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The success of bank mergers revisited. An assessment based on a matching strategy

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  • Behr, Andreas
  • Heid, Frank

Abstract

The question of whether or not mergers and acquisitions have helped to enhance banks' efficiency and profitability has not yet been conclusively resolved in the literature. We argue that this is partly due to severe methodological problems involved. In this study we analyze the effect of German bank mergers from the period 1995-2000 on the banks' profitability and cost efficiency. We suggest a new matching strategy to control for the selection effects arising from the fact that pre-dominantly under-performing banks engage in mergers. Our results indicate a neutral effect of mergers on profitability and cost efficiency. Comparing our results with those obtained from a naive performance comparison of merging and non-merging banks indicates a severe negative selection bias with regard to the latter.

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  • 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.
  • Handle: RePEc:eee:empfin:v:18:y:2011:i:1:p:117-135
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    Cited by:

    1. Haskamp, Ulrich, 2017. "Improving the forecasts of European regional banks' profitability with machine learning algorithms," Ruhr Economic Papers 705, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. Hai-Liu Shi & Ying-Ming Wang & Sheng-Qun Chen & Yi-Xin Lan, 2017. "An approach to two-sided M&A fits based on a cross-efficiency evaluation with contrasting attitudes," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, pages 41-52.
    3. Horst Gischer & Toni Richter, 2014. "Produktivitätsmessung von Banken: die Cost Income Ratio – ein belastbares Performancemaß?," FEMM Working Papers 140008, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    4. Elisabetta Fiorentino & Heinz Herrmann, 2009. "Effizienz und Wettbewerb im deutschen Bankensektor," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 78(1), pages 114-126.
    5. Hadad, Muliaman D. & Hall, Maximilian J.B. & Santoso, Wimboh & Simper, Richard, 2013. "Economies of scale and a process for identifying hypothetical merger potential in Indonesian commercial banks," Journal of Asian Economics, Elsevier, vol. 26(C), pages 42-51.
    6. Reddy, Kotapati Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2013. "Indian economic-policy reforms, bank mergers, and lawful proposals: The ex-ante and ex-post ‘lookup’," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 601-622.
    7. Robert DeYoung & Douglas Evanoff & Philip Molyneux, 2009. "Mergers and Acquisitions of Financial Institutions: A Review of the Post-2000 Literature," Journal of Financial Services Research, Springer;Western Finance Association, vol. 36(2), pages 87-110, December.
    8. Ishak Ramli, 2015. "Forced Bank Mergers and SME Financing," International Journal of Management Science and Business Administration, Inovatus Services Ltd., vol. 1(8), pages 30-36, July.
    9. Haskamp, Ulrich, 2016. "Spillovers of banking regulation: The effect of the German bank levy on the lending rates of regional banks and their local competitors," Ruhr Economic Papers 664, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    10. Elisabeta Pana & Sascha Vitzthum & David Willis, 2015. "The impact of internet-based services on credit unions: a propensity score matching approach," Review of Quantitative Finance and Accounting, Springer, vol. 44(2), pages 329-352, February.
    11. Du, Kai & Sim, Nicholas, 2016. "Mergers, acquisitions, and bank efficiency: Cross-country evidence from emerging markets," Research in International Business and Finance, Elsevier, pages 499-510.

    More about this item

    Keywords

    Bank mergers Efficiency Profitability Propensity score matching Performance measurement Merger success;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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