Several factors justify such studies. First, the analysis of bank efficiency is still a very important topic from both micro-economic and macroeconomic perspectives. From the micro-economic perspective, the issue of bank efficiency is crucial, given increasing competition and measures to further liberalize the banking system. From the macroeconomic perspective, the efficiency of the banking sector influences the costs of financial intermediation and the overall stability of the financial markets. Second, despite the importance of the U.S. banking sector to the domestic, and international economy, there are only a few studies performed in this area of research. The present study thus addresses an important gap in the literature Third, U.S. banks are set for a wave of mergers and acquisitions (M&A), as President Trump called for a review of the Dodd-Frank Act, a key piece of legislation enacted by the Obama administration to ensure a financial crisis could never happen again, arguing the regulation is too onerous for business and the economy. Indeed, according to Thomson Reuters data, M&A transactions totaled $1.2 trillion since President Trump was elected therefore, it will be very important to assess the performance of U.S. acquiring banks during a deregulation period.
The findings show that large merging banks tend to have the same productivity scores compared with their peer banks. Small merging banks, on the other hand, experienced lower productivity than their peers. The source of the acquirers’ productivity seems to be the efficiency change rather than the frontier shift. Cost efficiency results show that small and large merging banks maintained higher cost efficiencies compared to their peers for the whole period motivated by higher technical efficiency scores . Finally, we conduct an event study to assess if the market could detect productivity changes in merging banks. Our results show that merger deals from the perspective of the acquiring bank are not well received in general by the market. However, the improvement in productivity seems to counterbalance the negative effect of the merging as the abnormal returns of mergers banks become statistically in significant.