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Effects of bank mergers on concentration and efficiency of the venezuelan banking system, 1998-2005

By Ruth Guillén and Bernarda Pinilla

Abstract

This paper analyzes the relation between bank mergers and changes in the concentration and efficiency of the Venezuelan Banking System during the period 1998-2005. Efficiency was estimated through a stochastic cost frontier model. The concentration was measured by deposits and considering the four-firm concentration ratio. The research found evidences that support the idea that mergers are associated with concentration increases. However, the stochastic costs frontier model suggested that banking mergers did not produce efficiency increases; on the contrary, the merged banks were less efficient than non-merged banks.Bank mergers, concentration, efficiency, stochastic cost frontier.

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