Failure Risk In M & A Between Commercial Banks: An Early-Warning Research

Merger and Acquisition has been an important means to make sure the rapid growth of modern banks, and all of the top ten global financial giants are grown through merger and acquisition; however the risk of failure in M&A has been shrouded in the decision-makers. Therefore, how to speed up the growth of banks by M&A with lower risk has been a hot topic both in the academic and practice.Based on a review of domestic and foreign theories, this paper studies classic failed cases of M&A between commercial banks. By combining with the previous empirical results, we analyze the important factors of failure from three levels, including macro, micro and transactions, and 13 indicators are picked to set up the early-warning model of the M&A in banking industries. Meanwhile, BP neural network is introduced into the empirical research part, with the sample set of 53 listed banks which completed M&A between 1999 and 2007, and all deals value are over 1 billion US dollars, without same scale activities during three years before or after M&A occurred. The empirical research indicates that the accuracy of the successful group in the model can reach 75 percent, while the failed group is up to 87.5 percent, and the total accuracy rate is as high as 83.33 percent. Therefore, it is shown that the early-warning model builded here can predict precisely. In the end, according to the research results, we come up with recommendations and practical policy to avoid risks in M&A.This paper, on the one hand, fill the blank in research of the early-warning on M&A risk in banking industries, on the other hand, warning policy makers of commercial banks in time to lower the risk in M&A,and then help supervisors to regulation the M&A activities better.