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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function
Jalal D. Akhavein, Allen N. Berger, and David B. Humphrey

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.

Keywords: Bank, merger, efficiency, profit, price, antitrust

Full paper (2825 KB PDF)

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Last update: July 16, 1997