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Estimation of potential gains from mergers in multiple periods: a comparison of stochastic frontier analysis and Data Envelopment Analysis

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  • Desheng Wu
  • Zhaoxin Zhou
  • John Birge

Abstract

A new dynamic Data Envelopment Analysis (DEA) approach is created to provide valuable managerial insights when assessing the merger performance. This new approach allows us to dynamically evaluate the pre-merger firms and the post-merger firm in a multi-period situation. A case study of bank branch merger is conducted to illustrate and validate the proposed approach. Both stochastic frontier analysis and data envelopment analysis are used and compared leading to highly correlated results. The computation show that merger results in an overall efficiency achievement in a banking industry. Copyright Springer Science+Business Media, LLC 2011

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  • Desheng Wu & Zhaoxin Zhou & John Birge, 2011. "Estimation of potential gains from mergers in multiple periods: a comparison of stochastic frontier analysis and Data Envelopment Analysis," Annals of Operations Research, Springer, vol. 186(1), pages 357-381, June.
    • Handle: RePEc:spr:annopr:v:186:y:2011:i:1:p:357-381:10.1007/s10479-011-0903-6
    DOI: 10.1007/s10479-011-0903-6
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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. Chu, Junfei & Wu, Jie & Chu, Chengbin & Zhang, Tinglong, 2020. "DEA-based fixed cost allocation in two-stage systems: Leader-follower and satisfaction degree bargaining game approaches," Omega, Elsevier, vol. 94(C).
    4. Zhou, Xiaoyang & Xu, Zhongwen & Chai, Jian & Yao, Liming & Wang, Shouyang & Lev, Benjamin, 2019. "Efficiency evaluation for banking systems under uncertainty: A multi-period three-stage DEA model," Omega, Elsevier, vol. 85(C), pages 68-82.
    5. Delis, Manthos D. & Kazakis, Pantelis & Zopounidis, Constantin, 2023. "Management and takeover decisions," European Journal of Operational Research, Elsevier, vol. 304(3), pages 1256-1268.
    6. Jianhui Xie & Xiaoxuan Zhu & Liang Liang, 2020. "A multiplicative method for estimating the potential gains from two-stage production system mergers," Annals of Operations Research, Springer, vol. 288(1), pages 475-493, May.
    7. Manthos D. Delis & Pantelis Kazakis & Constantin Zopounidis, 2021. "Management Practices and Takeover Decisions," Working Papers 2021_10, Business School - Economics, University of Glasgow.
    8. Shao-Yin Hsu & Ching-Cheng Lu & Yan-Hui Xiao & Yung-ho Chiu, 2024. "Two-Stage Evaluation of the Pre-merger Potential Gains of Taiwan Financial Holding Companies: Dynamic Network Slack-Based Measure Analysis Approach," Computational Economics, Springer;Society for Computational Economics, vol. 64(4), pages 2131-2178, October.
    9. Ching-Cheng Lu & Yung-ho Chiu & I-Fang Lin & Tai-Yu Lin, 2023. "Dynamic total factors’ environmental efficiency in European union countries," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(9), pages 10055-10072, September.
    10. Ying Li & Yung-Ho Chiu & Tai-Yu Lin & Tzu-Han Chang, 2020. "Pre-Evaluating the Technical Efficiency Gains from Potential Mergers and Acquisitions in the IC Design Industry," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 525-559, April.
    11. Biresh K. Sahoo & Kaoru Tone, 2022. "Evaluating the potential efficiency gains from optimal industry configuration: A case of life insurance industry of India," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3996-4009, December.
    12. Yung‐ho Chiu & Tai‐Yu Lin & Tzu‐Han Chang & Yi‐Nuo Lin & Shih‐Yung Chiu, 2021. "Prevaluating efficiency gains from potential mergers and acquisitions in the financial industry with the Resample Past–Present–Future data envelopment analysis approach," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(2), pages 369-384, March.
    13. Wanke, Peter & Maredza, Andrew & Gupta, Rangan, 2017. "Merger and acquisitions in South African banking: A network DEA model," Research in International Business and Finance, Elsevier, vol. 41(C), pages 362-376.
    14. Doumpos, Michalis & Zopounidis, Constantin & Gounopoulos, Dimitrios & Platanakis, Emmanouil & Zhang, Wenke, 2023. "Operational research and artificial intelligence methods in banking," European Journal of Operational Research, Elsevier, vol. 306(1), pages 1-16.
    15. Mittal, Amit & Garg, Ajay Kumar, 2017. "Why do acquirers prefer M&A? Evidence from Banks in India," MPRA Paper 85354, University Library of Munich, Germany.
    16. Chang, Tsung-Sheng & Lin, Ji-Gang & Ouenniche, Jamal, 2023. "DEA-based Nash bargaining approach to merger target selection," European Journal of Operational Research, Elsevier, vol. 305(2), pages 930-945.
    17. Per J. Agrell & Pontus Mattsson & Jonas Månsson, 2020. "Impacts on efficiency of merging the Swedish district courts," Annals of Operations Research, Springer, vol. 288(2), pages 653-679, May.
    18. Ofori, Eric Makafui & Yeager, Elizabeth & Briggeman, Brian, "undated". "Agricultural Cooperative mergers and efficiency gains: An ex-ante analysis," 2020 Annual Meeting, February 1-4, 2020, Louisville, Kentucky 302323, Southern Agricultural Economics Association.
    19. Sebastián Lozano & Belarmino Adenso-Díaz, 2021. "A DEA approach for merging dairy farms," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 67(6), pages 209-219.
    20. Gholam R. Amin & Ali Emrouznejad & Said Gattoufi, 2017. "Modelling generalized firms’ restructuring using inverse DEA," Journal of Productivity Analysis, Springer, vol. 48(1), pages 51-61, August.
    21. Xiao Shi & Yongjun Li & Ali Emrouznejad & Jianhui Xie & Liang Liang, 2017. "Estimation of potential gains from bank mergers: A novel two-stage cost efficiency DEA model," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(9), pages 1045-1055, September.
    22. Li, Hui & Wu, Dongdong, 2024. "Online investor attention and firm restructuring performance: Insights from an event-based DEA-Tobit model," Omega, Elsevier, vol. 122(C).
    23. Yan He & Yung-ho Chiu & Bin Zhang, 2020. "Prevaluating Technical Efficiency Gains From Potential Mergers and Acquisitions in China’s Coal Industry," SAGE Open, , vol. 10(3), pages 21582440209, July.
    24. Jie Wu & Jun-Fei Chu & Liang Liang, 2016. "Target setting and allocation of carbon emissions abatement based on DEA and closest target: an application to 20 APEC economies," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 84(1), pages 279-296, November.

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