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Bank mergers and acquisitions in the Asia-Pacific region

An investigation of the shareholder wealth effects of the financial sector consolidation and its impact on the acquirer’s cost of debt


Sascha Kolaric

This book offers a comprehensive analysis of the shareholder wealth effects of the financial sector consolidation in the Asia-Pacific region and its impact on the acquirer’s cost of debt. By not only examining the capital market reactions to the institutions directly involved in M&A transactions, but also their closest rivals, it is possible to draw clearer conclusions in regard to the overall success of the financial sector consolidation in this region. In addition, by investigating the acquiring institution’s CDS market reaction to merger announcements, valuable insights are offered in regard to the difference between equity and debt market perceptions of bank M&As. The analyses suggest that equity and debt markets consider different factors when evaluating the success of mergers.
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4. The impact of bank mergers in the Asia-Pacific region on the acquiring institutions cost of debt


Credit default swaps have become one of the most widely used credit derivative instruments and now play an important role in international financial markets. They are a hedging tool, which allows market participants to insure themselves against the default of a given company or sovereign. Moreover, due to their increasing popularity and an increasing number of market participants offering daily quotes, CDS spreads provide an up-to-date reflection of the market’s perception of a debtor’s default probability. Empirical research points to the benefits CDS have on market efficiency as a complementary instrument to the well-established stock and bond markets, since they serve as a valuable risk indicator (Hull et al., 2004; Norden & Weber, 2004; Packer & Suthiphongchai, 2003).

The availability of CDS spreads allows to assess the impact that major corporate events, such as mergers and acquisitions, rating changes, and earning announcements, have on the probability of a firm’s default. An increase in CDS spread levels would indicate that the market perceives that the event increases the company’s default risk. The majority of prior research focuses on the effect of rating changes on CDS spreads (e.g. Finnerty et al., 2013; Hull et al., 2004; Norden & Weber, 2004) or the effect of earnings announcements (e.g. Greatrex, 2008; Shivakumar et al., 2011). The studies focusing on rating announcements primarily find that only negative rating announcements have a significant impact on CDS spreads, leading to increased spread levels following the announcement. Positive rating announcements, on the other hand,...

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