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The Effect of Mergers on the Efficiency of Commercial Banks: Evidence From Malaysia.

Muhammad Hafiz, Desa (2007) The Effect of Mergers on the Efficiency of Commercial Banks: Evidence From Malaysia. Masters thesis, Universiti Utara Malaysia.

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Abstract

This paper studies the effect of mergers on the efficiency of commercial banks in Malaysia from 1995-2005. We utilise the non-parametric frontier approach, Data Envelopment Analysis (DEA), to analyse the efficiency of banks during the financial crisis, the merger year, and the pre-and post merger periods. To make comparison of the efficiency of domestic banks, nine foreign banks are also included in the sample. Results show that before financial crisis, foreign banks were more efficient than domestic banks. Surprisingly, domestic banks had a higher efficiency level than foreign banks in the crisis year with an average technical efficiency score of 96.6% compared to 78.9%. It is evidence that 10 domestic banks selected by Bank Negara Malaysia to be the anchor commercial banks were not really affected by financial crisis which hit the country in 1997. However, domestic banks were inefficient during merger year compared to foreign banks. This was due to some of the acquiring banks merged with weaker banks and influenced the bank's performance. Mergers seem to allow efficient banks to gain control of weaker banks, thus helping them to increase input efficiency. The inefficient banks in merger year were also influenced by integrating system and technology in different location and geographical area. We find that efficient banks are not determined by size as small and medium banks are more efficient. The technical efficiency of domestic banks in five years before and five years after the merger were 92.3% and 97.2% respectively. The results also reveal that Malaysian domestic banks experienced an average efficiency of 100% in year 2005. Overall, this study has established that the merger programme in Malaysia was successful.

Item Type: Thesis (Masters)
Uncontrolled Keywords: Banking, Commercial Bank, Domestic Bank, Financial, Merger Programme
Subjects: H Social Sciences > HG Finance
Divisions: College of Business (COB)
Depositing User: Mr Husni Ismail
Date Deposited: 26 Nov 2008 01:22
Last Modified: 24 Jul 2013 12:05
URI: http://etd.uum.edu.my/id/eprint/33

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