Title: Assessing the impact of mergers and acquisitions on bank profit efficiency: empirical evidence from Malaysia

Authors: Fadzlan Sufian

Addresses: Khazanah Research and Investment Strategy, Khazanah Nasional Berhad, Level 35, Tower 2, Petronas Twin Towers, Kuala Lumpur City Centre, 50088 Kuala Lumpur, Malaysia; Department of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, 43400, Serdang, Selangor Darul Ehsan, Malaysia

Abstract: The present paper examines the impact of forced mergers and acquisitions on the profit efficiency of the Malaysian banking sector. The analysis consists of three stages. Firstly, by using the data envelopment analysis (DEA) approach, we calculate the profit, profit pure technical efficiency, and profit scale efficiency of individual banks during the period 1997-2003. Secondly, we examine the changes in the efficiency of the Malaysian banking sector during the pre- and post-merger periods by using a series of parametric and non-parametric univariate tests. Finally, we perform a panel regression analysis to investigate the relationship between the efficiency of the Malaysian banks while controlling for the potential effects of the contextual variables. We find that the target banks have been relatively more profit efficient in six out of the seven merger cases analysed. The empirical findings suggest that the profit efficiency of the acquiring banks improves (deteriorates) from the merger with a more (less) efficient bank in six out of the seven merger cases analysed.

Keywords: mergers and acquisitions; M&A; data envelopment analysis; DEA; panel regression analysis; Malaysia; bank profits; profit efficiency; banking sector; Malaysian banks.

DOI: 10.1504/IJDSRM.2009.031122

International Journal of Decision Sciences, Risk and Management, 2009 Vol.1 No.3/4, pp.258 - 285

Published online: 21 Jan 2010 *

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