Short- and long-term impacts of merger activities in the banking industry: evidence from an emerging market

Purpose This study aims to examine in depth the impact of merger activities on banks in Saudi Arabia. Design/methodology/approach Event study, financial ratio and efficient frontier analyses with a mixture of parametric and non-parametric tests are used for the sample period 2016Q1–2022Q4. Findings Event study analysis shows that merging banks (bidders) have higher positive cumulative abnormal returns than merged banks (targets), indicating that investors believe that bidding banks will benefit the most from the merger strategy. It was also found that the efficiency measures of the combined banks of Saudi British Bank and Alawwal Bank deteriorated, while they improved for the combined banks of National Commercial Bank and Saudi American Bank in the post-merger period, confirming investors' views. Research limitations/implications Although the study focuses on the Saudi banking sector, its findings could be generalized to other banks in the region, as the Saudi banking sector is one of the largest in the Middle East region and is expected to grow further in the future. Practical implications The mere act of merging two banks does not guarantee the realization of cost synergies or efficiency gains. This research shows that mergers are not automatically cost-effective and that their success depends on good integration and restructuring strategies. Originality/value To the best of the author's knowledge, this is the first study to provide a comprehensive analysis of the short- and long-term impacts of merger activities in the Saudi banking sector.