Abstract
This study employs a stochastic frontier approach to explore the impacts of acquisition targets, diversification and market power on cost efficiency and compare scale economies, and cost complementarity for 44 banks in Taiwan for the period from 1997 to 2006. The empirical results show that MA however, the banks can improve the cost efficiency when they increase the market power of loans. We also find that the banks operate at economies of scale but the cost complementarity does not exist in the outputs of investment and loans.
Highlights
Intense competition and financial deregulation have prompted a wave of the mergers and acquisitions (M&A) in the banking industry throughout the world, starting in the U.S and reaching Europe and Japan
DeYound et al (2009) proposed that the mixed findings could be contributed to the different methodologies and time period being selected, this study further considers the impact of different acquisition targets on cost efficiency
We present the coefficient estimates of the stochastic cost frontier function and of the inefficiency function for Taiwan‟s banking samples during the period considered
Summary
Intense competition and financial deregulation have prompted a wave of the mergers and acquisitions (M&A) in the banking industry throughout the world, starting in the U.S and reaching Europe and Japan. Diversification has accompanied the financial sector consolidation trend. Taiwanese banking industry has been impacted by the surge of bank consolidation through M&A. The authority has taken various measures and restructuring programs to improve the financial industry. The Financial Institutions Merger Act and Financial Holding Company Act were passed in 2000 and 2001 respectively. Followed by the Second Financial Restructuring was passed in 2004 to speed up M&A among financial institutions. M&A of financial institutions have become a trend for Taiwanese financial industry. Financial institutions may conduct M&A, diversify across product lines, increase their market shares to achieve economies of scope or scale, and improve their competitiveness
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