The success of bank mergers revisited − an assessment based on a matching strategy

The question of whether or not mergers and acquisitions have helped to enhancebanks’ efficiency and profitability has not yet been conclusively resolved in theliterature. We argue that this is partly due to the severe methodological problemsinvolved. In this study, we analyze the effect of German bank mergers in the period1995-2000 on banks’ profitability and cost efficiency. We suggest a new matchingstrategy to control for the selection effects arising from the fact that predominantlyunder-performing banks engage in mergers. Our results indicate a neutral effectof mergers on profitability and a positive effect on cost efficiency. Comparing ourresults with those obtained from a naive performance comparison of merging andnon-merging banks indicates a severe negative selection bias with regard to theformer...