The use of efficiency measures to compute welfare improving: an application for competition policy

Gustavo Ferro and Sonia León

Journal of Financial Regulation and Compliance, 2018, vol. 26, issue 2, 227-245

Abstract: Purpose - Merger approving focuses on both market power and welfare gains. In general, the approval process does not include a comparative efficiency analysis. This paper aims to introduce this dimension and show its potential. Design/methodology/approach - Based on the analysis of past bank mergers, the authors examine expected and actual efficiency gains. This paper measures the potential (ex ante) and ex post efficiency gains of bank mergers by using data envelopment analysis (DEA). Findings - The authors find some (approved) mergers were promised and yielded efficiency gains while others did not. Research limitations/implications - DEA does not allow testing statistically the significance of the presumed relationship between variables. Practical implications - The authors conclude that some mergers that took place would not have been approved had an efficiency analysis been made. Social implications - Regulators and/or competition authorities could approve mergers which do not increase efficiency. Originality/value - To date, efficiency frontier analysis has not been performed for merger approval. It implies that the regulator or competition authority could allow mergers with no clear social gains.

Keywords: Efficiency; Mergers and acquisitions; Banking regulation; Competition policy (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:jfrc-09-2016-0072

DOI: 10.1108/JFRC-09-2016-0072

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