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

REVIEW OF INDUSTRIAL ORGANIZATION, Vol. 12, 1997

Posted: 22 Apr 1997

See all articles by Jalal D. Akhavein

Jalal D. Akhavein

Fitch Ratings Inc.

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

David B. Humphrey

Florida State University - Department of Finance

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

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. REVIEW OF INDUSTRIAL ORGANIZATION, Vol. 12, 1997. Available at SSRN: https://ssrn.com/abstract=8361

Jalal D. Akhavein

Fitch Ratings Inc. ( email )

One State Street Plaza
New York, NY 10004
United States

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

David B. Humphrey

Florida State University - Department of Finance ( email )

Tallahassee, FL 32306-1042
United States
850-644-7899 (Phone)
850-668-6696 (Fax)

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