Mergers and Acquisitions

African Journal of Business Management Vol. 3 (8), pp. 340-349, August, 2009 Available online at http://www.academicjournals.org/AJBM ISSN 1993-8233 © 2009 Academic Journals

Full Length Research Paper

Do mergers and acquisitions leads to a higher technical and scale efficiency? A counter evidence from Malaysia

F. Sufian1, 2* and M. Shah Habibullah2

2

Khazanah Research and Investment Strategy, Khazanah Nasional Berhad, Malaysia. Department of Economics, Faculty of Economics and Management, University Putra Malaysia.

Accepted 17 June, 2009

1

The present paper examines the impact of mergers and acquisitions on the technical efficiency of the Malaysian banking sector. The analysis consists of two stages. Firstly, by using the Data Envelopment Analysis (DEA) approach, we calculate the technical, pure technical, and scale efficiency of individual banks during the period 1997-2003. Secondly, we examine changes in the efficiency of the Malaysian banking sector during the pre and post merger periods by using a series of parametric and nonparametric univariate tests. Although the merger programme was unpopular, perceived by the market as impractical, and controversial, the empirical findings from this study suggest that the merger programme among the Malaysian domestic commercial banks was driven by economic reasons. Key words: Mergers and acquisitions, data envelopment analysis, Malaysia. INTRODUCTION Against the backdrop of the Asian financial crisis in 1997, many Asian countries have undergone massive reforms in their financial sector. Consolidation of domestic banking institutions in these countries is an essential concomitant of this strategy. In the case of Malaysia, the proposed major restructuring plan for the banking sector was announced by the central bank of Malaysia, Bank Negara Malaysia (BNM) on July 1999. Among the main objective of the merger programme was to create bigger and stronger domestic banks that are able to withstand competition...