Pre-evaluating technical efficiency gains from possible mergers and acquisitions: evidence from Japanese regional banks

This study focuses on bank mergers and acquisitions (M&As) and applies a DEA based procedure that allows us to pre-evaluate technical efficiency gains from possible M&As in the Japanese regional banking sector. This approach provides a strategic tool for policy-makers to pre-evaluate possible M&As decisions based on performance criteria that are measured in terms of technical efficiency gains. The results clearly show that possible M&As formed by the smaller banks performed better compared with the possible M&As formed by the larger banks. Moreover, our findings imply that small regional banks will have possible efficiency gains when they merge with neighboring banks, whereas larger banks appear to have efficiency gains from merging with distant banks.

[1]  Did Mergers Help Japanese Mega-Banks Avoid Failure? Analysis of the Distance to Default of Banks , 2008 .

[2]  R. Aggarwal.  Characteristics of Japanese finance: A review and introduction , 1994 .

[3]  Abraham Charnes,et al.  Measuring the efficiency of decision making units , 1978 .

[4]  M. Farrell.  The Measurement of Productive Efficiency , 1957 .

[5]  W. Cooper,et al.  Data Envelopment Analysis: A Comprehensive Text with Models, Applications, References and DEA-Solver Software , 1999 .

[6]  Leâ Opold Simar,et al.  A general methodology for bootstrapping in non-parametric frontier models , 2000 .

[7]  Are Credit Unions Too Small? , 2010 .

[8]  Rolf Färe,et al.  Addition and Efficiency , 1986 .

[9]  Léopold Simar,et al.  A Computationally Efficient, Consistent Bootstrap for Inference with Non-parametric DEA Estimators , 2011 .

[10]  Philip Molyneux,et al.  Mergers and Acquisitions of Financial Institutions: A Review of the Post-2000 Literature , 2009 .

[11]  Shiuh-Nan Hwang,et al.  Using data envelopment analysis to measure hotel managerial efficiency change in Taiwan , 2003 .

[12]  P. W. Wilson,et al.  Two-stage DEA: caveat emptor , 2011 .

[13]  Nickolaos G. Tzeremes,et al.  Estimating the degree of operating efficiency gains from a potential bank merger and acquisition: A DEA bootstrapped approach , 2013 .

[14]  G. S. Watson,et al.  Smooth regression analysis , 1964 .

[15]  Competition and risk in Japanese banking , 2013 .

[16]  P. Frantz,et al.  M&A Operations and Performance in Banking , 2009 .

[17]  S. Ongena,et al.  The impact of technology and regulation on the geographical scope of banking , 2004 .

[18]  Dhafer Saidane,et al.  How to Identify the Best Target in the M&A Banking Operations? Case of Cross-Border Strategies in Europe by Line of Activity , 2009 .

[19]  William L. Weber,et al.  A slacks-based inefficiency measure for a two-stage system with bad outputs , 2010 .

[20]  A. Kashyap.  What should regulators do about merger policy , 1999 .

[21]  D. Prior,et al.  Technical efficiency and scope economies in hospitals , 1996 .

[22]  G. Debreu.  The Coefficient of Resource Utilization , 1951 .

[23]  Jeffrey S. Racine,et al.  Cross-Validation and the Estimation of Conditional Probability Densities , 2004 .

[24]  P. W. Wilson,et al.  Sensitivity Analysis of Efficiency Scores: How to Bootstrap in Nonparametric Frontier Models , 1998 .

[25]  Mitsuhiro Fukao,et al.  Financial Sector Profitability and Double-Gearing , 2002 .

[26]  Kazuki Onji,et al.  Capital Injection, Restructuring Targets and Personnel Management: The Case of Japanese Regional Banks , 2011 .

[27]  P. W. Wilson,et al.  Statistical Inference in Nonparametric Frontier Models: The State of the Art , 1999 .

[28]  Léopold Simar,et al.  Of Course We Can Bootstrap DEA Scores! But Does It Mean Anything? Logic Trumps Wishful Thinking , 1999 .

[29]  Myriam García Olalla,et al.  Bank acquisitions and performance: evidence from a panel of European credit entities , 2004 .

[30]  Edzer Pebesma,et al.  Applied Spatial Data Analysis with R. Springer , 2008 .

[31]  Rolf Färe,et al.  A Mergers and Acquisitions Index in Data Envelopment Analysis: An Application to Japanese Shinkin Banks in Kyushu , 2010, Int. J. Inf. Syst. Soc. Chang..

[32]  Hiroshi Morita,et al.  Analysis of economies of scope by data envelopment analysis: comparison of efficient frontiers , 2003 .

[33]  A. Jorge Padilla,et al.  Shared ATM networks and banking competition , 1994 .

[34]  B. Park,et al.  A NOTE ON THE CONVERGENCE OF NONPARAMETRIC DEA ESTIMATORS FOR PRODUCTION EFFICIENCY SCORES , 1998, Econometric Theory.

[35]  Takeo Hoshi,et al.  Zombie Lending and Depressed Restructuring in Japan , 2006 .

[36]  Cláudia S. Sarrico,et al.  Pitfalls and protocols in DEA , 2001, Eur. J. Oper. Res..

[37]  Carlos Pestana Barros,et al.  Productivity and efficiency analysis of Shinkin banks: Evidence from bootstrap and Bayesian approaches , 2011 .

[38]  R. Vander Vennet,et al.  D/2001/7012/07 Efficiency Effects of Bank Mergers and Acquisitions in Europe , 2001 .

[39]  Léopold Simar,et al.  A Note on the Convergence of Nonparametric DEA Efficiency Measures , 1996 .

[40]  P. W. Wilson,et al.  Some Problems with the Ferrier/Hirschberg Bootstrap Idea , 1997 .

[41]  Allen N. Berger,et al.  Efficiency of financial institutions: International survey and directions for future research , 1997 .

[42]  K. Hosono,et al.  Consolidation of Banks in Japan: Causes and Consequences , 2007 .

[43]  A. Ullah,et al.  Nonparametric Econometrics , 1999 .

[44]  R. Aggarwal,et al.  Are Differences in Acquiring Bank Profit Efficiency Priced in Financial Markets? , 2006 .

[45]  Konari Uchida,et al.  How do banks resolve firms’ financial distress? Evidence from Japan , 2012 .

[46]  T. Hoshi.  Economics of the Living Dead , 2006 .

[47]  Léopold Simar,et al.  Statistical inference for DEA estimators of directional distances , 2012, Eur. J. Oper. Res..

[48]  Timothy Coelli,et al.  An Introduction to Efficiency and Productivity Analysis , 1997 .

[49]  Jeffrey S. Racine,et al.  Nonparametric Econometrics: The np Package , 2008 .

[50]  Leigh Drake,et al.  Bank modelling methodologies: A comparative non-parametric analysis of efficiency in the Japanese banking sector , 2009 .

[51]  Yener Altunbaş,et al.  Mergers and Acquisitions and Bank Performance in Europe: The Role of Strategic Similarities , 2004, SSRN Electronic Journal.

[52]  P. W. Wilson,et al.  ASYMPTOTICS AND CONSISTENT BOOTSTRAPS FOR DEA ESTIMATORS IN NONPARAMETRIC FRONTIER MODELS , 2008, Econometric Theory.

[53]  Nobuyoshi Yamori,et al.  Are Banks Affiliated with Bank Holding Companies More Efficient Than Independent Banks? The Recent Experience Regarding Japanese Regional BHCs , 2003 .

[54]  J. A. Al-Khasawneh.  Pairwise X-efficiency combinations of merging banks: analysis of the fifth merger wave , 2013 .

[55]  P. W. Wilson,et al.  Estimation and inference in two-stage, semi-parametric models of production processes , 2007 .

[56]  R. G. Dyson,et al.  Data envelopment analysis, operational research and uncertainty , 2010, J. Oper. Res. Soc..

[57]  Edzer J. Pebesma,et al.  Applied Spatial Data Analysis with R - Second Edition , 2008, Use R!.

[58]  P. W. Wilson,et al.  Estimation and Inference in Nonparametric Frontier Models: Recent Developments and Perspectives , 2013 .

[59]  Ben R. Craig,et al.  Bank Mergers and the Dynamics of Deposit Interest Rates , 2009, SSRN Electronic Journal.

[60]  A. Charnes,et al.  Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis , 1984 .

[61]  R. Aggarwal,et al.  Dividends and Strength of Japanese Business Group Affiliation , 2012 .

[62]  C. W. Sealey,et al.  Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions , 1977 .

[63]  Douglas D. Evanoff,et al.  The Competitive Dynamics of Geographic Deregulation in Banking: Implications for Productive Efficiency , 2008 .

[64]  Satoshi Shimizutani,et al.  The effectiveness of bank recapitalization policies in Japan , 2009 .

[65]  B. Silverman.  Density estimation for statistics and data analysis , 1986 .

[66]  E. Nadaraya.  On Non-Parametric Estimates of Density Functions and Regression Curves , 1965 .

[67]  S. Managi,et al.  The technical efficiency of the Japanese banks : non-radial directional performance measurement with undesirable output , 2012 .

[68]  James R. Barth,et al.  Cross-Border Bank Mergers and Acquisitions: What Factors Pull and Push Banks Together? , 2013 .

[69]  Paul W. Wilson,et al.  FEAR: A software package for frontier efficiency analysis with R , 2008 .

[70]  O. H. Brownlee,et al.  ACTIVITY ANALYSIS OF PRODUCTION AND ALLOCATION , 1952 .

[71]  Kaoru Tone,et al.  Non-parametric measurement of economies of scale and scope in non-competitive environment with price uncertainty , 2013 .

[72]  Emili Tortosa-Ausina,et al.  The effects of geographic expansion on the productivity of Spanish savings banks , 2009 .

[73]  José A. Novo‐Peteiro.  Bank mergers in spatially differentiated markets , 2009 .

[74]  Emmanuel Thanassoulis,et al.  Applied data envelopment analysis , 1991 .

[75]  P. Yu,et al.  Banking Mergers: The Impact of Financial Liberalization on the Taiwanese Banking Industry , 2003 .

[76]  Carmelo Salleo,et al.  Consolidation and Efficiency in the Financial Sector: A Review of the International Evidence , 2003 .

[77]  Jim Albert,et al.  Bayesian Computation with R , 2008 .

[78]  Richard Simper,et al.  Banking efficiency and stock market performance: an analysis of listed Indonesian banks , 2011 .