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Operating performance of European bank mergers

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  • Ahmad Ismail
  • Ian Davidson
  • Regina Frank

Abstract

With very few exceptions the accepted viewpoint established by (predominantly) US research is that bank operating performance is not improved after merger. In this article we concentrate on European banks and investigate post-merger operating performance for 35 publicly listed bank mergers that were completed between 1992 and 1997. We find that industry-adjusted mean cash flow return did not significantly change after merger but stayed positive. We also find that the merger led to a significant decrease in profitability and capitalisation. Our key finding, in contrast to the US evidence, is that cost-efficiency ratios improved, although the improvement was not large enough to offset the profitability decrease. We also find that low profitability levels, conservative credit policies and good cost-efficiency status before merger are the main determinants of industry-adjusted cash flow returns and provide the source for improving these returns after merger.

Suggested Citation

  • Ahmad Ismail & Ian Davidson & Regina Frank, 2007. "Operating performance of European bank mergers," The Service Industries Journal, Taylor & Francis Journals, vol. 29(3), pages 345-366, December.
  • Handle: RePEc:taf:servic:v:29:y:2007:i:3:p:345-366
    DOI: 10.1080/02642060701849899
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    References listed on IDEAS

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    1. Aruna Srinivasan & Larry D. Wall, 1992. "Cost savings associated with bank mergers," FRB Atlanta Working Paper 92-2, Federal Reserve Bank of Atlanta.
    2. Altunbas, Yener & Marqués, David, 2008. "Mergers and acquisitions and bank performance in Europe: The role of strategic similarities," Journal of Economics and Business, Elsevier, vol. 60(3), pages 204-222.
    3. Stephen A. Rhoades, 1986. "The operating performance of acquired firms in banking before and after acquisition," Staff Studies 149, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

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    2. Reddy, Kotapati Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2013. "Indian economic-policy reforms, bank mergers, and lawful proposals: The ex-ante and ex-post ‘lookup’," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 601-622.
    3. Yanga, Shuying & Kim, Seongcheol, 2017. "Do Cross-border M&As by Chinese Media and Entertainment Firms Create Value? Evidence from US-targeted and Korea-targeted Deals," 14th ITS Asia-Pacific Regional Conference, Kyoto 2017: Mapping ICT into Transformation for the Next Information Society 168549, International Telecommunications Society (ITS).
    4. Fadzlan Sufian & Fakarudin Kamarudin & Nor Halida Haziaton Mohd Noor, 2012. "Determinants of Revenue Efficiency in the Malaysian Islamic Banking Sector محددات كفاءة الإيرادات في القطاع المصرفي الماليزي," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 25(2), pages 199-228, July.

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