Investigation of the Perceptions of Bank Managers about the Performance of Mergers and Acquisitions in the Islamic Business Industry

Answer

  Investigation of the Perceptions of Bank Managers about the Performance of Mergers and Acquisitions in the Islamic Business Industry

Background

The dynamic transformations within the global atmosphere have resulted in rapid change in the business environment. Advancements in technologies have altered business operations within the contemporary corporations to the global or world level. Finkelstein and Cooper (2013) argue that every organization possesses its vision to transform into a reputable company and maximize future growth and market share. Moreover, organizations require specialized and precise information prior to entering novel markets. Moreover, in the contemporary business arena characterized by rapid technological advancements, financial enlargement, increased competition, and heightened demand for products and services, companies need to focus on the adoption of approaches that can ensure their competitiveness and survival within the business world. In relation to this, some companies have focused on the adoption of a distinctive form of strategy aimed at enhancing their competitive potential in the dynamic setting. Mergers and acquisitions are considered an effective approach when it comes to survival in the dynamic business environment (Trichterborne et al., 2016). According to Fei (2017) and Coispeau and Luo (2015), mergers and acquisitions as takeovers associated with two firms including target companies or taken-over companies and bidders or takeover companies. Bidder firms and targets often embrace mergers and acquisitions owing to pressures from economic motives associated with the establishment of corporate values, productivity, and profitability among others. Companies always pursue these motives with the aim of ensuring their survival, especially when firms are experiencing financial difficulties or are threatened by bankruptcy (Coispeau & Luo, 2015; Li-Yu et al., 2015). Mergers and acquisitions are often considered effective in preventing organizations from being bankrupt. This study will focus on the investigation of the perception of managers of mergers and acquisitions about the performance of companies in the Islamic business sector in relation to the aspects of shareholders’ value, productivity, and profitability. 

Rationale for the Study

Whereas mergers and acquisitions are considered an effective strategy in enhancing the performance of companies in relation to productivity, shareholder value, and profitability, studies continue to reveal conflicting outcomes in this area. For instance Abdulwahab and Ganguli (2017), whereas reveal a positive impact of mergers and acquisition on performance of companies, Ali-Shah and Khan (2017) argue that there are negative impacts or no impacts of mergers and acquisition on the financial performance of companies. As such, there is a significant need to investigate impacts of mergers and acquisitions on the performances of firms, especially those in Islamic business sector, where technological advancements, intense competition, and demand for services are rife with the aim of providing a clear outcome in this area (Ashfaq et al., 2014). This study will accomplish this goal by focusing on the perceptions of managers themselves.

Outline of the Research Project

The research project will consist of six chapters. Chapter one is the introduction, which discusses the background of the study and provides the rationale for the research. Chapter two is the literature review, which discusses the existing body of literature on the performance of mergers and acquisitions in the areas of productivity, shareholders’ value and profitability. Chapter three is the research methodology, which discusses the methods employed in conducting the study including research method, data collection, participant selection, research ethics, and data analysis. Chapter four is the results section, which presents the findings of the study from the data gathered from participants. Chapter five is the discussion section, which explains the outcomes of the study. Chapter six is the recommendation and conclusion section. 

Research Question, Aim, and Objectives

This study will focus on addressing the following research question, aim, and objectives:

Research Question

• What are the perceptions of the bank managers about the performance of mergers and acquisitions in the Islamic Business Industry?

Aim of the Study

The aim of this study will be:

• To investigate the perceptions of managers on the performance of mergers and acquisitions in the Islamic business industry in relation to ‘profitability, productivity, and shareholders’ value

Objectives of the Study

• To investigate the perceptions of managers on the performance of mergers and acquisitions in the Islamic business industry in terms of profitability
• To investigate the perceptions of managers on the performance of mergers and acquisitions in the Islamic business industry in terms of productivity
• To investigate the perceptions of managers on the performance of mergers and acquisitions in the Islamic business industry in terms of shareholders’ value

This study will have a significant contribution to the body of literature on the impact of mergers and acquisitions on the performance of organizations in the Islamic business sector in relation to the aspects of shareholders’ value, productivity, and profitability. The significance of this study in this area lies in the fact that it will focus on the perceptions of managers of mergers and acquisitions about the productivity, shareholders value, and profitability of their organizations. Such an undertaking will play a vital role in encouraging other managers within the Islamic Business sector to advocate for the adoption of mergers and acquisitions as business models.

Many studies continue to provide conflicting outcomes when it comes to the investigation of the impact of the formation of mergers and acquisitions on the performance of companies post-merger and acquisitions (Kandil Chowdury, 2014; Al-Hroot et al., 2017; Ainy, 2018; Abbas et al., 2014). As such, the outcomes of this study will contribute largely to the body of literature that support a given viewpoint in relation to the effects of mergers and acquisitions on financial outcomes of companies. The outcomes of this study will narrow down to the effects of post-merger and acquisitions on the performance of firms in relation to three areas including profitability, shareholders’ value, and productivity. Apart from demonstrating or revealing the positive impacts of mergers and acquisitions on shareholders’ value, profitability, and productivity, from the perspectives of managers of mergers and acquisitions in Islamic business sector, the outcomes of this study will also be resourceful to students, who desire to undertake their research in this area of study. The outcomes of this study will provide insight into performance aspects of mergers and acquisitions in organizations within the industry of Islamic business, which in turn will enable students to effectively address their academic concerns in this area.

Literature Review

Researchers have made significant steps in investigating the performance of mergers and acquisitions in relation to the dimensions of profitability, shareholders’ value, and productivity (Kandli & Chowdury, 2014; by Al-Hroot et al., 2017; Ainy, 2018; Abbas et al., 2014). Kandil Chowdury (2014) investigated impacts of Islamic banks’ mergers and acquisitions on the financial crisis and performance of firms within the United Kingdom. The authors accomplished this goal by calculating the annual abnormal returns by means of the buy-and-hold abnormal return (BHAR) techniques over a timeframe of five years. The outcomes of the study revealed that there are significant differences in performance of mergers and acquisitions in the long-term after their formation.  The authors concluded that mergers and acquisitions are vital for quick growth and profitability of Islamic banks, as they establish scope or economies of scale that enable companies to have improved access to capital markets and lower capital cost. In a study conducted by Al-Hroot et al. (2017), the authors analyzed the impact of pre and post-merger on the financial outcomes of Jordan Ahli bank. The analysis was accomplished by focusing on the accounting and financial ratios from 2001 to 2004 prior to merger and between 2006 and 2009 after merger. The outcomes of the study revealed that 8 ratios (66.67%) out of 12 ratios favored after merger Jordan Ahli bank. On the other hand, 4 ratios (33.33%) favored prior to merger. The authors concluded that the post-merger period of Jordan Ahli bank was associated with significant improvement of financial performance in relation to efficiency, liquidity, and leverage ratios. As such, these outcomes are in line with the outcomes of the study executed by Kandil Chowdury (2014) that mergers and acquisitions result in performance improvement of companies.

While the studies conducted by Kandil Chowdury (2014) and Al-Hroot et al. (2017), reveal positive impacts of mergers and acquisitions on performance of firms, the outcomes of other studies provide conflicting revelations. For instance, in a different study, Ainy (2018) analyzed the financial performance of firms with mergers and acquisitions. The author conducted the study on 104 firms with mergers and acquisitions. The outcomes of the study showed that almost none of these organizations revealed any significant differences in financial outcomes or performance for either the entire firm or the merger and acquisition category.  These outcomes are supported by the findings of the study performed by Abbas et al. (2014). The authors focused on the evaluation of financial outcomes of banks within Pakistan post-merger and acquisitions. The evaluation focused on accounting and financial data obtained from the bank’s financial statements. The financial outcomes were measured in relation to the liquidity, leverage, efficiency, and profitability ration. The study results did not reveal any positive improvement in the financial outcomes of these banks.   

Considering the outcomes of the above literature, it can be noted that Kandil Chowdury (2014) and Al-Hroot et al. (2017) provide results that conflict those of Ainy (2018) and Abbas et al. (2014). While Kandil Chowdury (2014) and Al-Hroot et al. (2017) reveal that mergers and acquisitions have positive impact on the performance of companies, the outcomes of show that there is no impact on the performance of firms after mergers and acquisitions. Moreover, it can be noted that none of these study reveal the impact of mergers and acquisitions on the performance aspects such as productivity and shareholders’ value. In addition, none of these studies focus on the perceptions of mergers and acquisition. This study will focus on filling these gaps.

Research Method and Design

Research Method

Quantitative research method will be employed in accomplishing the aim of the study and addressing the research question. According to Alpi and Evans (2019), quantitative research is employed in quantifying the issue under study by generating data or numerical data that can be converted into usable statistics. This method of research is employed in quantifying behaviors, opinions, and attitudes, and defining other variables followed by the generalization of outcomes from a larger sample (Adams et al., 2014). As such, this method will be employed in quantifying data from managers concerning the performance of mergers and acquisitions. The managers’ perceptions of the performances of these entities in relation to productivity, shareholders’ value, and profitability will be quantified and outcomes generalized to the entire Islamic business industry. 

Participant Selection

Systematic sampling will be employed in selecting participants for the study. Adams et al. (2014) define systematic sampling as a form of probability sampling technique in which members of the sample from a larger population are chosen in relation to a random beginning point but with a defined, periodic interval. In relation to this, all mergers and acquisitions will be listed followed by the selection of one manager after every interval of two companies until the desired number of managers is reached. The author prefers this sampling technique owing to its simplicity, affordability, and convenience in larger populations.

Data Collection

Data collection involves the gathering of information, figures, or events about the topic or issue under investigation (Zhang et al., 2017). Questionnaires will be employed in collecting data from participants. The author considers questionnaires appropriate for this study owing to numerous benefits that it presents to the study and to the researcher. According to Adams et al. (2014), a questionnaire is inexpensive, practical, and allows for scalability of outcomes. The use of a questionnaire also allows for anonymity of participants, quick generation of results, and comparability of data from various participants. Besides, a questionnaire can be administered in many ways including online mail-in, and emailing. Owing to these benefits, the author considered a questionnaire suitable for the execution of this study.   

Data Analysis

Zhang et al. (2017) defines data analysis as the systematic application of statistical or logical techniques in describing and illustrating, condensing, and recapping, and evaluating data from participants. Several techniques can be embraced to conduct data analysis including descriptive statistics, confirmatory data analysis (CDA), and exploratory data analysis (EDA). Descriptive statistics will be employed in analyzing data from participants. The outcomes of data analysis will then be presented using tables, charts, and graphs.  

Ethics

Adhering to ethics in a study contributes significantly to the integrity of the study. Research work is often associated with ethical issues and researchers should always ensure that they adhere to ethical guidelines to safeguard against such issues (Adams et al., 2014; Cope, 2014). In the execution of this study, the author will adhere to certain ethical guidelines. First, the author will seek consent from participants prior to involving them in the study. Second, the author will ensure the privacy and confidentiality of participants by ensuring anonymity. Third, the data from the participants will not be shared with a third party. Fourth, the users will be informed that they are at liberty to drop out of the study process at any time without facing any penalty.