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Economies of scale and a process for identifying hypothetical merger potential in Indonesian commercial banks

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  • Hadad, Muliaman D.
  • Hall, Maximilian J.B.
  • Santoso, Wimboh
  • Simper, Richard

Abstract

The aim of this study, through the estimation of a cost function, is to estimate the scale economies and scale and X-inefficiencies of commercial banks operating in Indonesia with a view to identifying hypothetical mergers that could deliver significant cost savings. Economies of scale are typically only found for the largest and smallest banks, with the industry's estimated scale inefficiency averaging 4.4% and the X-inefficiency averaging 23.1%. The main cost reductions identified would result from mergers within the State-owned grouping, where estimated savings of up to Rp 16.7 billion (US$ 1.8 billion), 34% of total costs, would have been secured over the sample period 2004–09. A merger between two Non-foreign Exchange banks would also have proved beneficial.

Suggested Citation

  • Hadad, Muliaman D. & Hall, Maximilian J.B. & Santoso, Wimboh & Simper, Richard, 2013. "Economies of scale and a process for identifying hypothetical merger potential in Indonesian commercial banks," Journal of Asian Economics, Elsevier, vol. 26(C), pages 42-51.
    • Handle: RePEc:eee:asieco:v:26:y:2013:i:c:p:42-51
    DOI: 10.1016/j.asieco.2013.04.006
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    References listed on IDEAS

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    Cited by:

    1. Miguel Mello & Jorge Ponce, 2022. "Structure and Competition in the Uruguayan Banking Sector," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 29(3), pages 271-300, September.
    2. Inka Yusgiantoro & Wahyoe Soedarmono & Amine Tarazi, 2017. "Bank consolidation and financial stability revisited: Evidence from Indonesia," Working Papers hal-01577970, HAL.
    3. Lutfi, & Suyatno,, 2019. "Determinants of Bank Efficiency: Evidence from Regional Development Banks," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(3), pages 59-74.
    4. Du, Kai & Sim, Nicholas, 2016. "Mergers, acquisitions, and bank efficiency: Cross-country evidence from emerging markets," Research in International Business and Finance, Elsevier, vol. 36(C), pages 499-510.
    5. Shaban, Mohamed & James, Gregory A., 2018. "The effects of ownership change on bank performance and risk exposure: Evidence from indonesia," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 483-497.

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    More about this item

    Keywords

    Scale economies; Scale inefficiency; X-inefficiency; Bank mergers; Indonesia;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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