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Evaluating the German Bank Merger Wave

  • M. Koetter

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 performanceon the basis of cost efficiency (CE). We categorise mergers a successthat fulfill simultaneously two criteria. First, merged institutes must exhibitCE levels above the average of non-merging banks. Second, banks mustexhibit CE changes between merger and evaluation year above efficiencychanges of non-merging banks. We employ this taxonomy to characterise(successful) mergers in terms of various key-performance and structural indicatorsand investigate the implications for four prominent policy issuesparticular to German banking. Our main conclusions are threefold. First,roughly every second merger is a success. Second, the margin of success isnarrow, as the CE difference amounts to approximately 1 percentage point.Third, it takes around seven years after a transaction until maximum meanCE differentials materialise.

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

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