An Empirical Analysis of Bank Mergers and Cost Efficiency in Taiwan

This study compiled input and output panel data of 46 commercial banks in Taiwan during the period from 1997 to 1999 and used the two-stage method to evaluate the effects of bank mergers on bank efficiency. Generally speaking, a bank’s cost efficiency would be improved if the bank mergers happened between banks with different culture backgrounds. On the other hand, if the mergers happened between homogeneous banks, there would be little financial innovation and the cost efficiency would be unsubstantially improved. Another finding is that small banks have superior performance than larger banks in Taiwan. Also, efficiency would seem to dictate against merger mania.