The effect of potential mergers on liquidity creation and efficiency in Iranian banks

Abstract

Merger is a strategic measure taken by financial institutions to improve managerial performance. In fact, banks are always seeking to consolidate their actions in the market to converge to the optimum level, achieving integration and enabling banks to reduce their costs and, consequently, improve efficiency at the allocation and productivity levels. Many countries have experience of mergers, but the situation of banking mergers in Iran does not have a definite result to be judged. Therefore, considering the importance of the subject, the purpose of this study is to investigate the efficiency and liquidity situation in the conditions before and after merging with a set of 32 banks in the period 2020-2005 with the approach of Berger and Bowman (2008) and two-stage data envelopment analysis. In this regard, seven scenarios (including 6 public-private mergers and the actual merger of Sepah Bank) were considered. The average liquidity creation index was obtained in the period before the merger and after the merger, the liquidity increased, which could be due to the increase in banks' capital. Also, the performance after the merger increases in 6 scenarios and only one scenario shows a decrease; therefore, while merger is one of the ways to improve the efficiency of banks, choosing the right partner is one of the important components of merger success.