Impact of Merger on Efficiency and Productivity in Malaysian Commercial Banks

Abstract

This study seeks to determine the impact of mergers on efficiency and productivity of commercial banks in Malaysia for the period from 1995 until 2005. The study uses a non-parametric approach, namely DEA, to estimate the efficiency scores and to construct the Malmquist productivity index. To enable this estimation, three bank inputs and outputs were used. Amongst the findings are that banks exhibit higher efficiency scores after the merger and that the foreign banks are more efficient than the local banks. For productivity, the banks had improved in both periods, before and after the merger. However, it is the local banks that improved the most after the merger. The main source of productivity was technical change or innovation. The findings support the existing policy of having larger domestic banks in terms of size.