Bank Efficiency Dynamics and Market Reaction around Merger Announcement

We study, using the non-parametric data envelopment approach,we investigated the long-run profit efficiency dynamics and theshort-run market reaction of nine pre-classified merger deals ofmerging and non-merging U.S. banks over the time period from1992 to 2003. Our main results are as follows: First, merger dealsthat match least efficient acquirers with the least efficient targetscould improve their profit efficiency four years following themerger event, unlike all other merger deals. Second, we find thatmergers match least efficient acquirers with the least efficienttargets could also achieve significant positive cumulative accessreturns (CARs) while all other deals were followed by significantnegative CARs. Third, we find that, in general, that large-sizeacquirers have and maintain higher and efficiency scores thantargets and non-merging banks. Fianally, the value-maximizingmergers are mostly large in size and match banks with clearchances to increase their future efficiency rankings.