The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function

Akhavein, Jalal D.; Berger, Allen N.; Humphrey, David B.

doi:10.2139/ssrn.8296

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The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function

66 Pages Posted: 5 Dec 1997

See all articles by Jalal D. Akhavein

Allen N. Berger

University of South Carolina - Darla Moore School of Business

David B. Humphrey

Florida State University - Department of Finance

Date Written: January 1997

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.

JEL Classification: L11, L41, L89, G21, G28

Suggested Citation: Suggested Citation

Akhavein, Jalal D. and Berger, Allen N. and Humphrey, David B., The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function (January 1997). Available at SSRN: https://ssrn.com/abstract=8296 or http://dx.doi.org/10.2139/ssrn.8296