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Too big to succeed? Banking sector consolidation and efficiency

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  • Montgomery, Heather
  • Harimaya, Kozo
  • Takahashi, Yuki

Abstract

This study examines the effect of banking sector consolidation on bank profit and cost efficiency using data from Japan. Our analysis shows that bank merger events have little impact on profit efficiency, but significantly lower cost efficiency. This suggests that government-coordinated consolidation of banks, especially in a post-crisis environment, results in less cost efficient entities, although the bottom line of profit efficiency is maintained. Our analysis of changes in banking sector competitiveness over the same period suggests that these merged banks are able to maintain their “bottom line” due to increased market power.

Suggested Citation

  • Montgomery, Heather & Harimaya, Kozo & Takahashi, Yuki, 2014. "Too big to succeed? Banking sector consolidation and efficiency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 86-106.
    • Handle: RePEc:eee:intfin:v:32:y:2014:i:c:p:86-106
    DOI: 10.1016/j.intfin.2014.05.005
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    2. Emilios Galariotis & Kyriaki Kosmidou & Dimitrios Kousenidis & Eirini Lazaridou & Trifon Papapanagiotou, 2021. "Measuring the effects of M&As on Eurozone bank efficiency: an innovative approach on concentration and credibility impacts," Annals of Operations Research, Springer, vol. 306(1), pages 343-368, November.
    3. Emmanuel C. Mamatzakis & Anh N. Vu, 2018. "The interplay between quantitative easing, risk and competition: The case of Japanese banking," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 27(1), pages 3-46, February.
    4. Maruyama, Tomoya, 2024. "How competitiveness evolved in the Japanese bank loan market between 1977 and 2020," Japan and the World Economy, Elsevier, vol. 69(C).
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    6. Emmanuel C. Mamatzakis & Anh N. Vu, 2017. "The interplay between quantitative easing and risk: the case of the Japanese banking," Working Papers 226, Bank of Greece.
    7. Abreu, Emmanuel Sousa de & Kimura, Herbert & Sobreiro, Vinicius Amorim, 2019. "What is going on with studies on banking efficiency?," Research in International Business and Finance, Elsevier, vol. 47(C), pages 195-219.
    8. Hela Kallel & Salah Ben Hamad & Mohamed Triki, 2019. "Modeling the efficiency of Tunisian and Moroccan banks using the SFA approach," International Journal of Productivity and Performance Management, Emerald Group Publishing Limited, vol. 68(5), pages 879-902, March.
    9. Sanderson Abel & Alex Bara & Pierre Le Roux, 2019. "Evaluating Bank Cost Efficiency Using Stochastic Frontier Analysis," Journal of Economics and Behavioral Studies, AMH International, vol. 11(3), pages 48-57.
    10. Xiaoqing Maggie Fu & Yongjia Rebecca Lin & Philip Molyneux, 2015. "Bank Efficiency and Shareholder Value in Asia Pacific," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Bank Competition, Efficiency and Liquidity Creation in Asia Pacific, chapter 4, pages 72-95, Palgrave Macmillan.
    11. Heather Montgomery, 2022. "Should I Stay or Should I go Now? The Effect of Bank Mergers on Bank–Firm Relationships in Japan," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 48(3), pages 390-417, June.
    12. Giang Phung & Michael Troege, 2022. "Difficult to digest: Takeovers of distressed banks in Vietnam," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 30(3), pages 489-516, July.
    13. Andriakopoulos, Konstantinos & Kounetas, Konstantinos, 2019. "The impact of large lending on bank efficiency in U.S.A," MPRA Paper 96036, University Library of Munich, Germany.
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    More about this item

    Keywords

    Bank; Crisis; Merger; Efficiency;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G01 - Financial Economics - - General - - - Financial Crises

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