Palia, D., & Tehranian, H. (2003).The impact of the manager–
shareholder conflict on acquiring bank returns.Journal of Banking & Finance, 27(1), 103–131.