An alternative approach to decompose the potential gains from mergers

Feng Li, Liang Liang, Yongjun Li, Ali Emrouznejad

Research output: Contribution to journalArticle

Abstract

Bogetoft and Wang proposed admirable production economic models to estimate and decompose the potential gains from mergers. They provided a good platform to quantify the merger efficiency and related it to relevant organisational changes ex-ante. In this paper, we develop an alternative approach to decompose the potential overall gains from mergers into to technical effect, size effect, and harmony effect. The proposed approach uses strongly efficient projections, and consistently calculates radial input-based measures for these three effects based on the pre-merger aggregated inputs. In addition, the proposed approach is of vital significance in two special cases where the aggregated projected inputs are not proportional to the pre-merger aggregated inputs and where the production sizes are very different for the original decision-making units. Finally, an application to the City Commercial Banks (CCBs) in China is provided to illustrate the usefulness and efficacy of the proposed approach. The application shows that there exist significant merger efficiency gains for these top 20 CCBs. Further, both the technical effect and harmony effect favour mergers, whereas the size effect would work against most mergers. Thus, in most cases the full-size merger with “organisational sense” is not proper.

Original languageEnglish
Pages (from-to) 1793-1802
Number of pages10
JournalJournal of the Operational Research Society
Volume69
Issue number11
Early online date1 Feb 2018
DOIs
Publication statusPublished - 1 Nov 2018

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Decision making
Economics
Mergers
Harmony
Commercial banks

Bibliographical note

© 2018 Informa UK Limited, publishing as Taylor & Francis. This is an Accepted Manuscript of an article published by Taylor & Francis in Journal of the Operational Research Society on 1 FEb 2018, available online: http://www.tandfonline.com/10.1080/01605682.2017.1409867

Funding: Youth Innovation Promotion Association of Chinese Academy of Sciences, and the National Natural Science Foundation of China (No. 71271196 and 71671172).

Keywords

  • Data envelopment analysis (DEA)
  • decomposition
  • merger efficiency

Cite this

Li, Feng ; Liang, Liang ; Li, Yongjun ; Emrouznejad, Ali. / An alternative approach to decompose the potential gains from mergers. In: Journal of the Operational Research Society. 2018 ; Vol. 69, No. 11. pp. 1793-1802 .
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An alternative approach to decompose the potential gains from mergers. / Li, Feng; Liang, Liang; Li, Yongjun; Emrouznejad, Ali.

In: Journal of the Operational Research Society, Vol. 69, No. 11, 01.11.2018, p. 1793-1802 .

Research output: Contribution to journalArticle

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