Mergers of regional banks through pure holding companies have been increasing since the latter 1990s. Such mergers were examined for this study, with emphasis on determinants of such mergers and banks’ post-merger business performance.
A cause of the increase in mergers is that, in addition to the conventional methods of mergers, a ban on the method using a bank holding company was lifted in 1998. In advance of empirical analysis, we reviewed changes in bank mergers after lifting of the ban. We categorized merger methods into (1) business consolidation, (2) combination by establishing a holding company, and (3) purchase of a bank by an existing holding company, which revealed that many mergers in recent years used the second method.
Subsequently, we examined determinants of becoming a merging bank and a merged bank. Our estimation revealed that a regional bank with low local market power and particularly intense competition with large banks was more likely to become a merging bank. The results for efficiency suggest that a bank that had raised profitability through a merger was less likely to become a merged bank. Another finding was that a bank with a high baddebt ratio was more likely to participate in a merger as a merged bank.
Additionally, we divided and assessed the sample to ascertain whether the form of merger and other conditions created differences in the subsequent business performance. First, results suggest that, as forms of merger, business consolidation was more likely to promote corporate downsizing than establishing a holding company. Secondly, analysis of the holding company method performed by dividing sellers and buyers revealed an increase in buyers’ net interest spread and sellers’ rationalization effects. Differences between mergers within an area and between areas included net interest spread growth in the former and active restructuring in the latter.
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