Evaluating the German Bank Merger Wave

Tjalling C. Koopmanns Discussion Paper No. 05-16

36 Pages Posted: 23 May 2005

See all articles by Michael Koetter

Michael Koetter

Halle Institute for Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: March 2005

Abstract

German banks experienced a merger wave throughout the 1990's. However, the success of bank mergers remains a continuous matter of debate. In this paper we suggest a taxonomy as how to evaluate post-merger performance on the basis of cost efficiency (CE). We categorise mergers a success that fulfill simultaneously two criteria. First, merged institutes must exhibit CE levels above the average of non-merging banks. Second, banks must exhibit CE changes between merger and evaluation year above efficiency changes of non-merging banks. We employ this taxonomy to characterise (successful) mergers in terms of various key-performance and structural indicators and investigate the implications for four prominent policy issues particular to German banking. Our main conclusions are threefold. First, roughly every second merger is a success. Second, the margin of success is narrow, as the CE difference amounts to approximately 1 percentage point. Third, it takes around seven years after a transaction until maximum mean CE differentials materialise.

Keywords: Consolidation, Merger, Bank, Efficiency, Germany, stochastic frontier analysis

JEL Classification: C23, G18, G21, G33, G34

Suggested Citation

Koetter, Michael, Evaluating the German Bank Merger Wave (March 2005). Tjalling C. Koopmanns Discussion Paper No. 05-16, Available at SSRN: https://ssrn.com/abstract=726408 or http://dx.doi.org/10.2139/ssrn.726408

Michael Koetter (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/en/about-the-iwh/people/detail/michael-koetter/

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