Estimation of potential gains from bank mergers:a novel two-stage cost efficiency DEA model

Shi, Xiao, Li, Yongjun, Emrouznejad, Ali, Xie, Jianhui and Liang, Liang (2017). Estimation of potential gains from bank mergers:a novel two-stage cost efficiency DEA model. Journal of the Operational Research Society, Early ,

Abstract

This paper develops a novel two-stage cost efficiency model to estimate and decompose the potential gains from Mergers and Acquisitions (M&As). In this model, a merged DMU is defined as a combination of two or more candidate DMUs. The merged DMU would surpass the traditional Production Possibility Set (PPS). In order to solve the problem, a Merger Production Possibility Set (PPSM) is constructed. The model minimizes the total cost of the merged DMU while maintaining its outputs at the current level, estimates the overall merger efficiency by comparing its minimal total cost with its actual cost. Moreover, the overall merger efficiency could be decomposed into technical efficiency, harmony efficiency and scale efficiency. We show that the model can be extended to a two-stage structure and these efficiencies can be decomposed to both sub-systems. To show the usefulness of the proposed approach, we applied it to a real dataset of top 20 most competitive Chinese City Commercial Banks (CCBs). We concluded that (1) There exist considerably potential gains for the proposed merged banks. (2) It is also shown that the main impact on potential merger gains are from technical and harmony efficiency. (3) As an interesting result we found that the scale effect works against the merger, indicating that it is not favorable for a full-scale merger.

Publication DOI: https://doi.org/10.1057/s41274-016-0106-2
Divisions: Aston Business School > Operations & Information Management
Additional Information: This article is distributed under the terms of the Creative Commons Attribution 4.0 International Licence (http://creativecommons.org/licences/by/4.0), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the creative Commons license, and indicate if changes were made.
Uncontrolled Keywords: DEA,mergers and acquisitions,potential cost saving,two-stage network,Management Information Systems,Strategy and Management,Management Science and Operations Research,Marketing
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Related URLs: http://www.scop ... tnerID=8YFLogxK (Scopus URL)
Published Date: 2017-02-23
Published Online Date: 2017-02-23
Authors: Shi, Xiao
Li, Yongjun
Emrouznejad, Ali ( 0000-0001-8094-4244)
Xie, Jianhui
Liang, Liang

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