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The Role of Takeovers in Increasing Efficiency

Richard Grabowski, Ike Mathur and Nanda Rangan
Managerial and Decision Economics
Vol. 16, No. 3 (May - Jun., 1995), pp. 211-223
Published by: Wiley
Stable URL: http://www.jstor.org/stable/2487881
Page Count: 13
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The Role of Takeovers in Increasing Efficiency
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Abstract

This paper extends the limited number of studies that examine whether the threat of takeovers serves as an efficiency-enforcement mechanism. A nonparametric programming approach is utilized to construct a measure of overall efficiency that is decomposed into technical and allocative components. Utilizing three inputs and five outputs, measures of efficiency are constructed for a sample of 578 banks from states that permit acquisitions and states that do not. The results indicate that, on average, banks that are subject to takeovers tend to be more efficient. Furthermore, the lack of threat of takeovers appears to induce inefficiencies that are technical in nature. The evidence lends support to the hypothesis that the threat of takeovers improves efficiency in firms.

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