Impacts of Diversification after Mergers and Acquisitions on Performance for Financial Holding Companies: Mediated by Cost and Market-related Performance Variables

Chen, M. L., and Chen, H. Y. 2010. Impacts of Diversification after Mergers and Acquisitions on Performance for Financial Holding Companies: Mediated by Cost and Market-related Performance Variables. NTU Management Review, 20 (2): 251-272

Miao-Ling Chen, Professor, Department of Finance, National Sun Yat-Sen University
Hsin-Yu Chen, Master, Department of Finance, National Sun Yat-Sen University

Abstract

Mergers and Acquisitions (M&A) have become increasingly popular in the banking industry, and especially the horizontal M&A of financial holding companies done for diversification. However, there is considerable evidence that many M&A are unsuccessful. Thus, studying factors that influence the result of diversification after M&A is a promising field for academic research. This paper investigates the impact of diversification after mergers and acquisitions on the performance of financial holding companies, using a sample of financial holding companies in Taiwan. A model is postulated in which diversification can influence financial performance through the two variables of cost and market-related performance. We generate four empirical generalizations. (1) Diversification is significantly positively associated with variable cost, thus reducing financial performance. (2) Diversification is significantly negatively associated with market-related performance, thus reducing financial performance. (3) The effects on market-related performance are greater than the effects on variable cost. (4) There is a significant positive relation between marketrelated performance and variable cost.  


Keywords

mergers and acquisitions diversification market-related performance


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