Bank Consolidation and Performance: The Argentine Experience

Abstract

We examine a large panel of more than 100 banks from Argentina to study the effects of bank consolidation on performance between December 1995 and December 2000, a period of heavy bank consolidation and relative calm. Overall, we find a positive and significant effect of bank consolidation on bank performance. Bank returns increase with consolidation, and insolvency risk is reduced. Additionally, the study suggests that mergers and privatizations have a beneficial effect on bank returns. The effects of a bank acquisition on return on equity is, however, negative. Acquisitions do not seem to have any effect on risk-adjusted returns. The study also finds that a bank`s insolvency risk is reduced significantly through mergers and privatization and is unrelated to bank acquisitions.

Keywords: Bank Consolidation, Banking Industry in Emerging Markets, Financial Performance

JEL Classification: G1, G2