The production efficiency effects of bank mergers: evidence from Malaysia.

The purpose of this study is to analyze the technical and scale efficiency of Malaysian domestic banks pre and post-merger over the period 1995 - 2006 by employing the non-parametric frontier approach, Data Envelopment Analysis. The evidence shows mixed results, the largest anchor bank is less efficient than the target banks and the smaller sized anchor banks are more efficient than the targets. However, the anchor banks do not necessarily retain their pre-merger efficiency levels. Overall, banks improve their efficiency scores during the merger period and continue to progress during the post-merger period. The study offers support for the government’s merger incentive policy in particular to the large scale banks with little cling to the smaller sized acquiring banks.