A Mergers and Acquisitions Index in Data Envelopment Analysis: An Application to Japanese Shinkin Banks in Kyushu

In this paper, a dynamic network DEA model is developed to evaluate the potential gains in final output from a merger of two firms. The two firms are allowed to have different production technologies or share a common technology. In a beginning period each firm uses period specific inputs to produce a final output and an intermediate output that becomes an input in the production of final outputs in a subsequent period. Firms that merge can use the intermediate input of one firm to produce final output for the other firm, leading to gains in final output for the two merged firms over what the firms could have produced individually. The method is applied to study Japanese cooperative Shinkin banks during 2003 to 2007. Mergers between banks in Nagasaki, Kagoshima, and Miyazaki prefectures tend to have the highest potential gains, while mergers between banks within Fukuoka prefecture and other prefectures and within Saga prefecture tend to have the smallest potential gains.