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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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  • Stavros Peristiani

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 1980-90. The evidence suggests that acquiring banks failed to improve postmerger X-efficiency. However, we find that acquiring banks experienced moderate gains in profitability and scale efficiency relative to a control sample. The second part of the paper uses regression analysis to identify factors influencing the performance of bank merger survivors. The regression results suggest that improvements in postmerger performance depend on the ability of the bank to strengthen asset quality. We find no evidence to support the hypothesis that in-market mergers lead to significant improvements in efficiency.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9623.

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Date of creation: 1996
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Handle: RePEc:fip:fednrp:9623

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Keywords: Bank management ; Bank mergers;

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References

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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. 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.).
  3. Allen N. Berger & Timothy H. Hannan, 1988. "The price-concentration relationship in banking," Finance and Economics Discussion Series 23, Board of Governors of the Federal Reserve System (U.S.).
  4. 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.
  5. Aruna Srinivasan, 1992. "Are there cost savings from bank mergers?," Economic Review, Federal Reserve Bank of Atlanta, issue Mar, pages 17-28.
  6. 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.).
  7. Stavros Peristiani, 1993. "The effect of mergers on bank performance," Research Paper 9313, Federal Reserve Bank of New York.
  8. Shaffer, Sherrill, 1993. "Can megamergers improve bank efficiency?," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 423-436, April.
  9. 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.).
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