Mergers among German Cooperative Banks: A Panel-Based Stochastic Frontier Analysis

• Published in: Small business economics 1999-12, Vol.13 (4), p.273-286
• Main Authors: Lang, Günter, Welzel, Peter
• Format: Article
• Language: English
• Subjects: Bank acquisitions & mergers; Bank assets; Bank loans; Bank management; Banking; Banking industry; Banks; Branch banking; Co-operative banks; Comparative studies; Cost efficiency; Cost estimates; Cost functions; Costs; Economic concentration; Economic efficiency; Economic models; Economic theory; Economies of scale; Effects; Efficiency; Financial management; Germany; Mergers; Statistical analysis; Stochastic models; Stochastic processes; Swiss banks; Take-overs; Universal banks
• ISSN: 0921-898X; 1573-0913
• DOI: 10.1023/a:1008130918565

Based on an unbalanced panel of all Bavarian cooperative banks for the years of 1989-97, which includes information on 283 mergers, we analyze motives and cost effects of small-scale mergers in German banking. Estimating a frontier cost function with a time-variable stochastic efficiency term, we show that positive scale and scope effects from a merger arise only if the merged unit closes part of the former branch network. When we compare actual mergers to a simulation of hypothetical mergers, size effects of observed mergers turn out to be slightly more favorable than for all possible mergers. Banks taken over by others are less efficient than the average bank in the same size class, but exhibit, on average, the same efficiency as the acquiring firms. For the post-merger phase, our empirical results provide no evidence for efficiency gains from merging, but point instead to a leveling off of differences among the merging units.