Dissynergies of mergers among local banks

In this paper, we investigate how bank mergers affect bank revenues and present empirical evidence that mergers among banks have a substantial and persistent negative impact on merging banks’ revenues. We refer to merger
In this paper, we investigate how bank mergers affect bank revenues and present empirical evidence that mergers among banks have a substantial and persistent negative impact on merging banks’ revenues. We refer to merger related negative effects on banks’ revenues as dissynergies and suggest that they are a result of organizational diseconomies, the loss of customers and the temporary distraction of management from day-to-day operations by effecting the merger. For our analyses we draw on a proprietary data set with detailed financials of all 457 regional savings banks in Germany, which have been involved in 212 mergers between 1994 and 2006. We find that the negative impact of a merger on net operating revenues amounts to 3% of pro-forma consolidated banks’ operating profits and persists not only for the year of the merger but for up to four years post-merger. Only thereafter mergers exhibit a significantly superior performance compared to their respective pre-merger performance or the performance of their non-merging peers. The magnitude and persistence of merger related revenue dissynergies highlight their economic relevance. Previous research on post-merger performance mainly focuses on the effects from mergers on banks’ (cost) efficiency and profitability but fails to provide clear and consistent results. We are the first, to our knowledge, to examine the post-merger performance of banks’ net operating revenues and to empirically verify significant negative implications of mergers for banks’ net operating revenues. We propose that our finding of negative merger related effects on banks’ operating revenues is the reason why previous research fails to show merger related gains.
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Metadaten
Author:Thomas Bloch
URN:urn:nbn:de:hebis:30-60493
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (192)
Publisher:Univ., Fachbereich Wirtschaftswiss.
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2008
Year of first Publication:2008
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2008/11/24
Tag:bank mergers; mergers and acquisitions ; post-merger performance
HeBIS PPN:208988556
Institutes:Wirtschaftswissenschaften
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:C23 Models with Panel Data
G21 Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G34 Mergers; Acquisitions; Restructuring; Corporate Governance
L25 Firm Performance: Size, Diversification, and Scope
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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