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Title: Estimation of the Impact of Mergers in the Banking Industry

Citation Type: Miscellaneous

Publication Year: 2007

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Abstract: It is well-documented that merging banks make adjustments in post-merger bankbranch density. Mergers are usually accompanied by substantial entry and exit. Thesephenomena contradict a widely-used assumption of merger prediction: product qualityand entry are exogenous and are constant pre- and post-merger. This paper aims todevelop a methodology of merger analysis that incorporates the impact of mergers onproduct quality and entry. To avoid multiple equilibria, I estimate the post-mergerpatterns of product quality and entry by exploiting the historical data on bank mergers.Combining them with the estimates of demand and supply, I simulate the post-mergerequilibria of thirteen cases of bank mergers. Most of the predicted post-merger branchdensities and market shares of merging institutions are closer to the actual outcomesthan the widely used sum of pre-merger branch densities and market shares of mergingbanks respectively, which tend to overestimate post-merger branch densities and marketshares for large banks. There are two main ndings on post-merger patterns. First, areduction in the branch density of merging banks is strongly associated with the presenceof highly overlapped pre-merger bank branch networks or large pre-merger market sharesof merging banks. Second, new entrants tend to arise in counties where the total countyincome is high or the deposits of the acquirers are large.

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Authors: Zhou, Xiaolan

Publisher: Yale University

Data Collections: IPUMS USA

Topics: Other

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