Study On The Efficiency Of Chinese Commercial Banks’Cross-border M&A—Based On The Three-stage DEA Model

Since the1980s, the global financial market has been more and more integrated. Worldwide financial institutions have adapted and implement the internationalization strategy to seek for new opportunities all around the world. In recent years, Chinese commercial banks have also accelerated the pace of internationalization and implemented a series of cross-border mergers and acquisitions. On the one hand, China’s banking reform greatly improved the banks’ overall capital strength and operating efficiency, which laid the foundation for cross-border mergers and acquisitions; on the other hand, the international and domestic environment requires Chinese commercial banks to improve their overall management level through cross-border mergers and acquisitions. So, the question is, whether cross-border mergers and acquisitions can be an effective way to promote efficiency and enhance the international competitiveness? Through empirical research on cross-border mergers and acquisitions in the efficiency of banks, this paper summarizes the results of the previous stage of M&A activities, and provides important references for the development of more effective M&A strategy in the future. Therefore, it has strong theoretical and practical significances.This paper’s research framework are as follows:The first part is introduction, first, describes the background and significance, then introduce related concepts of cross-border mergers and acquisitions in banking field, finally, summarizes the current research and present this paper’s research route; Second part describes the bank cross-border M&A theories, respectively based on the perspectives of neoclassical economics, new institutional economics, FDI theory, Firm Capabilities and Business Finance. The third part reviews the process and characteristics of Chinese commercial banks’ cross-border mergers and acquisitions, then discusses the internal and external motivations and challenges of cross-border mergers and acquisitions; The fourth part apply the three-stage DEA model to analyze Chinese commercial banks efficiency of cross-border mergers and acquisitions during2000-2012. The results showed that:(1) the majority of banks merged shows an improvement in efficiency, but the fluctuations are relative large in the first few years;(2) Compared to other areas, M&As occurred in the Greater China and emerging economics which have closer relations with China show a bigger improvement in efficiency;(3) The magnitude of improvement in efficiency is relatively large in the M&As occurred prior to2006, however, the result of M&As after2006are more inconsistent;(4) Environment adjustment is necessary. The efficiency of three-stage DEA model which exclude the environmental factors and random errors are more accurate than the unadjusted traditional DEA model. The final part is the research findings and policy recommendations. Related policies and recommendations are given on the basis of the conclusions.The innovations of this paper are:first, measure the acquired bank’s efficiency rather than the acquirer bank’s efficiency, because it’s more appropriate for the Chinese commercial bank’s situation; second, instead of using the unadjusted traditional DEA model, this paper apply the environmental factors eliminated and random error adjusted model—the three-stage DEA model to measure efficiency, as discussed in this paper, it’s a better reflection of the true performance of M&As.