In the following thesis I examine the performance effects of merger within the German cooperative banking sector on the basis of agency, synergy and market power related changes. Furthermore, from a strategic management perspective the role of strategic similarities is analyzed. Performance enhancing effects are found from a synergy and market power theory perspective in terms of a reduction in interest costs. Furthermore, problems with synergy gains in the area of personnel costs are discovered. These are so serious that they have hampered a significant change in overall bank performance. A change in market power is also measured in terms of a significant increase in other operating income. It is not possible to detect any significant change in agency related costs. Further, I describe that strategic similarities and size differences are not leading to increased profitability. Instead, differences in diversity of earnings are found to be performance enhancing. Therefore, the previously described increase in other operating income can also be facilitated by economies of scope: services that are originally only provided to the customers of one bank are in the post-merger period provided to the united institute’s combined customer base.
Table of Contents
1 Introduction
2 Literature Review
2.1 Theory of M&A Performance Changes and Strategic Similarities
2.1.1 The Agency Theory
2.1.2 The Synergy Theory
2.1.3 The Market Power Theory
2.1.4 The Concept of Strategic Similarities
2.1.5 Summary of the Theoretical Concepts
2.2 Empirical Evidence
2.2.1 The Agency Theory: Empirical Evidence
2.2.2 The Synergy Theory: Empirical Evidence
2.2.3 The Market Power Theory: Empirical Evidence
2.2.4 The Concept of Strategic Similarities: Empirical Evidence
2.2.5 Summary of the Empirical Evidence
2.3 The German Cooperative Banking Sector
2.4 Summary
3 Hypotheses
3.1 Hypotheses Development
3.2 Summary
4 Methodology and Data
4.1 Methodology
4.2 Data
4.3 Summary
5 Empirical Results
5.1 Empirical Results (H1 - H3)
5.2 Empirical Results (H4)
5.3 Summary
5.4 Remarks
6 Conclusion
Research Objectives and Key Topics
This thesis investigates the financial performance effects of mergers within the German cooperative banking sector. By analyzing these non-listed entities, the research explores whether consolidation leads to improved performance through agency cost reduction, synergy exploitation, or increased market power, while further assessing the role of strategic similarity between merging partners.
- Analysis of agency, synergy, and market power theories in a cooperative banking context.
- Evaluation of post-merger financial performance using accounting-based data.
- Investigation of strategic similarity as a moderating factor for merger success.
- Examination of the unique institutional characteristics of German cooperative banks.
Excerpt from the Book
2.1.1 The Agency Theory
The first of the three theories that is used to explain performance changes is the agency theory. Eisenhardt (1989) describes the theory as follows: “Agency theory is directed at the ubiquitous agency relationship, in which one party (the principal) delegates work to another (the agent), who performs that work. Agency theory attempts to describe this relationship using the metaphor of a contract.” But there are two problems: The first problem, the agency problem, occurs when there is a goal conflict between the principals and the agents and it is problematic or costly for the principals to verify the agents’ actions. The second problem, risk sharing, occurs when both parties have different preferences towards taking risks. The theory is based on the following assumptions concerning “people (e.g., self-interest, bounded rational, risk aversion), organizations (e.g., goal conflict among members) and information (e.g., information is a commodity which can be purchased)”. Eisenhardt (1989) also describes the two general lines of the theory: the positivist agency theory and the principal-agent research. The first line deals with identifying conflicting circumstances and describing the possibilities to reduce the management’s (agent) self-interest behavior. In this context, the board of directors is also included in the agency theory as a monitoring instrument of the stockholders over the management.
Chapter Summary
1 Introduction: This chapter introduces the research context, highlighting the extensive consolidation of the German cooperative banking sector and establishing the research goal of evaluating financial performance post-merger.
2 Literature Review: This section provides the theoretical foundation for M&A performance, discussing agency, synergy, and market power theories alongside the concept of strategic similarities.
3 Hypotheses: This chapter develops four specific hypotheses based on the theoretical framework, aiming to test the impact of agency costs, synergies, market power, and strategic similarity on bank performance.
4 Methodology and Data: This chapter details the research methodology, including the use of performance ratios, regression analysis, and the data collection process from cooperative annual statements.
5 Empirical Results: This chapter presents and discusses the quantitative findings of the study, evaluating the formulated hypotheses based on the statistical regression results.
6 Conclusion: This final chapter synthesizes the main findings, discusses limitations, and provides implications for practitioners and future research.
Keywords
German cooperative banking sector, Mergers and Acquisitions, M&A performance, Agency theory, Synergy theory, Market power theory, Strategic similarity, Financial performance, Bank consolidation, Resource allocation, Cost efficiency, Non-listed banks, Cooperative members, Banking efficiency, Economies of scope.
Frequently Asked Questions
What is the primary focus of this thesis?
The thesis examines the performance effects of mergers within the German cooperative banking sector, filling a research gap regarding non-listed financial institutions.
What are the central theoretical frameworks used?
The study primarily employs the agency theory, synergy theory, and market power theory to explain financial performance changes following M&A activity.
What is the main research question?
The central question is: "What is the change in financial performance following a merger in the German cooperative banking sector?"
Which scientific methods are employed?
The research uses quantitative methods, specifically comparing pre- and post-merger performance ratios and conducting stepwise regression analyses to determine the impact of various drivers on financial performance.
What does the main body of the work cover?
The main body covers a comprehensive literature review, the development of four specific hypotheses, a detailed methodological approach using accounting data, and an empirical analysis of the results.
Which keywords best describe this research?
The research is best characterized by terms such as German cooperative banking, M&A performance, strategic similarity, and various theories of financial performance.
How do cooperative banks handle potential agency problems compared to listed banks?
Because cooperative banks are not subject to capital market forces or hostile takeovers, they rely on specific monitoring instruments within their cooperative structure, such as the Generalversammlung and Aufsichtsrat, to align member and management interests.
Does the study find evidence that mergers increase financial performance in this sector?
The study finds no significant change in overall performance, though it identifies specific effects related to market power (increased other operating income) and some challenges regarding personnel efficiency.
- Arbeit zitieren
- Timo Göhlich (Autor:in), 2012, The Performance Effects of Mergers within the German Cooperative Banking Sector, München, GRIN Verlag, https://www.grin.com/document/204026
