اصلاحات اقتصادی سیاست هند، ادغام بانک، و پیشنهاد قانونی: "جستجو" اکس انت و اکس پست

Because of globalization and liberalization of the world-economy policy reforms, emerging economies have been gained popularity in academic research, especially the economics and finance areas. Indeed, India is next to China in Asian emerging markets. As of economic-policy reforms implemented in 1991, a number of sectors are being developed and restructured via mergers and acquisitions (M&As) particularly the banking sector. In this paper, we discuss India's economic-policy and financial reforms, M&As market during 2006–2010, and other policy-related aspects. In this setting, we investigate the Axis Bank–Enam Securities investment banking merger occurred in 2010. To do so, we perform ex-ante analysis by using the event study method, and offer lawful proposals to the ex-post for financial development, economic growth, and banking sector as well. We then draw fruitful conclusions through triangular linkage between the select case, post-deregulation guidelines and the current investment banking trends.

Most business entrepreneurs, billionaires and traders believe that “Business of business is Business”. In economics, researchers define the term business, which is a trade that facilitates to exchange goods and services for a valid currency; thus, it inherently motivates “profit, gain, or margin”. Similarly, scholars in different streams explain the term ‘business’ differently. However, when we think deeply it differs a great deal, which gives many insightful perceptions. Therefore, we state “Business of business is not only a Business”, but it also transforms ideas, policies, system, culture, habits, technology, intelligence, and so forth. By and large, it improves communication between people, states and nations. In this setting, countless policies, laws, systems and business models have been engulfed from developed economies to developing countries. 3 In due course of time, developing world had thought about “economic stability”, which created an “independent financial system” for “economic growth and sovereignty”. In these processes, many business models have been developed, adopted, tested, practiced, discontinued, and eliminated as well. The model that we discuss in this paper is “mergers and acquisitions” (hereinafter, M&As). There are three (conceptual) empirical proofs that inspired us to perform an exploratory study on economic-policy reforms and bank mergers in the Indian institutional environment. Indeed, we support our arguments and lawful proposals by the – recent investment banking merger between Axis Bank and Enam Securities, and insights from the previous studies performed in different legal settings. First, does financial development cause economic growth?4 In Abu-Bader and Abu-Qarn (2008), Asteriou (2009), Bittencourt (2012), Singh (2010), and Yang and Yi (2008), the authors show that finance, financial system and financial development causes economic growth. In particular, the financial process improves resources for investment (e.g. foreign aid) and boosts economic efficiency under financial system control. More importantly, finance causes growth but growth does not cause finance. In case of foreign aid, there is positive relationship between foreign capital and economic growth. 5 Second, previous studies on bank mergers (e.g. stock returns around the merger announcement, pre- and post-merger financial performance) examined mostly in developed markets (e.g. U.S., UK, Canada), show that mergers improve bidder-banks profitability, economies of scale, productivity, and efficiency (e.g. Beccalli and Frantz, 2009, Chronopoulos et al., in press, DeLong, 2001, DeLong, 2003, Ismail et al., 2009, Majid and Sufian, 2006, Rhoades, 1998 and Yu and Luu, 2003). 6 In fact, most studies investigate horizontal bank mergers and ignore vertical banking acquisitions. 7 Our third motive outlines: there is growing amount of research in (on) emerging markets in various streams, for example, policy modeling studies in economics (e.g. Bouët, Berisha-Krasniqi, Estrades, & Laborde, 2012), international strategies of emerging-markets’ multinational firms (e.g. Ramamurti, 2012a), research in behavioral sciences, and so forth. With this backdrop note, we then forward to present some useful insights on mergers. Prior to industrialization reforms, the tightening of parliamentary and legal principles have certainly enthused an increasingly ‘hard line’ loom by the banking agencies in the U.S. (Weiss, 1969).8 On the other hand, from 1934 through the 1970s, the number of banks remained stable. However, the banks were started to decline specifically between 1980 and 2000 (Al-Sharkas & Hassan, 2010, pp. 326-327). During this period, technological progress in communication and information systems, and elimination of bureaucrat hurdles to capital flows were notorious in shaping the novel backdrop for global financial markets (Yu & Luu, 2003). In fact, the number of bank mergers in 1990 has augmented 215% compared to the early 80s.9 Further, these activities greatly increase the size of banking firms (Anderson, Becher, & Campbell, 2004). In the second half of the 1990s, Europe and Japan have been wedged up (Scholtens & de Wit, 2004). The epidemic of the Asian economic crises in 1997 had high-minded qualms in the securities market (Tan & Hooy, 2003); conversely, the collision of IT bubbles in 2000 increase the number of corporate inorganic strategies, like acquisitions and alliances (e.g. Sufian and Majid, 2007, Wong and Cheung, 2009 and Yu and Luu, 2003).10 More particularly, there are two motives behind this tendency: first, Asian countries encouraged M&As to lift their competitiveness, and to condense expenditure. Second, shareholders’ knowledge about financial system has substantially been improved over the period (e.g. Tanuwidjaja, 2007). In case of India, mergers and other corporate restructuring activities are uncommon prior to the New Industrial Policy reforms initiated in 1991 (Ahluwalia, 2002, Machiraju, 2007 and Ray, 2010); later, they induced by the regulatory shocks (Agarwal & Bhattacharjea, 2006). 1.1. Objective and contribution of the study The exhaustive literature concludes that bank mergers had the prospective to be competence, conversely, find modest support on positive stock earnings (DeYoung, Evanoff, & Molyneux, 2009). Being a relatively new business paradigm to the Indian context, there is negligible published research on merger-related studies in general and specific as well (e.g. Ramakrishnan, 2010 and Reddy et al., 2011). Further, the large amount of Indian deals happened in parallel sectors, but few are recorded as vertical and conglomerate mergers (e.g. Nangia et al., 2011 and Reddy et al., 2012a). Nevertheless, most of the Indian banking amalgamations are being horizontal in nature (e.g. Jayadev & Sensarma, 2007). In this paper, we examine vertical (or, investment) banking merger case ‘Axis Bank–Enam Securities’ occurred in 2010. We then support our ex-ante and ex-post observations while demonstrating the economic-policy and banking reforms. In addition, we show India's merger market during 2006–2010, and draw some conclusions by connecting recent merger guidelines to the given case. More importantly, we offer lawful proposals in two areas, such as, policy implications for economy and banking, and recommendations for M&A legal framework with emphasis to bank mergers. More specifically, the paper contributes to the existing literature in two aspects. First, our observations on India's economic-policy reforms and bank mergers that are linked with recent case would add some contribution to the macroeconomics filed. Second, the ex-ante analysis of case and the ex-post lookup (lawful proposals) would append the corporate finance and related regulatory framework. Furthermore, our discussions and guidelines would assist policy makers, bankers and statutory bodies while designing long-term strategies. The remaining paper is organized as follows. Section 2 outlines the India's economic-policy and banking reforms, and shows M&As market. Section 3 summarizes the extent of India and international literature on bank mergers. Section 4 presents method and data. Section 5 discusses the select merger case. Section 6 offers lawful proposals, and concludes.