Do Mergers Improve the X-Efficiency and Scale Efficiency of U.S. Banks? Evidence from the 1980s

Peristiani, Stavros

doi:10.2307/2953697

Cited by 226 publications

(127 citation statements)

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“…Model used True Fourier Curvature imposed Ferrier and Lovell (1990) Translog No Berger and Humphrey (1991) Translog No Berger (1993) Translog No Kaparakis et al (1994) Translog No Berger and Mester (1997) Translog C Fourier trigonometric terms No No Translog C Fourier trigonometric terms No No Peristiani (1997) Translog No DeYoung (1997) Translog No Mester (1997) Translog No DeYoung et al (1998) Translog C Fourier trigonometric terms No No Stiroh (2000) Translog No Clark and Siems (2002) Translog No Berger and Mester (2003) Translog Gallant's (1982) original Fourier flexible functional cost form. It should be noted that there are two globally flexible functional forms which can provide greater flexibility than locally flexible functional forms: the Fourier flexible functional form and the Asymptotically Ideal Model, introduced by Barnett et al (1991).…”

Section: Studymentioning

confidence: 99%

Efficiency and productivity of the US banking industry, 1998–2005: evidence from the Fourier cost function satisfying global regularity conditions

Feng

Serletis

2008

J of Applied Econometrics

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SUMMARYThis paper provides estimates of bank efficiency and productivity in the United States, over the period from 1998 to 2005, using (for the first time) the globally flexible Fourier cost functional form, as originally proposed by Gallant (1982), and estimated subject to global theoretical regularity conditions, using procedures suggested by Gallant and Golub (1984). We find that failure to incorporate monotonicity and curvature into the estimation results in mismeasured magnitudes of cost efficiency and misleading rankings of individual banks in terms of cost efficiency. We also find that the largest two subgroups (with assets greater than 1 billion in 1998 dollars) are less efficient than the other subgroups and that the largest four bank subgroups (with assets greater than $400 million) experienced significant productivity gains and the smallest eight subgroups experienced insignificant productivity gains or even productivity losses.

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Section: Studymentioning

confidence: 99%

Efficiency and productivity of the US banking industry, 1998–2005: evidence from the Fourier cost function satisfying global regularity conditions

Feng

Serletis

2008

J of Applied Econometrics

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“…Focusing on the US banks, earlier studies based on the 1980s data identified little improvement, around 5% after consolidation (Berger and Humphrey, 1992;Peristiani, 1997;Rhoades, 1993) while later studies employing 1990s data showed a more positive effect, greater than 10% (Akhavein, et al, 1997;Berger and Mester, 1999). When the mergers happened among relatively large institutions with substantial market overlap, objectives such as cost cutting could be realized fairly quickly (Rhoades, 1998).…”

Section: Literatures Of the Cost Efficiency Studymentioning

confidence: 99%

The Development of the Chinese Financial System and Reform of Chinese Commercial Banks

Luo¹

2016

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“…Some bank mergers have been criticized for not producing the cost savings or increased revenues that were touted when the mergers were announced, and some academic studies of the effects of consolidation on cost efficiency confirm the critics' assessment (Peristiani, 1997). Other studies find it difficult to make a general statement about the efficiency of mergers (Shaffer, 1993).…”

Section: Introductionmentioning

confidence: 95%

Do Bankers Sacrifice Value to Build Empires? Managerial Incentives, Industry Consolidation, and Financial Performance

Hughes

Pagano

Lang³

et al. 2002

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractBank consolidation is a global phenomenon. It may enhance the value of firms in the industry if, for example, it is driven by scale and scope economies, but skeptics often accuse bankers of sacrificing value to build empires. Using data on bank holding companies in the U.S., we find strong evidence of managerial entrenchment that influences how asset acquisitions and sales affect financial performance. We measure a bank's financial performance both by Tobin's q ratio and by the bank's failure to achieve its highest potential market value, which we estimate using a stochastic frontier technique.We find evidence of entrenchment at banks with higher levels of managerial ownership, better growth opportunities, poorer financial performance, and smaller asset size. However, when managers are faced with better growth opportunities, they generally appear to have an elastic demand for agency goods (perquisites, shirking, risk avoidance, etc.). With regard to empire building, we find that an increase in asset size achieved by internal growth is associated with better performance at most banks, but an increase in acquired assets is associated with worse performance at banks with entrenched managers. In contrast, a larger amount of sold assets by banks with entrenched management is related to improved performance. We do not obtain this asymmetry between the effect of sales and acquisitions at banks not exhibiting entrenchment: larger sales and larger acquisitions both improve performance, a result predicted by Shleifer and Vishny (1989).Our evidence is consistent with the often cited role of scale economies as a driver of bank consolidation, but it also suggests that the benefits of asset acquisitions are not obtained by entrenched managers, who may be able to resist market discipline to build empires.Correspondence to Joseph P. Hughes,

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Do Mergers Improve the X-Efficiency and Scale Efficiency of U.S. Banks? Evidence from the 1980s

Cited by 226 publications

References 0 publications

Efficiency and productivity of the US banking industry, 1998–2005: evidence from the Fourier cost function satisfying global regularity conditions

Efficiency and productivity of the US banking industry, 1998–2005: evidence from the Fourier cost function satisfying global regularity conditions

The Development of the Chinese Financial System and Reform of Chinese Commercial Banks

Do Bankers Sacrifice Value to Build Empires? Managerial Incentives, Industry Consolidation, and Financial Performance

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