The efficiency effects of bank mergers and acquisition: A preliminary look at the 1990s data

Abstract

We estimate the cost, standard profit, and alternative profit efficiency effects of bank mergers of the 1990s. The data suggest that on average, bank mergers increase profit efficiency relative to other banks, but have little effect on cost efficiency. Efficiency gains are much more pronounced when the participating banks are relatively inefficient ex ante, consistent with an hypothesis that mergers may ``wake up'' inefficient management or are used as an excuse to implement unpleasant restructuring. The data suggest that part of the efficiency gains result from improved diversification of risks, which may allow consolidated banks to shift their output mixes from securities toward loans, raising expected revenues.