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The Development of the Mozambican Banking Sector and Strategic Fit of Mergers and Acquisitions: A Two‐Stage DEA Approach
Author(s) -
Wanke Peter,
Barros Carlos P.,
Azad Md. Abul Kalam,
Constantino Dercio
Publication year - 2016
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12223
Subject(s) - data envelopment analysis , mergers and acquisitions , returns to scale , scale (ratio) , business , stage (stratigraphy) , industrial organization , economics , monetary economics , microeconomics , financial system , finance , production (economics) , mathematics , statistics , paleontology , physics , quantum mechanics , biology
Abstract This paper examines the strategic fit of mergers and acquisitions (M&A) in Mozambican banks, using a two‐stage data envelopment analysis (DEA) approach to compute the impact of contextual variables on efficiency scores and returns to scale of the resulting virtual merged banks. In an ‘M&A DEA’ model, different pairs of bidder and target companies are considered. In the first stage an M&A DEA model is used. Simplex regression is adopted in the second stage. The results reveal that ownership (public or foreign) impacts virtual efficiency levels. However, the findings also show that care must be exercised with M&A because the resultant banking organization could be oversized when foreign ownership is predominant, especially when public ownership is low. Given the relative sizes of the markets in terms of productive resources, M&A involving Mozambican banks can easily lead to decreasing returns to scale. Thus, a greater emphasis should be given to merging purely public banks with foreign ones and vice versa.