Keywords: Bank, merger, efficiency, profit, price, antitrust
Abstract: This paper examines the efficiency and price effects of
mergers by applying a frontier profit
function to data on bank ``megamergers.'' We find that merged
banks experience a statistically significant 16
percentage point average increase in profit-efficiency rank
relative to other large banks. Most of the
improvement is from increasing revenues, including a shift in
outputs from securities to loans, a higher-valued product.
Improvements were greatest for the banks with the lowest
efficiencies prior to merging, who
therefore had the greatest capacity for improvement. By
comparison, the effects on profits from merger-related changes in
prices were found to be very small.
Full paper (2825 KB PDF)
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Last update: July 16, 1997