Total Productivity and Cost Efficiency Dynamics of US Merging Banks: A Non Parametric Bootstrapped Analysis of the Fifth Merger Wave

• In Event: Research Paper Session—Public Interest

Abstract

This paper investigates the productivity characteistics, and cost efficieny dynamics of acquiring US banks over the time period from 1992 to 2003. The findings show that large merging banks tend to have the highest productivity scores compared with all other groups. Small merging banks, on the other hand, experienced lower productivity than their peers. The source of the acquirers’ productivity seems to be the efficiency change rather than the frontier shift. Furthermore, the distributional characteristics of the Malmquist productivity index are examined. The results indicate that peer banks experienced gains for three continuous years, while large acquirers experienced very slight productivity improvements in the two years after merger.
Cost efficiency results show that Small merging banks maintained higher cost efficiencies over their peers for the whole period, but in decreasing margins, while large acquirers maintained higher efficiencies than their peers. Large acquirers’ cost efficiency superiority is related to higher technical efficiency scores, meaning that large acquirers’ ability to maximize their outputs given fixed inputs is best relative to merging and non-merging banks of different sizes.

Author

• Jamal Ali Al-Khasawneh, Gulf Univresity for Science and Technology