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Efficiency Effects of Bank Mergers and Acquisitions

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  • H.P. Huizinga

    (Tilburg University)

  • J.H.M. Nelissen

    ()
    (Erasmus University Rotterdam)

  • R. Vander Vennet

    (Gent University)

Abstract

Next to technological progress and deregulation, theintroduction of the euro is widely considered to be an importantcatalyst for bank consolidation in Europe. In order to assessthe public policy issues surrounding bank mergers, this paperanalyzes the efficiency effects of 52 horizontal bank mergersover the period 1994-1998, i.e. the period immediately precedingthe start of EMU. We find evidence of substantial unexploitedscale economies and large X-inefficiencies in European banking.The dynamic merger analysis indicates that the cost efficiencyof merging banks is positively affected by the merger, while therelative degree of profit efficiency improves only marginally.We do not find any evidence that merging banks are able toexercise greater market power in the deposit market. Hence, thebank M&As in this study appear to be socially beneficial.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 01-088/3.

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Date of creation: 03 Oct 2001
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Handle: RePEc:dgr:uvatin:20010088

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  1. Jalal D. Akhavein & Allen N. Berger & David B. Humphrey, 1996. "The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 96-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Allen N. Berger & Loretta J. Mester, 1997. "Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions?," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 97-04, Wharton School Center for Financial Institutions, University of Pennsylvania.
  3. Vennet, Rudi Vander, 1996. "The effect of mergers and acquisitions on the efficiency and profitability of EC credit institutions," Journal of Banking & Finance, Elsevier, Elsevier, vol. 20(9), pages 1531-1558, November.
  4. Allen N. Berger & David B. Humphrey, 1997. "Efficiency of financial institutions: international survey and directions for future research," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1997-11, Board of Governors of the Federal Reserve System (U.S.).
  5. Jean-Pierre DANTHINE & Francesco GIAVAZZI & Ernst-Ludwig VON THADDEN, 2000. "European Financial Markets After EMU: A First Assessment," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 00.03, Université de Lausanne, Faculté des HEC, DEEP, revised May 2000.
  6. Simon Kwan & Robert A. Eisenbeis, 1999. "Mergers of publicly traded banking organizations revisited," Economic Review, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Q4, pages 26-37.
  7. Berger, Allen N. & Hanweck, Gerald A. & Humphrey, David B., 1987. "Competitive viability in banking : Scale, scope, and product mix economies," Journal of Monetary Economics, Elsevier, Elsevier, vol. 20(3), pages 501-520, December.
  8. E.P. Davis & Sinikka Salo, 1998. "Excess Capacity in EU and US Banking Sectors - Conceptual, Measurement and Policy Issues," FMG Special Papers, Financial Markets Group sp105, Financial Markets Group.
  9. Allen, Linda & Rai, Anoop, 1996. "Operational efficiency in banking: An international comparison," Journal of Banking & Finance, Elsevier, Elsevier, vol. 20(4), pages 655-672, May.
  10. Rhoades, Stephen A., 1998. "The efficiency effects of bank mergers: An overview of case studies of nine mergers," Journal of Banking & Finance, Elsevier, Elsevier, vol. 22(3), pages 273-291, March.
  11. Lang, Gunter & Welzel, Peter, 1996. "Efficiency and technical progress in banking Empirical results for a panel of German cooperative banks," Journal of Banking & Finance, Elsevier, Elsevier, vol. 20(6), pages 1003-1023, July.
  12. Katerina Simons & Joanna Stavins, 1998. "Has antitrust policy in banking become obsolete?," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Mar, pages 13-26.
  13. Pilloff, Steven J, 1996. "Performance Changes and Shareholder Wealth Creation Associated with Mergers of Publicly Traded Banking Institutions," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 28(3), pages 294-310, August.
  14. Cornett, Marcia Millon & Tehranian, Hassan, 1992. "Changes in corporate performance associated with bank acquisitions," Journal of Financial Economics, Elsevier, Elsevier, vol. 31(2), pages 211-234, April.
  15. Cybo-Ottone, Alberto & Murgia, Maurizio, 2000. "Mergers and shareholder wealth in European banking," Journal of Banking & Finance, Elsevier, Elsevier, vol. 24(6), pages 831-859, June.
  16. Altunbas, Y. & Gardener, E. P. M. & Molyneux, P. & Moore, B., 2001. "Efficiency in European banking," European Economic Review, Elsevier, Elsevier, vol. 45(10), pages 1931-1955, December.
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