The effect of bank mergers on a bank's market share

The purpose of this study was to examine the change in a bank's market share post-merger. If two banks merge, the resultant bank will obviously have a greater market share than either of the two individual banks. The focus of this study was not to look at this increase in market share but instead to look at the change in market share of the merged bank in a seven-year time period following the merger. Variables such as the type of branching allowed in the merged bank's state, the bank's size, and holding company affiliation, as well as other variables, were tested for their possible impact on bank market share;The market share was measured using demand deposits as the product variable and county or Standard Metropolitan Statistical Area as the geographic market. This market share was measured for 42 merged banks as of 1972-1973 and 1980. Using simple linear regression techniques, the market share appears to decline slightly post-merger for the banks in the sample. There is a significantly positive relationship between the relative change in market share and the dummy variable for whether or not the merged bank had offices outside its head office county in 1980. This result suggests the possibility of a linkage between different banking markets. Banks that branch outside their original market may also be more aggressive competitors in their original market.