Measuring the Efficiency of Banks - Successful Mergers in the Korean Banking Sector

Measuring the Efficiency of Banks

&nbsp;&nbsp;This paper investigates how the Korean banking sector has accomplished reform, with a focus on mergers and acquisitions of banks. It examines the technical efficiency implications of Korean banks to evaluate their preand post-consolidation efficiency. Using a sample from the period 1996 to 2003, we consider two hypotheses: whether banks with high foreign ownership perform better than domestic banks, and whether bigger banks or banks under a holding company improve their efficiencies and become more competitive.<BR>&nbsp;&nbsp;The study has some significant findings. Average bank scale efficiency deteriorated until 1998, then gradually improved to 2003. Banks with high foreign ownership performed better than other banks. Bank holding companies’ efficiency level fell temporarily after compulsory or voluntary mergers, but they still enjoyed high efficiency scores even after becoming larger.(JEL : G21, G34, D21)