Do mergers improve the X-efficiency and scale efficiency of US banks? Evidence from the 1980s

A central issue currently debated among bank analysts and economists is whether mergers enhance the efficiency of surviving banks. This paper investigates the postmerger performance of acquiring banks that participated in a merger during the period 1980-90. The evidence suggests that acquirers failed to improve X-efficiency after the merger. Acquiring banks, however, experienced moderate gains in scale efficiency relative to a control sample. The second part of the paper uses regression analysis to identify factors influencing the performance of merging banks. The regression results suggest that improvements in postmerger performance depend on the ability of the bank to strengthen asset quality. we find no evidence to support the theory that in-market mergers lead to significant improvements in efficiency.