Mergers, acquisitions, and bank efficiency: Cross-country evidence from emerging markets

In emerging countries, bank mergers and acquisitions (M&A) are frequently motivated by the objective of promoting stability in the banking industry. However, the evidence that M&A can lead to better performing banks is tenuous at best. In this article, we investigate if this tenuous relationship could be due to the treatment of target and acquiring banks as the same type in empirical analysis, which overlooks the possibility that M&A may affect these banks differently. Using panel data on six emerging countries, our results confirm that the effect of M&A is generally weak except when our regressions are implemented separately for target and acquiring banks. For the latter, we find that target banks tend to be more efficient after an M&A but no efficiency improvements are found for acquiring banks. These results suggest that in emerging countries, bank M&A can lead to efficiency improvements for the combined entity, although target banks are mainly the ones to benefit from it. They also highlight the importance of distinguishing between target and acquiring banks so as to obtain sharper estimates of how M&A might affect bank performance.

Figure optionsDownload as PowerPoint slide