Do Bank Mergers and Acquisitions Improve Technical Efficiency of Vietnamese Commercial Banks?

Abstract

This study investigates the efficiency effect of bank mergers in Vietnam between 2007 and 2011. The findings suggest that the exclusion of off-balance sheet activities from output specification underestimates the technical efficiency of banks and reduces the number of possible combinations of mergers. Thereafter, 59 possible bank mergers (PBMs) out of 136 are found to generate technical efficiency gains, thus supporting the view that merging two efficient banks does not necessarily create an efficient entity. In addition, our findings also show that in one year before the global financial crisis (GFC), the majority of PMBs are unable to generate technical efficiency gains. However, in one year after GFC, the majority of PBMs result in technical efficiency improvements. Last, the strategic choices of 45 PBMs are identified. Consequently, this would help the industry to determine which Vietnamese banks to target in future acquisitions.

Keywords: Bootstrap-DEA; Vietnam- mergers and acquisitions; Bank efficiency; GFC

JEL Classification: G20, G21