IDEAS home Printed from https://ideas.repec.org/a/eme/sefpps/v24y2007i2p140-155.html
   My bibliography  Save this article

Why German banks should merge

Author

Listed:
  • Peiyi Yu
  • Werner Neus
  • Bac Van Luu
  • Sean Dodd

Abstract

Purpose - The paper aims to investigate whether the wave of mergers observed in other European countries is suitable for the German banking industry. Design/methodology/approach - This question is approached by studying the relationship between market structure and profit (the so-called profit-structure relationship) in the German banking industry using the model suggested by Berger. By extending his econometric model to include portfolio and capital risk and using German banks' financial data, the authors are able to test simultaneously for three competing theories of the profit-structure relationship. Findings - It is found that including portfolio risk significantly improves the fit of the estimated profit-structure relationship. In addition, it is found that scale economies are present in German banking and that the so-called structural conduct – performance hypothesis is accepted. Owing to the acceptance of this hypothesis, conclude it is that mergers are likely to boost German banks' profitability but possibly at the expense of lower consumer welfare. Research limitations/implications - The research methodology employed is unable to weigh the potential benefits of higher financial sector profitability and stability against the possible detrimental impact on consumer Originality/value - The value of the paper is to provide a robust estimate of scale economies and a reliable test of the profit-structure relationship in German banking based on recent data. It should be of particular value to bank managers, seeking to increase their institution's profitability by way of merger and to the regulator of the financial industry.

Suggested Citation

  • Peiyi Yu & Werner Neus & Bac Van Luu & Sean Dodd, 2007. "Why German banks should merge," Studies in Economics and Finance, Emerald Group Publishing, vol. 24(2), pages 140-155, June.
  • Handle: RePEc:eme:sefpps:v:24:y:2007:i:2:p:140-155
    as

    Download full text from publisher

    File URL: http://www.emeraldinsight.com/10.1108/10867370710756183?utm_campaign=RePEc&WT.mc_id=RePEc
    Download Restriction: Access to full text is restricted to subscribers

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.

    More about this item

    Keywords

    Germany; Banking; Profit; Acquisitions and mergers;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:sefpps:v:24:y:2007:i:2:p:140-155. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman). General contact details of provider: http://www.emeraldinsight.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.