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Do mergers improve the x-efficiency and scale efficiency of U.S. banks?: Evidence from the 1980s

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  • Stavros Peristiani

Abstract

A central issue currently debated among bank analysts and economists is whether mergers enhance the efficiency of surviving banks. This paper investigates the postmerger performance of acquiring banks that participated in a merger during 1980-90. The evidence suggests that acquiring banks failed to improve postmerger X-efficiency. However, we find that acquiring banks experienced moderate gains in profitability and scale efficiency relative to a control sample. The second part of the paper uses regression analysis to identify factors influencing the performance of bank merger survivors. The regression results suggest that improvements in postmerger performance depend on the ability of the bank to strengthen asset quality. We find no evidence to support the hypothesis that in-market mergers lead to significant improvements in efficiency.

Suggested Citation

  • Stavros Peristiani, 1996. "Do mergers improve the x-efficiency and scale efficiency of U.S. banks?: Evidence from the 1980s," Research Paper 9623, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednrp:9623
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    References listed on IDEAS

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    1. Berger, Allen N. & Humphrey, David B., 1991. "The dominance of inefficiencies over scale and product mix economies in banking," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 117-148, August.
    2. Stavros Peristiani, 1993. "The effect of mergers on bank performance," Research Paper 9313, Federal Reserve Bank of New York.
    3. Berger, Allen N & Hannan, Timothy H, 1989. "The Price-Concentration Relationship in Banking," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 291-299, May.
    4. Noulas, Athanasios G & Ray, Subhash C & Miller, Stephen M, 1990. "Returns to Scale and Input Substitution for Large U.S. Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(1), pages 94-108, February.
    5. Allen N. Berger & David B. Humphrey, 1992. "Megamergers in banking and the use of cost efficiency as an antitrust defense," Finance and Economics Discussion Series 203, Board of Governors of the Federal Reserve System (U.S.).
    6. Aruna Srinivasan, 1992. "Are there cost savings from bank mergers?," Economic Review, Federal Reserve Bank of Atlanta, issue Mar, pages 17-28.
    7. Allen N. Berger & Timothy H. Hannan, 1987. "The price-concentration relationship in banking," Research Papers in Banking and Financial Economics 100, Board of Governors of the Federal Reserve System (U.S.).
    8. Shaffer, Sherrill, 1993. "Can megamergers improve bank efficiency?," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 423-436, April.
    9. Stephen A. Rhoades, 1986. "The operating performance of acquired firms in banking before and after acquisition," Staff Studies 149, Board of Governors of the Federal Reserve System (U.S.).
    10. Mester, Loretta J, 1987. " A Multiproduct Cost Study of Savings and Loans," Journal of Finance, American Finance Association, vol. 42(2), pages 423-445, June.
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    Keywords

    Bank management ; Bank mergers;

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