The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function |
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| Authors: | Akhavein JALAL D Berger Allen N Humphrey David B |
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| Institution: | (1) Department of Economics, New York University, New York, NY, 10012;(2) Wharton Financial Institutions Center, University of Pennsylvania, Philadelphia, PA, 19104, U.S.A;(3) Board of Governors of the Federal Reserve System, Washington, DC, 20551;(4) F. W. Smith Eminent Scholar in Banking, Department of Finance, Florida State University, Tallahassee, FL, 32306, U.S.A |
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| Abstract: | This paper examines the efficiency and price effects of mergers by applying a frontier profit function to data on bank  megamergers . We find that merged banks experience a statistically significant 16 percentage point average increase in profit efficiency rank relative to other large banks. Most of the improvement is from increasing revenues, including a shift in outputs from securities to loans, a higher-valued product. Improvements were greatest for the banks with the lowest efficiencies prior to merging, who therefore had the greatest capacity for improvement. By comparison, the effects on profits from merger-related changes in prices were found to be very small. |
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| Keywords: | Bank merger efficiency profit price antitrust |
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