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Consolidation and efficiency in the US life insurance industry

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  • Cummins, J. David
  • Tennyson, Sharon
  • Weiss, Mary A.

Abstract

This paper examines the relationship between mergers and acquisitions, efficiency, and scale economies in the US life insurance industry. We estimate cost and revenue efficiency over the period 1988-1995 using data envelopment analysis (DEA). The Malmquist methodology is used to measure changes in efficiency over time. We find that acquired firms achieve greater efficiency gains than firms that have not been involved in mergers or acquisitions. Firms operating with non-decreasing returns to scale and financially vulnerable firms are more likely to be acquisition targets. Overall, mergers and acquisitions in the life insurance industry have had a beneficial effect on efficiency. Journal of Economic Literature classification codes: G2, G22, G34. L11. Key Words: Efficiency, life insurance, mergers and acquisitions, scale economies, data envelopment analysis.
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Suggested Citation

  • Cummins, J. David & Tennyson, Sharon & Weiss, Mary A., 1999. "Consolidation and efficiency in the US life insurance industry," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 325-357, February.
    • Handle: RePEc:eee:jbfina:v:23:y:1999:i:2-4:p:325-357
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    More about this item

    Keywords

    efficiency; life insurance; mergers and acquisitions; scale economies; data envelopment analysis.
    (this abstract was borrowed from another version of this item.)    ;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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