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Market perception of efficiency in bank holding company mergers: the roles of the DEA and SFA models in capturing merger potential

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  • Theodor Kohers
  • Ming‐hsiang Huang
  • Ninon Kohers

Abstract

Using the Stochastic Frontier Approach (SFA) and Data Envelope Analysis (DEA), this study examines the influence of bank efficiencies on the market assessment of bank holding company (BHC) mergers. The following two questions are addressed: (1) Is the target BHC's frontier efficiency reflected in the bidder BHC's abnormal returns? and (2) Does the difference in frontier efficiency between the bidder and/or target banks relative to their peer institutions influence the acquirer's abnormal returns? In support of the Inefficient Management Hypothesis, the findings indicate that bidder wealth effects do incorporate the target's X‐efficiency as well as the difference in bidder/target efficiencies relative to their peer institutions.

Suggested Citation

  • Theodor Kohers & Ming‐hsiang Huang & Ninon Kohers, 2000. "Market perception of efficiency in bank holding company mergers: the roles of the DEA and SFA models in capturing merger potential," Review of Financial Economics, John Wiley & Sons, vol. 9(2), pages 101-120, December.
    • Handle: RePEc:wly:revfec:v:9:y:2000:i:2:p:101-120
    DOI: 10.1016/S1058-3300(00)00019-7
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    References listed on IDEAS

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