The Eficiency Effects of Bank Mergers and Acquisitions in a Developing Economy: Evidence from Malaysia

Abstract

This paper utilises the non-parametric frontier approach, Data Envelopment Analysis (DEA), to analyse the technical and scale efficiency of domestic incorporated Malaysian commercial banks during the merger year, pre-and post merger period. We found that Malaysian banks have exhibit a commendable overall efficiency level of 95.9% during 1998-2003 hence suggesting minimal input waste of 4.1%. Our results suggest that the merger programme was successful, particularly for the small and medium size banks, which have benefited the most from the merger and expansion via economies of scale. On the other hand our results suggest that the larger banks should shrink to benefit from scale advantages. Decision-makers hence ought to be more cautious in promoting mergers as a means to enjoying efficiency gains.Finance and Banking, Mergers, Efficiency Change, Data Envelopment Analysis; Malaysia