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Assessing the strategic fit of potential M&As in Chinese banking: A novel Bayesian stochastic frontier approach

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  • Chen, Zhongfei
  • Wanke, Peter
  • Tsionas, Mike G.

Abstract

Banking in China is well-known for being extremely fragmented, thus making the analysis of the sector not a straightforward task. This study aims to explore the strategic fit of potential mergers and acquisitions in the Chinese banking industry. When the operations of two banks are jointly analyzed this means that the inputs and the outputs of these two individual banks are somehow combined in an attempt to better understand the sector as a whole. A novel SFA model with Bayesian inference on input/output prices is proposed to assess the impact of business-related variables on efficiency levels. The results not only reveal that bank size, type, and origin present a significant impact on individual technical efficiency levels, but also exert a significant impact on the efficiency frontier of the industry. The strategic fit of M&As in the Chinese banking industry strongly relies on opportunities derived from banking automation that may arise from acquiring technologically obsolete small banks. Big and foreign banks also exert a positive impact on the technological catch-up of Chinese banks, which may suggest opportunities for sector deregulation.

Suggested Citation

  • Chen, Zhongfei & Wanke, Peter & Tsionas, Mike G., 2018. "Assessing the strategic fit of potential M&As in Chinese banking: A novel Bayesian stochastic frontier approach," Economic Modelling, Elsevier, vol. 73(C), pages 254-263.
    • Handle: RePEc:eee:ecmode:v:73:y:2018:i:c:p:254-263
    DOI: 10.1016/j.econmod.2018.04.002
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    More about this item

    Keywords

    Banks; China; Potential merger and acquisitions; SFA; Bayesian inference; Strategic fit;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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