The impact of acquisitions on profitability: Evidence from the banking sector in Serbia

Abstract

© Economic Research Institute at the Bulgarian Academy of Sciences, 2018. The aim of the paper is to look at the impact of takeover processes on the profitability of banks by analyzing periods prior to and after the takeover, as well as the factors that influenced the movement of banks’ profitability. In 2001 there were 86 banks operating in the Serbian market, in 2003 that number was 49, whereas today there are 30 banks operating on the Serbian market and 23 thereof are foreign-owned. The study sample encompasses all banks taken over in the Serbian market in the period from 2001-2012. Methods applied in this study are: discriminant analysis and linear regression. Profitability of taken over banks was lower in comparison with the banking sector average. However, comparison of banks’ profitability prior to and after the takeover, by introducing the dummy variable in the regression model, showed a substantial positive effect of the takeover on bank profitability. The increase of assets and the decrease of operating expenses had a positive influence on bank profitability movement and on medium-term gain in banks’ market share. The contribution is in the prediction of potential targets and evaluate the market attractiveness of Serbia for further acquisition processes.