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The Impact of Mergers and Acquisitions on the Efficiency of the US Banking Industry: Further Evidence
Author(s) -
AlSharkas Adel A.,
Hassan M. Kabir,
Lawrence Shari
Publication year - 2007
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2007.02059.x
Subject(s) - allocative efficiency , data envelopment analysis , banking industry , cost efficiency , industrial organization , mergers and acquisitions , profit (economics) , business , stochastic frontier analysis , empirical evidence , productive efficiency , economics , production (economics) , finance , microeconomics , computer science , mathematical optimization , mathematics , operating system , philosophy , epistemology
Using the Stochastic Frontier Approach (SFA), this study investigates the cost and profit efficiency effects of bank mergers on the US banking industry. We also use the non‐parametric technique of Data Envelopment Analysis (DEA) to evaluate the production structure of merged and non‐merged banks. The empirical results indicate that mergers have improved the cost and profit efficiencies of banks. Further, evidence shows that merged banks have lower costs than non‐merged banks because they are using the most efficient technology available (technical efficiency) as well as a cost minimizing input mix (allocative efficiency). The results suggest that there is an economic rational for future mergers in the banking industry. Finally, mergers may allow the banking industry to take advantage of the opportunities created by improved technology.