The Impact of Mergers and Acquisitions on the Efficiency of the US Banking Industry: Further Evidence

Adel A. Al‐Sharkas · M. Kabir Hassan · Shari Lawrence

154 citations0/0 files storedJournal of Business Finance &amp Accounting

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Efficiency Analysis Using DEA Banking stability, regulation, efficiency Banking Sector Performance and Management

Abstract

Abstract: 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.

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References

1997Efficiency of financial institutions: International survey and directions for future research 1982On the estimation of technical inefficiency in the stochastic frontier production function model 1997Inside the black box: What explains differences in the efficiencies of financial institutions?1977INPUTS, OUTPUTS, AND A THEORY OF PRODUCTION AND COST AT DEPOSITORY FINANCIAL INSTITUTIONS 1993The measurement of productive efficiency : techniques and applications 1990Measuring cost efficiency in banking 1993The efficiency of financial institutions: A review and preview of research past, present and future 1993Resolving the scale efficiency puzzle in banking

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