Strategic Fit and Potential Gains of Mergers and Acquisitions in Banking: An Emerging Market Perspective

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The concerted economic reform efforts of the Ethiopian government focusing on liberalization and deregulation may cause an industry shock that could trigger merger waves in the banking industry. This research analyzes the potential gains and strategic fit from potential bank Mergers & Aquisitons that may arise due to the government’s reforms. An Input-oriented Data Envelopment Analysis with both Constant Returns to Scale and Variable Returns to Scale model is adopted to analyze the potential gains. Intermediation approach is chosen for Input-Output selection. These are obtained from financial statements of 17 Local banks and 4 Foreign banks for the period from 2013 to 2018. Bank size and Ownership structure are used as contextual variables. There are 1,204 and 1,103 potential mergers from which 96.34% and 65.91% of mergers show overall efficiency gains, 63.5% and 54% show pure efficiency gains, 94.6% and 82.14% show technical efficiency gains, 63.46% and 63.37% show scale efficiency gains for Constant Returns to Scale and Variable Returns to Scale assumption respectively. 46.33% of the mergers’ show scale efficiency gains indicating favorability for full mergers, contradicting other researchers. A total of 45 bootstrapped panel Tobit regressions with 50 replications for each are applied to the results. Results show most efficiency gains come from technical efficiency gains which don’t necessitate full mergers. Only local private banks have slight efficiency gains by full mergers. The paper pointed out bank sizes and ownership structures that offer strategic fit and efficiency gains in potential bank Mergers & Acquisitons in Ethiopia


A Thesis submitted to College of Business and Economics of Addis Ababa University in partial fulfillment of the requirements for Master of Business Administration (MBA in Finance)


Data Envelopment Analysis, Efficiency, Mergers and Acquisitions