The effect of mergers and acquisitions on the financial performance of commercial banks in Nepal

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Mergers and acquisitions (M&As) have become one of the most significant tools for consolidating banks and financial institutions (BFIs) in Nepal, which has slowed the exponential growth of banks and financial institutions since the central bank of Nepal imposed a new mandatory capital requirement. This research paper examines the consolidation and restructuring effects in Nepal’s banking sector, predominately through M&As. This study answers a key question related to the M&A effect on the financial performance of commercial banks using a set of 13 financial ratios. The study used a sample of seven commercial banks that were involved in M&A transactions between 2013 and 2020, and their significant differences in financial ratios were measured by comparing financial performance data from the three years before and after the M&A using a paired t-test statistic. The financial performance of commercial banks improved significantly after the M&A, as measured by liquidity and leverage ratios. However, the ratios of profitability and shareholder wealth show either no change or a marginal change after the M&A. This finding contributed to existing research gaps in the financial performance of the banking sector before and after the M&A in the Nepalese context and has significant policy implications for commercial banks, shareholders, government, and regulatory bodies to enforce M&A policies, review their existing M&A laws, and M&A deals between banks and financial institutions to take synergy benefits in the long term.

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    • Table 1. Variables to measure financial performance
    • Table 2. Paired sample statistics of selected commercial banks
    • Table 3. Paired sample t-test of commercial banks
    • Table A1. Overview of banks and financial institutions
    • Conceptualization
      Baburam Adhikari
    • Data curation
      Baburam Adhikari
    • Formal Analysis
      Baburam Adhikari
    • Funding acquisition
      Baburam Adhikari
    • Investigation
      Baburam Adhikari, Marie Kavanagh, Bonnie Hampson
    • Methodology
      Baburam Adhikari, Marie Kavanagh, Bonnie Hampson
    • Resources
      Baburam Adhikari
    • Software
      Baburam Adhikari
    • Validation
      Baburam Adhikari
    • Visualization
      Baburam Adhikari
    • Writing – original draft
      Baburam Adhikari
    • Writing – review & editing
      Baburam Adhikari, Marie Kavanagh, Bonnie Hampson
    • Supervision
      Marie Kavanagh, Bonnie Hampson