Efficiency, Value Addition and Performance of US Bank Mergers

36 Pages Posted: 5 Jun 2017

See all articles by Abu Khan

Abu Khan

Dixie State University

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Neal Maroney

University of New Orleans - College of Business Administration

J. Rubio

NYU Polytechnic School of Engineering - Department of Finance and Risk Engineering

Date Written: January 24, 2017

Abstract

There is little consensus regarding the overall performance of mergers and acquisitions in the banking industry. The goal of this paper is to investigate the change in operating performance, efficiency, and value addition of US bank mergers and acquisitions after GLBA. We extend the previous research by combining all the previous methodologies used in mergers and acquisitions studies and add a new methodology, namely Expected EVA improvement. We will test whether these performance metrics yield similar results or if the performance of mergers varies depending on the measurements. We will also examine the factors that have significant impact on changes in bank performance. Our empirical results lead to the conclusion that the industry-adjusted operating performance of merged banks increases significantly after a merger. This finding is consistent with the findings of Cornett et al. (2006). We also find that the acquirer expected EVA improvement increases significantly after a merger. Revenue enhancement opportunity appears to be more profitable if there exists more opportunity for cost cutting such as geographically focused and diversified mergers. Product diversification mergers increase the industry adjusted performance more than product focused mergers. The efficiency or profitability of targets have either a positive or no effect on acquirer performance.

Keywords: Merger and Acquisitions, Diversification, EVA, DEA, Performance, US Banks

JEL Classification: G21, G28, G30, G34

Suggested Citation

Khan, Abu and Hassan, M. Kabir and Maroney, Neal and Rubio, J., Efficiency, Value Addition and Performance of US Bank Mergers (January 24, 2017). Available at SSRN: https://ssrn.com/abstract=2905223 or http://dx.doi.org/10.2139/ssrn.2905223

Abu Khan

Dixie State University ( email )

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Neal Maroney

University of New Orleans - College of Business Administration ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

J. Rubio (Contact Author)

NYU Polytechnic School of Engineering - Department of Finance and Risk Engineering ( email )

Brooklyn, NY 11201
United States

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