Assessing the Impact of Mergers and Acquisitions on Bank Cost Efficiency

Abstract

Abstract: The paper examined the impact of forced mergers and acquisitions on the cost efficiency of the Malaysian banking sector, The analysis consisted of three stages. Firstly, by using the Data Envelopment Analysis (DEA) approach, we calculated the cost, allocative, and technical efficiency of individual banks during the period 1997-2003. Secondly, we ‘examined changes in the efficiency of the Malaysian banking sector during the pre- and post-merger periods by using a series of parametric and non parametric univariate fests. Finally, we employed the multivariate Tobi regression analysis (0 examine factors that influenced the efficiency of the Malaysian banking sector during the pre- and post-merger periods. The empirical findings suggest that the merger has resulted in a higher mean cost efficiency of the Malaysian banking sector post-merger. We found acquirers (0 have been relatively more cost efficient in al of the seven merger cases analysed. The results from the multivariate regression analysis suggest the loans intensity. size, income diversification, and capitalization exhibit a positive relationship with bank efficiency. On the other hand. market share and expense preference behavior were found to be negatively related to bank efficiency levels. The empirical findings suggest that banks in the control group have been relatively more cost efficient than those involved in mergers. The results suggest that the variations in Malaysian bank cost efficiency are not significantly related to economic ‘conditions and concentration.