Estimating the degree of operating efficiency gains from a potential bank merger and acquisition: A DEA bootstrapped approach

• Published in: Journal of banking & finance 2013-05, Vol.37 (5), p.1658-1668
• Main Authors: Halkos, George E., Tzeremes, Nickolaos G.
• Format: Article
• Language: English
• Subjects: Acquisitions; Bank acquisitions & mergers; Bank efficiency; Bank management; Bootstrap mechanism; Bootstrap techniques; Data envelopment analysis; Eastern Europe; Economic crisis; Economic efficiency; Efficiency; Financial services; Gains; Greek fiscal crisis; Mergers; Mergers and acquisitions; Studies
• ISSN: 0378-4266; 1872-6372
• DOI: 10.1016/j.jbankfin.2012.12.009

► The degree of operating efficiency gains of potential M&As is modeled. ► We use a bootstrap DEA procedure to calculate potential scale efficiency gains. ► We apply our procedure to the Greek banking sector for the period 2007–2011. ► The Greek fiscal crisis eliminates any potential operating efficiency gains. ► An M&A between efficient banks does not ensure an efficient bank M&A. We propose a bootstrapped Data Envelopment Analysis (DEA)-based procedure to pre-calculate and pre-evaluate the short-run operating efficiency gains of a potential bank merger or acquisition (M&A). As an illustrative example, we apply our proposed procedure to investigate the degree of operating efficiency gains of 45 possible bank M&As in the Greek banking industry over the period from 2007 to 2011. The results reveal that a year before and a year after the initiation of the Greek fiscal crisis, the majority of the potential bank M&As under examination were unable to generate short-run operating efficiency gains. In addition, our results for 2011 indicate that the majority of bank M&As can lead to short-run operating efficiency gains. Finally, the empirical findings support the view that a merger or acquisition between efficient banks does not ensure an efficient bank M&A.