Planeación de efectivo

The voluntary merger rule adopted by the National Credit Union Administration (NCUA) Board requires credit unions proposing to merge to submit a merger package that includes a plan summarizing the details of the merger. The package should also include financial compensation related to the merger. Moreover, federal credit unions should present the documents related to their disclosures of the merger to their members. The package is reviewed by the NCUA regional office and is approved if the proposed merger meets the member protection, safety and soundness requirements. Besides, merging federal credit unions’ members are given the opportunity to vote on the merger (Federal register, 2017).

The NCUA analyzed the recent merger trends in the industry; they find that some acquiring credit unions are influencing the merging credit union by offering financial incentives to management and certain highly compensated employees to support the merger. As a result, on May 27, 2017, the NCUA Board proposed and sought comments on the revision to the voluntary merger procedure. The proposed changes are not only to federal chartered credit unions, and they include: “revise and clarify the contents and format of the member notice; require merging credit unions to disclose all merger-related financial arrangements for covered persons; increase the

58

minimum member notice period; and provide procedures to allow reasonable member-to- member communications regarding the proposed merger” (Federal register, 2017).

4.2.2 Literature on mergers in credit unions

Credit unions are known for their financial services, especially for the weaker and disadvantaged segments of society (Goddard et al., 2002). Prior research on credit union mergers examines the consequences of service provision, by analyzing how the service changes after the merger for acquiring and acquired credit unions. Moreover, studies on credit union mergers are country-specific and limited to the mature industries in countries such as in the U.S., Australia, and Canada.

For example, NCUA (1989) investigates the effect of mergers on the financial safety and soundness of the merging credit unions. In a sample of 509 merging credit unions, the study finds that the financial condition of healthy credit unions declined during the two years following the merger. Thus, the members of the surviving credit union experienced diminished service provision. However, the financial condition of the weak credit unions improved following the merger. As a result, the service provided to their members improved.

By the same token, Fried, Lovell, and Yaisawarng (1999) use data envelopment analysis (DEA) to analyze the service provision in acquired and acquiring credit unions in the U.S. between 1989 and 1994. They find that, three years following the merger, the service provided to the members/owners of acquired credit unions improved. Whereas, members/owners of acquiring credit unions benefited more when they and the target credit union had different levels of profitability, different numbers of select employee groups, and when one of them had a community charter. However, on average, the acquiring credit unions did not experience any change in service provision following the merger. Also using DEA, Ralston, et al. (2001) evaluate the gains in technical and scale efficiency achieved by the merged credit union in Australia between 1993 and 1995. Their findings are mixed. Gains are larger when pre-merger technical efficiency scores were low for both partners; which is inconsistent with the belief that technical efficiency gains are recognized by the transfer of assets from inefficient managers to efficient managers. They find that the efficiency gains generated by the merger are not more than the efficiency gains generated through internal growth of non-merging credit unions. In New

59

Zealand, Mcalevey, Sibbald, and Tripe (2010) employ DEA to examine efficiency changes in merged credit unions between 1996 and 2001. However, they find that government action required mergers and not increased efficiency.

Alternatively, Bauer, Miles, and Nishikawa (2009), using a different methodology, examine the performance of merged U.S. credit unions. They find that the performance of the acquired credit union improved. Whereas, the acquiring credit union performance did not change. In Bauer (2010), the author compares consolidated state farm credit unions to a control sample of non-farm credit unions. He finds that both the members of the acquiring and acquired credit unions benefit from the merger since the merging credit unions were healthy, of comparable size and offered similar products.

Moreover, Goddard, McKillop, and Wilson (2009) use a hazard function and include technology variables in the determinants of credit union mergers in the U.S. during the period 2001–2006. They find that the probability of a credit union to be acquired is negatively related to asset size and profitability, and directly related to liquidity. Whereas, Worthington (2004) finds that the probability of acquisition of Australian credit unions is influenced by asset size, asset management, liquidity, and regulatory variables during the period 1992–1995.

Sant and Carter (2015) examine a determinant of credit union merger, i.e., poor management ability, by looking only at the managerial performance of acquired credit unions before the acquisition date. Examining the financial ratios over 23 quarters prior to the merger date, they find that the financial ratios of acquired credit unions decline up to two years before the merger. Finally, McKillop, Ferguson, and Goth (2006) did not find any determinant of a merger in UK credit unions after 2004. They only find that service provision of healthy credit unions deteriorates after acquiring unhealthy credit unions.