Efficiency in pre-merger and post-merger non-bank financial institutions

Abstract

A two-part process is employed to analyse the role of efficiency in merger and acquisition (M&A) activity in Australian credit unions during the period 1993 to 1997. The measures of efficiency are derived using the nonparametric technique of data envelopment analysis. The first part uses panel data in the probit model to relate pure technical efficiency, along with other managerial, regulatory and financial factors, to the probability of merger activity, either as an acquiring or acquired entity. The results indicate that loan portfolio diversification, management ability, earnings and asset size are a significant influence on the probability of acquisition, though the primary determinant of being acquired is smaller asset size. The second part uses a tobit model adapted to a panel framework to analyse post-merger efficiency. Mergers appear to have improved both pure technical efficiency and scale efficiency in the credit union industry.