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Performance Changes around Bank Mergers: Revenue Enhancements versus Cost Reductions

Marcia Millon Cornett, Jamie John McNutt and Hassan Tehranian
Journal of Money, Credit and Banking
Vol. 38, No. 4 (Jun., 2006), pp. 1013-1050
Stable URL: http://www.jstor.org/stable/3838992
Page Count: 38
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Performance Changes around Bank Mergers: Revenue Enhancements versus Cost Reductions
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Abstract

This paper examines operating performance around commercial bank mergers. We find that industry-adjusted operating performance of merged banks increases significantly after the merger, large bank mergers produce greater performance gains than small bank mergers, activity focusing mergers produce greater performance gains than activity diversifying mergers, geographically focusing mergers produce greater performance gains than geographically diversifying mergers, and performance gains are larger after the implementation of nationwide banking in 1997. Further, we find improved performance is the result of both revenue enhancements and cost reduction activities. However, revenue enhancements are most significant in those mergers that also experience reduced costs.

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