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Evaluating the German Bank Merger Wave

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  • M. Koetter

Abstract

German banks experienced a merger wave throughout the 1990’s. However, the success of bank mergers remains a continuous matter of debate. In this paper we suggest a taxonomy as how to evaluate post-merger performance on the basis of cost efficiency (CE). We categorise mergers a success that fulfill simultaneously two criteria. First, merged institutes must exhibit CE levels above the average of non-merging banks. Second, banks must exhibit CE changes between merger and evaluation year above efficiency changes of non-merging banks. We employ this taxonomy to characterise (successful) mergers in terms of various key-performance and structural indicators and investigate the implications for four prominent policy issues particular to German banking. Our main conclusions are threefold. First, roughly every second merger is a success. Second, the margin of success is narrow, as the CE difference amounts to approximately 1 percentage point. Third, it takes around seven years after a transaction until maximum mean CE differentials materialise.

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Bibliographic Info

Paper provided by Utrecht School of Economics in its series Working Papers with number 05-16.

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Date of creation: 2005
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Handle: RePEc:use:tkiwps:0516

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Keywords: Bank mergers; cost efficiency.;

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  1. Campbell, John Y. & Hilscher, Jens & Szilagyi, Jan, 2005. "In search of distress risk," Discussion Paper Series 1: Economic Studies 2005,27, Deutsche Bundesbank, Research Centre.
  2. Slacalek, Jirka & Fritsche, Ulrich & Dovern, Jonas & Döpke, Jörg, 2005. "European inflation expectations dynamics," Discussion Paper Series 1: Economic Studies 2005,37, Deutsche Bundesbank, Research Centre.
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  4. Lang, Gunter & Welzel, Peter, 1999. " Mergers among German Cooperative Banks: A Panel-Based Stochastic Frontier Analysis," Small Business Economics, Springer, vol. 13(4), pages 273-86, December.
  5. Koetter, Michael & Bos, Jaap W. B. & Heid, Frank & Kool, Clemens J. M. & Kolari, James W. & Porath, Daniel, 2005. "Accounting for distress in bank mergers," Discussion Paper Series 2: Banking and Financial Studies 2005,09, Deutsche Bundesbank, Research Centre.
  6. J.A. Bikker & K. Haaf, 2001. "Competition, Concentration and their Relationship: an EmpiricalAnalysis of the Banking Industry," DNB Staff Reports (discontinued) 68, Netherlands Central Bank.
  7. Hempell, Hannah S., 2002. "Testing for Competition Among German Banks," Discussion Paper Series 1: Economic Studies 2002,04, Deutsche Bundesbank, Research Centre.
  8. Jaap W. B. Bos & James W. Kolari, 2005. "Large Bank Efficiency in Europe and the United States: Are There Economic Motivations for Geographic Expansion in Financial Services?," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1555-1592, July.
  9. Amel, Dean & Barnes, Colleen & Panetta, Fabio & Salleo, Carmelo, 2004. "Consolidation and efficiency in the financial sector: A review of the international evidence," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2493-2519, October.
  10. Altunbas, Yener & Evans, Lynne & Molyneux, Philip, 2001. "Bank Ownership and Efficiency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 926-54, November.
  11. Peristiani, Stavros, 1997. "Do Mergers Improve the X-Efficiency and Scale Efficiency of U.S. Banks? Evidence from the 1980s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 326-37, August.
  12. Porath, Daniel, 2004. "Estimating probabilities of default for German savings banks and credit cooperatives," Discussion Paper Series 2: Banking and Financial Studies 2004,06, Deutsche Bundesbank, Research Centre.
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  15. Berger, Allen N., 2003. "The efficiency effects of a single market for financial services in Europe," European Journal of Operational Research, Elsevier, vol. 150(3), pages 466-481, November.
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Cited by:
  1. Brämer, Patrick & Gischer, Horst & Richter, Toni & Weiß, Mirko, 2013. "Competition in banks’ lending business and its interference with ECB monetary policy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 144-162.
  2. Behr, Andreas & Heid, Frank, 2011. "The success of bank mergers revisited. An assessment based on a matching strategy," Journal of Empirical Finance, Elsevier, vol. 18(1), pages 117-135, January.
  3. Christian Schmieder & Katharina Marsch & Katrin Forster-van Aerssen, 2010. "Does banking consolidation worsen firms’ access to credit? Evidence from the German economy," Small Business Economics, Springer, vol. 35(4), pages 449-465, November.
  4. Spandau, Johannes, 2011. "Interne Prozessoptimierung und Auslagerung in der genossenschaftlichen FinanzGruppe: Erste Ergebnisse einer empirischen Erhebung," Arbeitspapiere 118, Westfälsche Wilhelms-Universität Münster (WWU), Institut für Genossenschaftswesen.
  5. Spandau, Johannes, 2010. "Fusionen im genossenschaftlichen FinanzVerbund: Eine erfolgreiche Strategie?," Arbeitspapiere 92, Westfälsche Wilhelms-Universität Münster (WWU), Institut für Genossenschaftswesen.
  6. Adrian R. Gourlay & Geetha Ravishankar & Tom Weyman-Jones, 2006. "Non-Parametric Analysis of Efficiency Gains from Bank Mergers in India," Discussion Paper Series 2006_18, Department of Economics, Loughborough University, revised Oct 2006.
  7. Marsch, Katharina & Schmieder, Christian & Forster-van Aerssen, Katrin, 2007. "Banking consolidation and small businessfinance: empirical evidence for Germany," Discussion Paper Series 2: Banking and Financial Studies 2007,09, Deutsche Bundesbank, Research Centre.

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