Does market structure mediate relationship between merger and acquisition and performance of Islamic and conventional banks?

PurposeMerger and acquisition (M&A) plays an important role in developing the financial sector. The purpose of the paper is to analyze and evaluate the effects of M&As on the outcome of Islamic and conventional banks. Furthermore, examines the mediating role of market structure between M&A and bank outcome.Design/methodology/approachThis paper uses POLS, panel data techniques and structural equation modeling to analyze a set of samples for 24 banks consisting of 10 Islamic banks and 14 conventional banks involved in M&A from 2004Q1 to 2020Q4 from 6 countries.FindingsGenerally, M&A improves the post-M&A performance of Islamic banks and conventional banks. However, there is size issue. Bank size positively affects Islamic bank performance while conventional does not. Furthermore, market structure mediates the relationship between M&A and the operational performance of Islamic and conventional banks. Implying that after M&A, the market becomes concentrated while it reduces competition.Research limitations/implicationsNumber of banks are limited due to unavailability of data for pre and post-M&A. Future researches can be carried out to study the cross-border M&A along with the regulation between Islamic banks in GCC and Asia Pacific countries.Practical implicationsImproving operational performance plays a significant role. To enhance the performance of Islamic banking industry, M&A between small Islamic banks could be beneficial depending on the market structure.Originality/valueThe mediation role of market structure in between M&A and performance for Islamic and conventional banks is the main contribution of the study.