Mergers and acquisitions in the US property-liability insurance industry: Productivity and efficiency effects |
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Authors: | J. David Cummins Xiaoying Xie |
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Affiliation: | 1. Risk, Insurance, and Healthcare Management Department, Temple University, Fox School of Business, 1301 Cecil B. Moore Avenue, Philadelphia, PA 19122, United States;2. Department of Finance, College of Business and Economics, California State University at Fullerton, 2600 E. Nutwood Ave., Fullerton, CA 92831, United States |
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Abstract: | This paper analyzes the productivity and efficiency effects of mergers and acquisitions (M&As) in the US property-liability insurance industry during the period 1994–2003 using data envelopment analysis (DEA) and Malmquist productivity indices. We seek to determine whether M&As are value-enhancing, value-neutral, or value-reducing. The analysis examines efficiency and productivity change for acquirers, acquisition targets, and non-M&A firms. We also examine the firm characteristics associated with becoming an acquirer or target through probit analysis. The results provide evidence that M&As in property-liability insurance were value-enhancing. Acquiring firms achieved more revenue efficiency gains than non-acquiring firms, and target firms experienced greater cost and allocative efficiency growth than non-targets. Factors other than efficiency enhancement are important factors in property-liability insurer M&As. Financially vulnerable insurers are significantly more likely to become acquisition targets, consistent with corporate control theory, and we also find evidence that M&As are motivated to achieve diversification. However, there is no evidence that scale economies played an important role in the insurance M&A wave. |
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Keywords: | G22 G34 |
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