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Do Mergers Improve the X-Efficiency and Scale Efficiency of U.S. Banks? Evidence from the 1980s

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  • Peristiani, Stavros

Abstract

A central issue currently debated among bank analysts and economists is whether mergers enhance the efficiency of surviving banks. This paper investigates the postmerger performance of acquiring banks that participated in a merger during the period 1980-90. The evidence suggests that acquirers failed to improve X-efficiency after the merger. Acquiring banks, however, experienced moderate gains in scale efficiency relative to a control sample. The second part of the paper uses regression analysis to identify factors influencing the performance of merging banks. The regression results suggest that improvements in postmerger performance depend on the ability of the bank to strengthen asset quality. The author finds no evidence to support the theory that in-market mergers lead to significant improvements in efficiency. Copyright 1997 by Ohio State University Press.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 29 (1997)
Issue (Month): 3 (August)
Pages: 326-37

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Handle: RePEc:mcb:jmoncb:v:29:y:1997:i:3:p:326-37

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Noulas, Athanasios G & Ray, Subhash C & Miller, Stephen M, 1990. "Returns to Scale and Input Substitution for Large U.S. Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(1), pages 94-108, February.
  2. Shaffer, Sherrill, 1993. "Can megamergers improve bank efficiency?," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 423-436, April.
  3. Mester, Loretta J, 1987. " A Multiproduct Cost Study of Savings and Loans," Journal of Finance, American Finance Association, vol. 42(2), pages 423-45, June.
  4. Stephen A. Rhoades, 1986. "The operating performance of acquired firms in banking before and after acquisition," Staff Studies 149, Board of Governors of the Federal Reserve System (U.S.).
  5. Allen N. Berger & David B. Humphrey, 1990. "The dominance of inefficiencies over scale and product mix economies in banking," Finance and Economics Discussion Series 107, Board of Governors of the Federal Reserve System (U.S.).
  6. Aruna Srinivasan, 1992. "Are there cost savings from bank mergers?," Economic Review, Federal Reserve Bank of Atlanta, issue Mar, pages 17-28.
  7. Allen N. Berger & Timothy H. Hannan, 1987. "The price-concentration relationship in banking," Research Papers in Banking and Financial Economics 100, Board of Governors of the Federal Reserve System (U.S.).
  8. Allen N. Berger & David B. Humphrey, 1992. "Megamergers in banking and the use of cost efficiency as an antitrust defense," Finance and Economics Discussion Series 203, Board of Governors of the Federal Reserve System (U.S.).
  9. Stavros Peristiani, 1993. "The effect of mergers on bank performance," Research Paper 9313, Federal Reserve Bank of New York.
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