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Efficiency Gains from Mergers and Acquisitions in the Banking Sector: Empirical Evidence from Croatia

This two-stage study's main objective is to evaluate the impact the M&A transactions had on banks’ efficiencies in Croatia. In the first stage, the Banker, Charnes and Cooper (BCC) window technique model of Data Envelopment Analysis (DEA) is implemented to assess the relative efficiency of the whole Croatian banking sector in the period from 2011 to 2020. In the second stage, the impact and efficiency gains or losses from a few case studies of merger and acquisition (M&A) transactions that occurred in the observed period in the Croatian banking sector are analysed in more detail. The sample incorporates 20 commercial banks actively operating in the Croatian market in the observed period of ten consecutive years. The BCC output-oriented window DEA model employs two inputs (interest expenses and non-interest expenses) and two output variables (interest revenues and non-interest revenues). The obtained results reveal new insights in the field of M&A and indicate that the observed M&A transactions in Croatia's banking sector have increased merged banks' efficiency. Moreover, the consolidation of the Croatian banking sector has increased the relative efficiency of the whole banking sector except for the last analysed year 2020, which has more to do with the ongoing COVID-19 pandemic than with banks' efficiency. The research field of the impact and effects of M&A in banking is one of the most controversial fields with very inconsistent findings. Such research for a developing South- eastern European country would give new insights and valuable feedback for potential bank investors, bank management, M&A analysts, academic members and regulatory and government bodies. Moreover, another goal of this study is to present the DEA methodology and its dynamic window technique, together with their strengths and limitations and their less known application in the evaluation of banking M&A transactions. This study provides a great scientific contribution since it represents the first study analysing the impact of banks' M&A on bank efficiency in Croatia with the application of DEA in the past decade.

DEA ; data envelopment analysis ; banking sector ; bank efficiency ; mergers and acquisitions ; Croatia ; window analysis

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