ARTICLE IN PRESS

Omega 38 (2010) 283–293

Contents lists available at ScienceDirect

Omega

0305-04

doi:10.1

� Corr

E-m

(L. Fuen1 Th

profitab

journal homepage: www.elsevier.com/locate/omega

The effect of mergers and acquisitions on productivity: An empiricalapplication to Spanish banking

Cristina Bernad, Lucio Fuentelsaz, Jaime Gomez �

Generes Research Group in Marketing and Strategy, Universidad de Zaragoza, Gran Vıa 2, 50005 Zaragoza, Spain

a r t i c l e i n f o

Article history:

Received 30 May 2008

Accepted 18 July 2009Available online 18 November 2009

Keywords:

Mergers

Acquisitions

Productivity

Savings banks

Spain

83/$ - see front matter & 2009 Elsevier Ltd. A

016/j.omega.2009.07.005

esponding author. Tel.: +34 976 761000; fax

ail addresses: bernadc@unizar.es (C. Bernad),

telsaz), jaime.gomez@unizar.es, villascuerna@

e term performance is used in this paper in a

ility and productivity.

a b s t r a c t

Mergers and acquisitions are frequently justified in terms of value creation or efficiency improvements.

Nevertheless, the evidence is not consistent with the existence of benefits in terms of the costs,

productivity, profitability or market value of the firms involved. A distinguishing feature of extant

research is that it focuses on the assessment of the consequences of mergers around the time in which

the operation takes place, limiting the possibility of observing a complete integration between the

merged firms. In this context, the objective of this paper is to evaluate the effects of mergers and

acquisitions on the long-run productivity of Spanish savings banks. Our results show that productivity

improvements can be found in only half of the mergers that take place during the period analyzed.

& 2009 Elsevier Ltd. All rights reserved.

1. Introduction

A key concern in strategic management is to explain perfor-mance1 differences between firms [1]. Not surprisingly, research hasconcentrated on the analysis of the strategic actions undertaken byfirms in order to create economic value. Within this context, growthdecisions have received special attention. Researchers have beenconcerned with the effects of the different directions of growth(diversification, product expansion, market expansion) on firmperformance (see, for example, [2]). But, they have also shown agreat interest in the mode of growth chosen, with a particularlyimportant emphasis on mergers and acquisitions.

It can be suspected that the reason why acquisitions havereceived such overwhelming attention in the literature is, at least,twofold. First, they have been very frequent, both in the past andin recent years. Thus, despite the wave of restructuring that tookplace in the eighties [3] and later periods of low activity, recentyears have witnessed an unprecedented number of mergers andacquisitions. In 2006, the volume of world M&A operationsreached a record of $3.8 trillion, an increase of 37.9% over lastyear’s volume, amounting to a total of 36,958 transactions [4].Second, researchers have been attracted by the divergence ofconclusions found both across and within the different fields fromwhich their analyses have been undertaken, namely, strategic

ll rights reserved.

: +34 976 761767.

lfuente@unizar.es

gmail.com (J. Gomez).

broad sense to refer to both

management, industrial organization and finance. A globalassessment of the available evidence provided by numerousstudies would lead us to the following stylised fact: Although theex ante valuation of acquisitions tends to show positive returns(mainly received by the stockholders of the acquired firms) the expost assessments point in the opposite direction, with mergershaving, on average, a negative effect [5].

The need to conciliate the occurrence of mergers with theconflicting empirical evidence has directed the attention of theliterature on strategy towards the analysis of the role played bythe acquisition and the integration processes. The introduction ofthis element is conceptually important, given that it provides anexplanation for performance differences that is compatible withmore traditional views (economic rationality, managers’ optimis-m,y) but also offers an additional perspective to explain them.Indeed, how post-merger activities are designed and managedboth at strategic and organizational levels should be critical forexplaining performance differences between resulting firms.Furthermore, the relevance of the integration process should alsobe present in empirical work. The substantial redeployment ofresources associated with mergers and acquisitions and thecomplexity of the activities involved would suggest that theirevaluation should take a longitudinal perspective, focusing ontheir consequences in the long run.

Our objective in this research is twofold. Our first aim is topresent a conception of mergers and acquisitions that implicitlyattributes an important role to the integration process andextracts relevant implications for empirical designs. Borrowingfrom Jemison and Sitkin [6], the paper starts by elaborating on thecurrent explanation of performance differences from the point of

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view of strategic management. Then, we introduce the concepts ofpotential and effective fit and focus our attention on the integrationprocess as an important driver of performance differences. Finally,we dedicate the last part of this discussion to critically assessingthe empirical evidence and suggesting implications in terms ofempirical work.

The second part of the paper implements some of thesuggestions for empirical research. To achieve this, we focus onthe long-run evaluation of the consequences of mergers andacquisitions in banking. As with research in other sectors ofactivity, the empirical evidence is far from conclusive. In a recentreview of the international evidence for the financial sector, Amelet al. [7] conclude that, in general, mergers do not have positiveeffects on cost or profit efficiency and their effect in terms of valuecreation is scarcely important.

One reason that may justify the extant evidence is thespecificities of the samples used in the analysis. If it is true thatsome of the beneficial effects from mergers have a general nature,it is also possible that some of those advantages show a localcomponent [7]. This would advise the development of nationalstudies to capture the peculiarities of each market. Furthermore,existing research tends to assess the effect of these operations inshort periods of time around the merger.2 Nevertheless, theintegration problems associated with the merging of culturallyand structurally different firms (see, for example, [8]) make theappearance of short-run positive effects highly unlikely, suggest-ing the convenience of considering their consequences in the longrun. In contrast to the short-run analysis that predominates in theliterature, and with the aim of assessing their long-run effects, wetake advantage of the fact that the majority of mergers andacquisitions took place more than a decade ago. Importantly, wetake a longitudinal view, which allows us to consider the changesin performance over time.

We focus on the effects of the mergers in the Spanish Bankingsector, paying special attention to the ones involving savingsbanks. The study focuses on the detection of productivityimprovements associated with these processes. The sample usedin the analysis has the advantage of being formed by relativelyhomogeneous firms in terms of activities or culture and itprovides us with a sufficiently long observation window. Inagreement with the strategies used by Murray and White [9] orHaynes and Thompson [10], our approach takes the Cobb-Douglasproduction function as its departure point. This approach hasbeen frequently used in similar papers that deal with growth inoutput in relation to a series of inputs (see, for example, [11]). Themethodology has the advantage of being simple and, having beenused previously, of making our results comparable.

2. Mergers and acquisitions: explanation of performancedifferences and implications for empirical research

2.1. Strategic fit, organizational fit and the acquisition process

A very large stream of literature has been devoted to studyingthe consequences of mergers and acquisitions. These operationsare frequently justified in terms of shareholder value creation orefficiency improvements. Nevertheless, despite the magnitudeof these organizational events, both in terms of the volumeof resources and the number of operations, the differences inperformance detected in the studies have puzzled researchers invarious fields, who have developed alternative explanations. Fromthe point of view of one of the prevalent conceptions in strategic

2 See, for example, Grifell-Tatje and Lovell [53].

management, the outcome of these processes may depend onthree elements: the complementarities between the firmsinvolved (strategic fit), the degree of compatibility in manage-ment systems and culture (organizational fit) and the develop-ment of the acquisition process [6].

The first element, strategic fit, is defined ‘‘as the degree towhich the target firm augments or complements the parent’sstrategy and thus makes identifiable contributions to the financialand nonfinancial goals of the parent’’ [6, p. 146]. The concept ofstrategic fit has mainly been associated with the idea of synergiesand with the possibility for the resulting firm of obtainingrelevant economies of scale and scope that reduce the firm’saverage costs. Thus, for example, Penrose [12] argues thatorganizational growth allows sharing quasi-public assets amongdifferent activities and products. According to Lubatkin [13], thesesynergies may be of different types. Technical economiesarise from an increase in productivity as a result of changes inthe physical process of production that lead to a reduction of costsand an increase in market share or profitability. A second type,pecuniary economies, stem from market power. This is the casewhen a merger or an acquisition increases market concentration.The resulting firm could also limit rivalry through the increase inmultimarket contact [14–16]. A final source of synergies arisesfrom risk reduction as diversification proceeds. For example, morediversified firms could take advantage of the dispersion of theiractivities in order to use the profits obtained in one market tocompete in another.

The concept of organizational fit refers to ‘‘the match betweenadministrative practices, cultural practices, and personnel char-acteristics of the target and parent firms and may directly affecthow the firms can be integrated with respect to day-to-dayoperations once an acquisition has been made’’ [6, p. 146].Contrarily to the idea of strategic fit, which has focused on thepositive effects of mergers and acquisitions, the concept oforganizational fit centres on the possible disruptions caused by,for example, a clash between different cultures or managementsystems. In fact, the influence of cultural differences (orsimilarities) on the performance of mergers and acquisitions isreceiving increasing attention in the literature (see, for example,[17] or, more recently, [18]).

Jemison and Sitkin [6] add a third element to their explana-tion of organizational differences in merger performance. Theycontend that the characteristics of the acquisition process alsoinfluence the success of the combination of different firms.By the acquisition process, they understand ‘‘the processof analysing, negotiating with, and acquiring another firm’’[6, p. 148]. Four impediments account for the failures that mayarise at this stage. First, the complexity of the analyses (industryor competitor analysis, financial analysisy) and the prevalenceof traditional methods lead to a poor integration and anexcessive emphasis on strategic fit over organizational issues.Second, once the acquisition process has started, the factorsleading to a completion of the process are stronger than thoserestraining it, even if, as new information is unveiled, doubtsarise about the convenience of the operation. Third, althoughsome ambiguity may be convenient in the first stages of theacquisition, the lack of concrete agreements may transfer someof the problems to latter stages. Finally, a fourth influence on theacquisition process stems from a misapplication of managementsystems by the parent firm.

2.2. Potential fit, effective fit and the integration process

The consideration of the concepts of strategic and organiza-tional fit has clear implications for the explanation of performance

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differences in mergers and their evaluation. To understand them,we first refine the idea of fit and go to underline the relevance ofthe integration process.

First, we suggest a distinction between the potential fit thatcould be achieved and the fit effectively delivered. By potential fitwe understand the optimum level of integration that should beaccomplished between the parent and the target firms in theirstrategic activities, resources and capabilities. The concept ofpotential fit cannot be considered in isolation, but essentiallydepends on the characteristics of the firms involved in the mergerand the markets in which they operate. Importantly, it isassociated with a maximum level of value creation, mainlyobtained through the different types of synergies described atthe beginning of this section. In contrast, by effective fit weunderstand the level of integration actually achieved after theintegration process has finished. It is associated with a creation ofvalue that will not exceed, but may be lower than, the maximum.

Aside from the effects of the acquisition process, the prevailingconceptualization in the literature tends to attribute the differ-ences between maximum and effective value creation to thedegree of organizational fit between the firms involved. At firstsight, organizational fit would seem to depend on the differences(or similarities) between the merged firms. Therefore, we wouldexpect that a higher compatibility (in terms of administrativepractices, culture or personnel characteristics) would reduce thenumber and importance of disruptions in the integration processand increase the probability of a successful implementation.

Second, and more important, the distinction between potentialand effective fit focuses attention on the relevance of theintegration process. By the integration process we understandthe group of activities designed to obtain the maximum degree ofstrategic and organizational fit. It starts when the acquisition hasfinished and ends when the consequences of all the consciousefforts directed to achieving the optimum fit have ceased havingan effect on the new organization. This process, which develops intwo different levels—strategic and organizational—is complexin nature and, more importantly, its consequences may have animpact on performance over long periods of time.

From a strategic point of view, the literature on strategicmanagement has stressed the role of acquisitions as a way ofreconfiguring firm resources and as a means of achieving businesschange (see, for example, [19] or, more recently, [20]).3 Reconfi-guring may proceed through restructuring (the ‘‘buying or sellingof businesses within an organization’’, [20]) or through redeploy-ment (the ‘‘use by a target or acquiring business of the otherbusiness’ resources’’, [19]). So, the activities carried out in theintegration process involve the reallocation, recombination, sell-ing or buying of different resources. These may include manage-rial expertise, supplier skills, manufacturing know-how, financialresources, innovation capabilities, brand names, marketing ex-pertise or sales and distribution networks [21]. Capron andMitchell [21,22] provide evidence that this process is especiallyimportant in target firms, which tend to suffer a more extensiverestructuring than acquirers. Nevertheless, they also concludethat a bilateral redeployment of resources is common, that is,resources are transferred both from the acquirer to the target andfrom the target to the acquirer.

Reconfiguration constitutes a central process in the integrationstage. Through it, firms take advantage of the opportunities foraugmenting or complementing the parent’s strategy and createsynergies. Moreover, the research by Capron and Mitchell [22]

3 This view is also supported by the data. For example, Karim and Mitchell

[20] show how acquiring firms changed more product lines than non-acquirers

and were also more prone to the introduction of new product lines.

suggests that, in order to improve their capabilities, firms’reconfiguration must be substantial. In their analysis of 253mergers and acquisitions undertaken by firms in North Americaand the European Community, high bilateral resource redeploy-ment was associated with improved capabilities in the majority ofthe cases. Moderate bilateral redeployment and unilateralredeployment presented a lower impact.

The integration process also proceeds at the organizational

level. From this perspective, organizational fit is achieved throughthe process of acculturation. Acculturation is defined as ‘‘changesinduced in (two cultural) systems as a result of the diffusion ofcultural elements in both directions’’ [23, p. 215]. The literatureon psychology recognises that acculturation takes place throughthree different stages: contact, conflict and adaptation [24]. In thecontext of mergers and acquisitions, contact occurs when thecultures of the merging firms interact. Conflict may arise as aconsequence of the resistance of one of the firms (or all) toassume the cultural or administrative practices of the other(s).Finally, adaptation is seen as the outcome of the previous stepsand could result in adjustment, reaction or withdrawal [23].

The conceptualization of acquisitions reviewed in the previousparagraphs has implications for the explanation of performancedifferences in mergers and their evaluation. Firstly, the conceptsof potential and effective fit and the importance attributed to theintegration process should lead us to recognise that, evenassuming value-maximising behaviour, not all mergers andacquisitions will render positive results. On the one hand,negative performance could arise from an incorrect evaluationof the potential strategic fit that could be achieved. For instance,managers could be overoptimistic in terms of the synergies thatcould be delivered by the resulting firm [25] or they could findunexpected values in the acquired firm.4 The resource-based viewof the firm [26,27] has emphasised the invisibility (and ambi-guity) of firm resources and capabilities, and this could beaggravated by the ambiguity that frequently affects the acquisi-tion process [6]. On the other hand, the integration process couldplay a critical role in the reduction of the distance betweenmaximum and effective value creation. From a strategic point ofview, the substantial reconfiguration of firm resources andactivities associated with mergers and acquisitions suggests that,in order to reduce the distance between potential and effective fit,firms must engage in complex activities whose consequences maybe indeterminate. In fact, the performance of the resulting firmcould be negatively affected by the processes of redeploymentand divesting [28]. Similarly, the complexity surrounding con-cepts such as organizational culture would bring us close toconclusions from an organizational perspective.

Second, the temporal pattern of the benefits attributed tomergers and acquisitions would critically depend on a potentiallylong-lasting integration process, whose indeterminate conse-quences may only be visible after long periods of time. As Karimand Mitchell [20] point out ‘‘ypost acquisition activities andimplications will tend to take place over periods of years.’’ Forexample, their evidence suggests that the elimination of productlines is more visible in the long term. Strategically, the temporalpattern will typically depend on several factors such as the type ofintegration or the kind of resources and activities reconfigured. Inthe first case, the literature has largely recognised the differencesassociated with related and unrelated diversification, with theformer not only presenting a higher potential for synergies, butalso requiring a more intense (and potentially longer) process ofintegration than the latter. In the second it seems clear that some

4 This is what Lubatkin [13] calls the ‘‘manager make mistakes’’ explanation.

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resources (financial, for example) are more easily transferablethan others (e.g.: product innovation capabilities).

Again, the implications would be similar when considering theconsequences of the integration process from an organizationalperspective. Teerikangas and Very [18, p. S39] point out thatmanagers’ efforts to take into account cultural differences duringthe process ‘‘should be seen in a long-term and dynamicperspective’’. Organizationally, the timing would depend onwhether firms are able to achieve congruence or not. Congruencewould come when both organizations agree on the preferredmode of acculturation [17]. This tends to happen, for example, inrelated diversifications in which the members of the acquired firmare willing to adopt the culture and organizational practices of theacquirer and the acquirer values uniculturalism in an attempt toachieve synergies. In contrast, differences between the preferredmodes of acculturation between the partners would lead todisruptions and acculturative stress [17], reducing value creationor delaying performance benefits. The fact that, in approximatelythree quarter of the cases, the managerial capabilities of theacquirer (reporting systems, planning tools, financial expertise,y) are transferred to the acquired [22] may clarify why employeeresistance may constitute an obstacle to integration.

5 Of course, the duration of the integration process could be different

depending on factors such as the industry analysed, the firms involved or the

type of integration pursued.6 Note, that we are not saying that mergers and acquisitions will show

positive performance effects in the long run. In fact, the distinction between

potential and effective fit attempts to recognise that some value could be

destroyed.

2.3. Implications in terms of empirical designs

Research on the effects of mergers and acquisitions onperformance has taken place in many fields, including finance,industrial organization and strategic management. Nevertheless,the empirical research has largely been dominated by the use ofthe event studies methodology popularized by finance scholars.Simply stated, this method is based on the idea that financialmarkets are able to offer a correct valuation of the expectedreturns coming from any share traded on the stock exchange.Researchers using this methodology assess the impact of theannouncement of the acquisition on the (abnormal) returns of thetarget and bidder firms. In order to obtain a measure of abnormalreturns, the method compares the observed return of the sharearound the announcement date with the performance of themarket. A positive value of the difference between both measuresprovides grounds for affirming that the operation has createdvalue.

Despite its popularity, this methodology may be criticised on anumber of grounds. First, the need to make use of financial marketdata tends to restrict the samples used in the analyses to public(and, usually, larger) firms. This is surprising, given that we wouldexpect the potential for scale or scope economies to be higher insmall and less diversified businesses. This fact should conditionour interpretation of existing evidence as generally limited to bigfirms.

Second, and more important, although the foundations of thismethodology are well grounded, they critically depend on anassumption of perfect foresight that is at odds with theconception of the integration process detailed in the previoussub-sections. The complexities of the integration process in bothdimensions, strategic and organizational, would create strongdoubts about the ability of financial markets to correctly predictoutcomes. Even assuming that the analysts had the appropriatemethods, it would be possible for them to approximate theirvaluations to those corresponding to potential fit. They wouldhave more difficulties to predict all the organizational andstrategic events that condition effective fit. The reasons forexpecting bias in the estimation of gains associated withacquisitions would be aggravated by the fact that evaluationmethods do not tend to be suited to the assessment of the

organizational dimension [6] and by the unexpected valuesrevealed during the integration process.

Interestingly, this criticism is consistent with research thatcompares ex-ante (finance based) and ex-post (industrial organi-zation or strategic management based) evaluations of perfor-mance and resembles an old discussion in the industrialorganization literature about the virtues of hindsight versusforesight [5]. The comparison of the two types of measures leadsto a clear conclusion: whereas financial methods tend to attributeconsistent gains to acquisitions (especially to the acquired firm),the ex-post assessments tend to reach the opposite conclusion.The most recent evidence confirms that ex ante and ex postevaluations of acquisitions are poorly correlated. For example,Schoenberg [29] finds no statistically significant relationshipbetween the abnormal returns obtained in 61 British acquisitionsof European firms and subjective assessments of managers andexperts. This author contends that the lack of correlation could bedue to the difficulties of investors and managers to predict theoutcomes of the integration process [30,31].

Third, and related to the previous point, the importance of theintegration process not only makes forecasting a difficult task, butalso suggests that, whichever the method used, the performanceeffects of mergers and acquisitions can only be valued in the longrun. This has not been the approach followed by the literature onmergers and acquisitions, which has generally tended to analysethe reaction of financial markets around the announcement ofthese operations. For example, Campa and Hernando [32], in areview of the empirical literature on finance, show howresearchers tend to use observation windows whose maximumsize usually ranges from 3 months before to 3 months after theannouncement. Although the ex post evaluation of performanceusually considers longer periods of time, this tends to be limitedto the three years after the operation (see, for example [33]). Inthe light of the aforementioned arguments, this window mightnot be wide enough to capture the consequences of theintegration process.5

Furthermore, research has frequently neglected the long-itudinal dimension, with the consequence that mergers andacquisitions are assessed at a unique point in time afterannouncement or completion. This fact has probably hiddenimportant information about the timing and the sign ofperformance effects. Managers and researchers would be surelyinterested in knowing the time pattern of those effects. Forexample, the likely disruptions caused by acquisitions could befollowed by an initial reduction in value creation, later convertedinto positive performance as integration proceeds and theresulting firm captures the forecasted synergies.

In conclusion, the arguments developed in the previousparagraphs lead us to propose that a more dynamic view shouldbe considered in the assessment of the consequences of mergersand acquisitions.6 The relevance attributed in the literature to theintegration process and the complexities surrounding it suggestthat, whichever the method used, the consequences should beevaluated in the long run and taking the longitudinal dimensioninto account. Although it is true that papers adopting an ex postview tend to use longer windows, the bulk of the literaturefocuses on a very short period after announcement or completion,

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which may not be enough for the effects of the integration processto be unveiled.

3. The consequences of mergers and acquisitions in thebanking sector

3.1. Empirical evidence

To offer an analysis of performance effects that incorporates thelongitudinal dimension, we have chosen the banking sector. Theconsequences of mergers and acquisitions in banking have beenfrequently analyzed, but the empirical evidence is not conclusive.There are many articles that show a positive effect of mergers onthe resulting firms [10,33–39], but we can also find numerousstudies obtaining no evidence of such improvements [40–47].

There is no doubt that some of the reasons provided abovemay explain the absence of consensus among the differentstudies. Nevertheless, we may find additional reasons arisingfrom the specificities of the samples used or the periodsconsidered in the analyses. On the one hand, we should becautious because the differences in regulation and the specificitiesof the financial markets of each country do not allow a directcomparison between them [7]. On the other hand, some papersassess the effect of mergers in a regulated context or simply theconsequences of deregulation on the efficiency of the system[48–50]. In this situation, the restrictions introduced byregulation could have constituted an impediment to the fullachievement of scale or scope economies and policy makersusually believe that ‘‘improving the efficiency and performance of

financial systems is better implemented through deregulatory

policies’’ [48]. The process of deregulation that took place in themajority of developed countries should have increased thefreedom of banking firms to engage in these operations, withthe only restriction of economic viability. Therefore, in aderegulated context, we should expect an increase in theprobability of finding significant effects on firm performance.7

Previous empirical research supports (at least partially) thisassumption. Kumbhakar and Lozano-Vivas [49] conclude thatmark-ups on output (deposits and loans) decline over time(although it is also true that both markets are far from beingperfectly competitive). Similarly, Kumbhakar and Lozano-Vivas[50] show that deregulation exerted a positive effect on the totalfactor productivity growth.

The evidence on the Spanish banking sector concludes thatmergers and acquisitions do not have significant effects on thedifferent performance measures used. Raymond [51] focuses onsavings banks, without reaching a clear conclusion on the neteffect of mergers on costs. In a similar vein, the results of Fuentesand Sastre [52] are also ambiguous in terms of the consequenceson efficiency levels or the capacity to generate profits. In a moregeneral study, Grifell-Tatje and Lovell [53] examine the effects ofderegulation on productivity, paying attention to the conse-quences of mergers between savings banks. From their analysiswe may conclude that unequivocal efficiency improvements areonly found in those cases in which integration takes placebetween efficient firms. Interestingly, the resulting firms show adecline in productivity once consolidation takes place.

7 It is important to note that a higher level of efficiency does not necessarily

imply higher levels of profitability. As a number of firms increase their efficiency in

a competitive market, the expected outcome will be a reduction in the prices paid

by consumers, without any positive effect on firm profitability (sometimes, a firm

may obtain a temporary competitive advantage that will be quickly eroded by

imitation).

More recently, Carbo et al. [54] analyze the mergers that tookplace between savings banks in the period 1986–1999. Theirresults show that the merged firms experienced a higher increasein average costs than the rest of the industry. Nevertheless, theirresults are not significant when they analyse differences inaverage return on credits and loans or return on assets. Finally,Carbo and Humphrey [55] analyze the effects of mergers betweensavings banks in the period 1986–2000. Even though, on average,these authors find that merged firms were able to reduce averagecosts, the individual analysis of the operations leads to theconclusion that this was only true in approximately one third ofthe cases.

3.2. Model specification

To evaluate the consequences of mergers and acquisitions, theliterature usually tries to find some indicator of gains inperformance or value creation. The alternatives used include thecalculation of the distance from the firm to the efficient frontier[47], changes in productivity [10] and the development of eventanalyses that compare the prices of the firm’s shares before andafter the merger [56].

The approach followed in this paper centers on the analysis ofproductivity. We estimate a Cobb–Douglas production function inwhich labor and capital constitute the two main inputs.8 Thisprocedure has the advantage of being relatively simple toimplement and, given that it has been used previously in theanalysis of mergers, we can compare our results to the onesobtained in previous research. The output (Q) of a financialintermediary i at moment t can be expressed as

Qit ¼ ALaitKbit ð1Þ

where L represents the amount of labor, K stands for capital, A is aparameter and a and b are coefficients that indicate theimportance of the effect of the different factors on total output.To estimate the model, it has to be transformed into its linearspecification, taking logarithms in (1), as follows:

LnðQitÞ ¼ LnðAÞþa LnðLitÞþb LnðKitÞ ð2Þ

One advantage of acting in this way is that the model can beaugmented to incorporate the effect of technological change ormergers on productivity. In the latter case, their impact can bemeasured through the introduction of dummy variables for eachmerger. Thus, we can compare productivity before and afterconsolidation. With the introduction of the dummy variables,model (2) can be expressed as

LnðQitÞ ¼ LnðAÞþa LnðLitÞþb LnðKitÞþX

t

dmergeri;t-s ð3Þ

where s is the year in which the merger took place and the (t�s)merger dummy variables equal one in the (first, second, third,y)year after firm i has been involved in a merger or acquisitionprocess and zero otherwise.

Model (3) can be easily estimated through the usual regressionmethods. Given that the presence of non-observable variables isusual in strategic management [57], our estimation includes firm-fixed effects with the aim of including their possible influence onproductivity. So, the final model takes the following form:

LnðQitÞ ¼ LnðAÞþa LnðLitÞþb LnðKitÞþX

t

dmergeri;t-sþeitþgi ð4Þ

where eit is an error term, gi is the firm-fixed effect and the othervariables have been previously defined. As mentioned above,

8 Alternative specifications such as the Translog function do not change the

conclusions presented in this paper.

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mergers and acquisitions frequently result in a bilateral redeploy-ment of resources. Therefore, a new fixed effect is assigned everytime a merger (or acquisition) takes place.

3.3. Sample and variables

The sample used in the analysis covers the whole population ofsavings banks that were operating in Spain between 1986 and2004. During that period, there were a total of 17 mergers andacquisitions,9 with the subsequent reduction in the number offirms (77 savings banks in 1986, 46 in 2004). In the last twodecades, the Spanish banking sector has undergone importantchanges. Firstly, competition was tightly regulated until the finaldecades of the last century. A clear consequence of this was thatbanks were not allowed to use competitive variables usuallyemployed in other industries, such as prices or location. In thecase of the savings banks, the elimination of branching restric-tions took place in 1989. In the first three years after deregulation(1990, 1991 and 1992), the number of firms dropped from 76 to53. Secondly, the diffusion of new technologies has substantiallychanged how firms compete. The investment needed to acquiretechnology and the necessity to reach a relatively large size inorder to produce efficiently may have constituted additionalreasons for firms to grow.

At this point, it is important to highlight that our samplepresents several advantages for carrying out the type of analysispresented in this research. On the one hand, we would expect theentities included in our sample to be more homogeneous than theones usually considered in other merger and acquisition studies.Therefore, as we have previously argued, a greater similarity interms of resources, management philosophy or firm cultureshould increase the probability of the success of the merger andensure positive performance. On the other hand, the fact thatmost of the mergers and acquisitions took place at the beginningof our observation window allows us to observe the consequencesof consolidation on productivity in the long run.

The data needed to estimate our model are provided by theSpanish Savings Banks Association (CECA). More precisely, in themajority of the cases the variables have been constructed frominformation available on the balance sheet for each bank. To selectthe variables, we have followed the intermediation approach10

[58]. As a consequence, our dependent variable (total output, Q)includes the value of loans and investments for each firm [10].11

Labor (L) is proxied by the number of full-time employees. Finally,capital is measured in two complementary ways. The firstconsiders the value of fixed assets in each year (K1). The secondcaptures the liquid assets of the firm (K2).12

9 The actual number of M&A is 24. However, we only consider that an

acquisition takes place when the assets of the acquired firm represent, at least, a

5% of the total assets of the resulting firm (20 M&A meet this criterion).

Additionally, we require a firm to be operating for at least two periods in order to

be included in our sample (this happens when a merged firm gets involved in

another M&A). Therefore, the number of mergers and acquisitions used in the

empirical analysis is 17.10 All the variables used are defined in the Appendix A. The descriptive

statistics are defined in the Appendix B.11 As an anonymous referee has pointed out, it could be argued that the single

consideration of loans and investments would prevent us from taking into account

the risk of savings banks (i.e. the quality of the credit portfolio or the funding

structure). Although our approach has been frequently used in the previous

literature (see, for example, [69]; or [10,70]), it is necessary to admit that the

omission of this control variable may influence our results (the savings bank

specific fixed effect could capture these differences). We expect that the

homogeneity of our sample (savings banks perform similar activities and have

traditionally taken moderate levels of risks) minimizes this risk.12 All the monetary variables are expressed in constant prices.

In relation to the effect of mergers on productivity, ourapproach is to define a dummy variable representing the resultingfirm. In this context, an important question is the identification ofthe moment from which the effect of the merger has an impact onproductivity. Given that the literature does not offer clearindications about this issue, researchers have considered differentobservation windows to assess the consequences of mergers. Forinstance, Rhoades [44] compares the performance of the resultingfirms during four years after the merger, while [35] only considerthe following year. Haynes and Thompson [10] assess theevolution of the production function in the year in which themerger takes place and five years after the merger. In general, inall these cases, the consequences of the merger are evaluated inthe short or medium term, but their long-term effects are notconsidered.13 Nevertheless, we can find some attempts toconsider longer time horizons within the management literature.Barkema and Schijven [59] show that it could take up to 10 yearsbefore the full performance impact of the acquisition appears.Biggadike [60] indicates that merged firms will need between 10and 12 years to achieve the performance of mature firms.Birkinshaw et al. [61] conclude that the first stage of theacquisition process (and there is a second one) needs between 5and 7 years to be completed. It is true that as we move away fromthe time that the merger takes place, it becomes difficult toestablish a causal relationship between mergers and theirconsequences. This has traditionally been seen as a problem thatis difficult to solve in social sciences but we understand that,paying special attention when interpreting the results obtained, itis necessary to assume this risk.

Our hypothesis is that, although it is possible that some effectscan be observed in the short run (mainly those due to theelimination of redundant branches or overhead costs), there areother effects that should only be observable in the long run. As wehave commented, one advantage of our sample is that most of themergers take place during the first years of the observationperiod. Therefore, we have enough time to evaluate theirconsequences. In order to take this possibility into account, ouraugmented production function includes 12 dummy variables.The first one, merger equals one the year in which the mergertakes place. In a similar vein, we define 10 additional dummyvariables (merger 1y merger 10) for each of the 10 years after themerger. An additional dummy variable (merger final period) isdefined for those periods after the tenth. As it will be clarifiedbelow, it is important to note that the coefficients accompanyingthese variables should be jointly interpreted with the changes inthe fixed effects that are introduced in our estimations.

Finally, savings banks’ productivity may have been affected byother factors not considered in our model, including variations inthe economic cycle, interest rates or other aspects that changeover time. With the aim of including these factors in theestimation, the model includes 18 yearly dummy variables.

4. Results

Table 1 presents the results of the estimation of the augmentedCobb–Douglas function presented in Section 3. All the models areestimated over the 1062 available observations. Models 1–3 use

13 In Spain, Carbo et al. [54] analyze the consequences of the mergers

comparing the results three years before and three years after the merger (they

allow a two-year period either side of the merger). Fuentes and Sastre [52]

consider two four-year periods before and after the merger. Similarly, Carbo and

Humphrey [55] analyze average costs one year after the merger and the second

year after it. A recent exception is Koetter [63], who considers a maximum of

11 years.

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Table 1Estimation of the augmented Cobb–Douglas function (robust estimates, full sample).

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

Constant �1.21*** 0.85*** 0.85*** �4.66*** 2.81*** 2.82***

(�11.30) (8.79) (8.75) (�27.30) (7.27) (7.29)

Ln fixed assets �0.08*** 0.06*** 0.07*** �0.01 0.05*** 0.06***

(�5.08) (5.35) (5.83) (�0.49) (4.01) (4.35)

Ln liquid assets 1.13*** 0.74*** 0.73*** 1.23*** 0.58*** 0.58***

(62.34) (43.41) (40.55) (58.88) (17.70) (17.54)

Ln labor �0.01 0.21*** 0.22*** 0.18*** 0.26*** 0.26***

(�0.71) (13.20) (13.14) (3.60) (7.64) (7.29)

Dummy 1987 – 0.03** 0.03*** – 0.05*** 0.05***

(1.97) (1.98) (4.11) (4.11)

Dummy 1988 – 0.09*** 0.09*** – 0.11*** 0.11***

(4.49) (4.50) (8.64) (8.64)

Dummy 1989 – 0.08*** 0.08*** – 0.11*** 0.12***

(4.30) (4.29) (8.52) (8.53)

Dummy 1990 – 0.08*** 0.08*** – 0.14*** 0.14***

(4.48) (4.39) (8.68) (8.55)

Dummy 1991 – 0.12*** 0.13*** – 0.19*** 0.19***

(6.08) (5.93) (10.49) (10.39)

Dummy 1992 – 0.08*** 0.09*** – 0.15*** 0.16***

(3.36) (3.51) (8.18) (7.44)

Dummy 1993 – 0.06*** 0.07*** – 0.15*** 0.16***

(2.54) (2.78) (7.61) (6.66)

Dummy 1994 – 0.08*** 0.10*** – 0.18*** 0.19***

(3.58) (3.93) (8.32) (8.38)

Dummy 1995 – 0.10*** 0.11*** – 0.20*** 0.21***

(3.99) (4.48) (9.02) (9.27)

Dummy 1996 – 0.13*** 0.14*** – 0.24*** 0.25***

(5.20) (5.72) (10.33) (10.60)

Dummy 1997 – 0.21*** 0.23*** – 0.34*** 0.35***

(8.55) (9.08) (13.47) (13.74)

Dummy 1998 – 0.29*** 0.30*** – 0.42*** 0.43***

(12.16) (12.55) (15.84) (16.05)

Dummy 1999 – 0.34*** 0.36*** – 0.49*** 0.49***

(15.42) (15.88) (16.84) (16.98)

Dummy 2000 – 0.41*** 0.42*** – 0.57*** 0.57***

(19.24) (18.61) (18.59) (18.51)

Dummy 2001 – 0.44*** 0.42*** – 0.61*** 0.61***

(19.83) (20.07) (18.15) (18.09)

Dummy 2002 – 0.49*** 0.51*** – 0.67*** 0.67***

(21.23) (21.43) (19.25) (19.13)

Dummy 2003 – 0.53*** 0.54*** – 0.73*** 0.72***

(22.84) (22.65) (19.29) (19.09)

Dummy 2004 – 0.57*** 0.59*** – 0.78*** 0.78***

(24.48) (24.01) (19.28) (19.23)

Merger t – – 0.09 – – 0.00

(�0.47) (0.16)

Merger 1 – – �0.02 – – �0.00

(�0.74) (�0.19)

Merger 2 – – �0.04* – – �0.02

(�1.34) (�0.74)

Merger 3 – – �0.04* – – �0.02

(�1.19) (�0.87)

Merger 4 – – �0.05** – – �0.04

(�1.90) (�1.39)

Merger 5 – – �0.06** – – �0.04

(�1.90) (�1.46)

Merger 6 – – �0.06* – – �0.04

(�1.75) (�1.41)

Merger 7 – – �0.05 – – �0.03

(�1.33) (�0.98)

Merger 8 – – �0.04 – – �0.02

(�1.11) (�0.60)

Merger 9 – – �0.03 – – �0.01

(�0.92) (�0.19)

Merger 10 – – �0.02 – – 0.01

(�0.70) (0.21)

Merger final period – – �0.03* – – 0.01

(�1.89) (0.23)

Fixed effects – – – Significant Significant Significant

Adjusted R2 0.9830 0.9919 0.9921 0.9939 0.9970 0.9970

F test vs (1) or (4) – 71.40*** 43.52*** – 46.17*** 30.31***

F test vs (2) or (5) – – 1.50 – – 1.90**

Hausman – – – 515.52*** 87.79*** 73.71***

Breuch–Pagan – – – 1291.48*** 2487.72*** 2454.31***

A detailed definition of the variables can be seen in the Appendix A. N=1062 observations.

***, **, *: Variables statistically significant at the 1%, 5% or 10%, respectively. t-statistic in brackets.

C. Bernad et al. / Omega 38 (2010) 283–293 289

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Table 2Fixed effects productivity.

Fixed effect F test

Before the mergera After the merger

Bancaja 0.636 0.377 25.57***

BBK 0.446 0.576 8.78***

Caixanova 0.452 0.339 13.00***

Caja Duero 0.174 0.345 10.37***

Caja Espana 0.318 0.277 0.56

Cajasur 0.472 0.368 4.09***

Castilla La Mancha 0.422 0.186 23.84***

Extremadura 0.124 0.099 0.28

Granada 0.383 0.369 0.13

Huelva y Sevilla 0.429 0.267 11.74***

Kutxa 0.397 0.47 3.15*

La Caixa 0.665 0.753 3.64*

Mediterraneo 0.611 0.472 4.87***

Navarra 0.47 0.394 2.51

San Fernando 0.393 0.353 0.98

Unicaja 0.383 0.272 5.23***

Vital 0.436 0.393 0.81

a The ‘‘before the merger’’ fixed effect is calculated as the average (weighted

by assets) of the fixed effects associated to the firms that originate the resulting

firm.

C. Bernad et al. / Omega 38 (2010) 283–293290

using traditional OLS,14 whereas models 4–6 present the results ofa fixed effects estimation.15 In order to account forheteroscedasticity, all the standard errors have been calculatedwith the method proposed by White [62]. As it is shown, all themodels are globally significant, presenting a high value of theadjusted R-squared statistic.

The first column in Table 1 only includes the three explanatoryvariables considered in Eq. (2). The second column includes yearlydummy variables (with 1986 as the base year) to control for theeffect of financial or economic circumstances that change fromyear to year. Model 2 is preferred to model 1 in terms ofexplanatory power, as it is shown by the increase in the value ofthe adjusted R-squared and the significance of the F-test thatcompares both models. Finally, model 3 adds the merger variablesin order to account for the effects of mergers and acquisitionsamong savings banks. Nevertheless, model 2 is slightly preferredto model 3, as shown by the F-test that compares them. Therefore,we will focus our first set of comments on column two.

As it can be observed, both labor and liquid assets are the maindeterminants of production, while the relative importance of fixedassets is lower (although positive). The coefficients accompanyingthe yearly dummy variables show that—with a couple ofexceptions—total production has steadily increased over time.This trend implies that savings banks’ productivity has progres-sively grown, with independence of the evolution of the othervariables.

The models presented in the first three columns of Table 1 donot account for the fact that the savings banks included in oursample could be heterogeneous in non-observable firm specificcharacteristics. If this were the case, all the three first modelscould suffer from specification problems. In order to take intoaccount this possibility, models 4–6 replicate the estimations ofmodels 1–3 including firm fixed effects to capture firm specificcharacteristics such us managerial talent or differences inorganizational structure. Given that the review of the literaturehas shown that mergers and acquisitions frequently result in abilateral redeployment of resources, a new fixed effect is assignedevery time a merger (or acquisition) takes place.

The joint test of the fixed effects is significant, revealing thatthe estimations in columns 4–6 are preferred to the ones incolumns 1–3. Furthermore, both the Hausman test that comparesfixed and random effects estimations and the Breuch–Paganstatistic are also significant, leading us to conclude that models 4–6 are preferred to their random effects counterparts. In model 4,labor and liquid assets are positive and highly significant, while itcannot be rejected that the coefficient that accompanies the fixedassets variable equals zero. This situation changes when theyearly dummy variables are included (model 5). Now labor, liquidand fixed assets present a positive sign. It is also important tohighlight that model 5 presents a better global fit than model 4, asrevealed by the F test that compares both models.

Finally, column 6, similarly to column 3, also includes themerger variables. The results are very similar to the onespresented in column 5 with the same sign and significance forthe explanatory variables. The coefficients of the variables merger

are always non-significant. Nevertheless, the F test that comparesmodels 5 and 6 lead us to conclude that the estimation presentedin column 6 is preferred to the one shown in column 5. Apreliminary look would suggest that mergers do not have any

14 We also ran 2SLS estimations controlling for the potential endogeneity of

the productive factors. The results remained qualitatively unchanged (estimations

not shown). In addition, a Durbin-–Wu-–Hausman test suggested that endogene-

ity was not an important problem in our estimations.15 The Cobb-–Douglas function has also been estimated using clustered

standard errors, with similar results to those presented in the paper.

effect on firm productivity. However, the coefficients of thesevariables cannot be analyzed independently of the value of thecoefficients of the fixed effect for each firm. In order to interpretour results correctly, we must take into account that, when amerger between two (or more) savings banks takes place, a newfixed effect was assigned to the resulting firm. Therefore, asignificant difference in the coefficients identifying the firmspecific effects before and after the merger would lead us toconclude that the operation is either beneficial or detrimental toproductivity.

Table 2 presents a comparison of these coefficients before andafter the merger. It is important to clarify that to make thiscomparison possible, we perform the analysis by testing forstatistical differences in the weighted (by the size of thedependent variable) coefficient of the fixed effects associatedwith the firms involved in the merger and the coefficient of theresulting firm.16 Table 2 presents that productivity improvementsassociated to a merger or acquisition are present in eight cases.The difference in the coefficients is negative in four mergers oracquisitions and non-significant in five cases. These results arenot very different from the ones obtained by Carbo and Humphrey[55], who use a similar sample and time horizon (they analyze theperiod 1986–2000) and conclude that approximately one third ofthe Spanish savings banks benefit from a significant costreduction as a consequence of a merger. Our results point outthat productivity improvements are not general, but highlydependent on the identities of the merging firms. In terms ofthe arguments provided in this paper, and assuming that themergers did have the potential to create productivityimprovements, this could mean that the fit effectively deliveredwas worse than the one expected in several of the cases. Aspointed out above, one of the reasons for this result could berelated to the problems that firms have to confront during theintegration process. An alternative interpretation would lead us tothink that managers were wrong at the time to assess thepotential fit that could be achieved. In any case, it seems clear thatproductivity improvements are firm specific.

16 We test the null hypothesis that the mean values of the coefficients are not

different from one another.

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17 The analysis was restricted to savings banks for two main reasons. First,

these firms are relatively homogeneous (they mainly compete in the retail market

and with a limited geographical scope of operation). This probably means that

environmental factors affect them similarly; thus, we can better concentrate in the

integration process. Second, most of the mergers in Spain take place between

savings banks (mergers between banks are scarce and co-operative banks only

represent about 5% of the Spanish market).

C. Bernad et al. / Omega 38 (2010) 283–293 291

5. Discussion and conclusions

The theoretical and empirical arguments developed in thispaper tend to confirm our view that the performance effects ofmergers and acquisitions should be evaluated in the long run. Inparticular, our empirical results show productivity improve-ments after a merger or acquisition in almost half of the casesand negative or non-significant effects in the remaining savingsbanks. From the point of view of the available evidence, thisfinding is difficult to integrate into the review carried out byAmel et al. [7] for the banking sector, who find little empiricalevidence supporting the benefits of consolidation. However, theyare close to the ones of the German banking system, in whichsimilar figures of success have been reported [63]. A possibleexplanation for these discrepancies could have to do with thespecificities of the different samples, which may make cross-country comparisons difficult. Other reasons may be thedifferences in the methodologies or the dependent variablesused (for example, some articles focus on efficiency; othersanalyze profits or use event analysis). Finally, given that, inprevious papers, the periods of time in which the effects of theseprocesses have been assessed tend to be shorter, we cannotdiscard the hypothesis that positive effects could have beenobserved in the long run. Research on mergers and acquisitionshas mentioned this caveat when describing the results of theirshort-run analyses [51,53].

It is important to note that, although mergers and acquisitionshave been an effective way to increase productivity in manysavings banks, we cannot directly transfer this result to othervariables, such as profitability. In a deregulated context—such asthe Spanish one—some mergers may have been used to increasethe levels of efficiency, given the expected increase in competi-tion. Other mergers may have been used to enter new markets,once restrictions were eliminated. Fuentes and Sastre [52] seemto support this argument, finding that improvements concentrateon one only dimension (efficiency or increase in earnings) at theexpense of the others. It can be also argued that mergers oracquisitions constitute a way to increase firm market power.Nevertheless, we understand that this is not the main stimulantfor these corporate movements. In spite of the increase of thelevels of concentration during the last two decades, the averageHerfindahl index value (calculated over total assets) in the EU27was, in 2007, 0.063 (European Central Bank, 2008). This figure iseven lower in the bigger countries of the EU (0.046 in Spain).

The comparison of our results with those obtained in previousstudies could suggest the importance of explicitly considering therole played by the integration process. In the theoretical sectionwe focused on the idea that the productivity of the merging firmsin our sample could be affected by the processes of redeploymentand divesting. Although our results could be the consequence ofthe integration process, further research should study the under-lying mechanisms more deeply and investigate whether this is thecase and whether cultural or organizational motives may justifyit. Our results also seem to suggest that the consequences of theseprocesses are highly firm specific. Therefore, whereas some firmsin our sample do effectively manage the integration process, otherseem not to do this correctly. Another extension of this workcould be to evaluate the extent to which the positive effects wehave obtained and the duration of the integration process areconditioned by the compatibility between the firms or thecharacteristics of resources, capabilities and activities. Finally, itis necessary to admit that the concepts used here and theimportance attributed to the integration process do not rule outother explanations for performance differences between mergingfirms, such as those traditionally used in the literature (see, forexample, [64] or [25]).

Our study was performed in the framework of (Spanish savingsbanks. Nevertheless, we consider that the implications are notlimited to the Spanish or to the savings banks context.17 Thederegulation process that took place (with small time differences)in most developed countries, with the subsequent increase in thelevel of competition, forced banking firms to react to the newcompetitive scenario. Mergers and acquisitions were a frequentanswer in many European and US countries [65] and a propermanagement of the integration process has clear consequences inthe success of the merger. Indeed, the problems associated withthe integration process may be more similar in a sample with highlevels of homogeneity (such as the one considered in this paper)than in cross-country or cross-industry samples.

The results of this paper also have implications for futureempirical work on strategy. Whatever the method used to analyzethe consequences of mergers, it seems clear that research shouldtake a long-run perspective. In fact, this approach to empiricalwork has been suggested from related areas of strategic manage-ment. Markides [3], for instance, shows that the effect ofrestructuring is better observed when we have information overa long time window. Similarly, Bergh [66, p. 1696] suggests thatthe ‘‘relationship between diversification and performance islongitudinal and may take years to be realized fully’’. It isnecessary to admit that, the farther the point in time at which weassess performance, the more risky it would be to attribute theobserved consequences to the M&A operation. Nevertheless,empirical work in other areas of strategy might suffer from thesame risk. A correct specification of the determinants of theperformance variable should be sufficient to make sure thatmergers are the source of the observed differences.

Acknowledgements

We acknowledge financial support from the Spanish Ministryof Science and Technology and FEDER (Projects SEJ2005-01856and ECO2008-04129) and the Regional Government of Aragon (S09/PI138-08). We are also grateful for the comments and suggestionsof J. Manuel Campa, Francisco J. Forcadell, Natalia Martın, SergioPalomas and Jose Angel Zuniga, as well as the participants in the2006 Academy of Management Conference, the XV CongresoNacional de ACEDE, a seminar held at Universidad Rey Juan Carlosde Madrid, the Editors and two anonymous referees. A previousversion of this paper was included in the Working Paper Series ofthe Spanish Fundacion de las Cajas de Ahorros (FUNCAS) (documentnumber 336/2007).

Appendix A. Description of the variables

Our empirical estimation follows the intermediation approachproposed by Sealey and Lindley in their widely acknowledgedwork of 1977 and it has been widely used in previous research(recent examples in this Journal include, for example, [67,68]). Inthat work, the authors describe how an intermediation approach

can appropriately explain the production function of a bankingfirm. This approach considers that the main function of the bank isto take money from depositors and lend it to borrowers. Depositsreceived by the bank constitute a basic input. The output is

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C. Bernad et al. / Omega 38 (2010) 283–293292

formed by the investments and credits into which the deposits aretransformed. The main payment for the input (deposit) is theinterest rate offered. The other services provided by the bankingfirm (cash o withdrawal, transferences, etc.) are considered apartial payment for the deposits received. The main advantage ofthis approach, as Sealey and Lindley report, is that its assumptionsare consistent with the neoclassical theory of the firm, in sharpcontrast with previous alternative approaches. To empiricallyoperationalise this approach, the variables used in the estimationare defined in the following lines. The data used in the analysishave been collected from the information published by theSpanish Association of Savings Banks (CECA). The monetarymagnitudes are expressed in thousands of euros of 1986.

�

Total production (Q) is calculated as the sum of Loans,Securities and Shares. � Labour (L): number of equivalent full-time employees. � Fixed assets (K1): value of the (non-financial) fixed assets of the

savings bank

� Liquid assets (K2): this variable includes the funds received

from private depositors: deposits, debts in form of securities and

shares and other debts.

� Merger t–s: dummy variable that equals one if the savings bank

participates in a merger or acquisition and zero otherwise. Wedefine a dummy variable for the year where the M&A takesplace and 10 additional dummies for the following 10 yearsafter the merger.

� Merger final period: dummy variable that equals one in those

years after the tenth.

� Dummy t: yearly dummies from 1987 to 2004 (1986 is our

base year).

Appendix B. Descriptive statistics

Variable

Obs Mean Std. Dev. Min Max

Ln Q

1062 13.546 1.359 9.409 17.729 Ln labour 1062 6.764 1.094 3.135 10.004 Ln fixed assets 1062 10.480 1.310 6.622 14.124 Ln liquid assets 1062 13.850 1.292 9.897 17.693

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