Efficiency effects of horizontal (in-market) bank mergers

Abstract

This study conducts tests to determine whether banks involved in horizontal mergers achieve efficiency improvements relative to other firms. The analysis covers 898 bank mergers from 1981 to 1986. Efficiency is measured by various expense ratios. The results based on OLS and logit analysis are robust. They indicate that during 1981–1986, horizontal bank mergers did not yield efficiency gains. Notably, the findings are based on the mergers believed to be most likely to result in efficiency gains, i.e., they are horizontal mergers, the firms exhibit considerable deposit overlap, and the acquiring firms are, on average, more efficient than the acquired.