The Impact of Merger and Acquisition Activities On The Efficiency of Banks: The Case of Lebanon

Merger and Acquisition activities are trends that have characterized the Lebanese banking sector over the last few decades. However, there is an ongoing debate over the impact of mergers and acquisitions on the performance of involved firms. Therefore, the aim of this thesis is to examine the impact of mergers and acquisitions on the efficiency of conventional banks in Lebanon.

The research philosophy adopted is the positivistic approach which is usually associated with deductive reasoning. The input-oriented Data Envelopment Analysis approach under Charnes, Cooper and Rhodes (CCR) and Banker, Charnes and Cooper (BCC) models is applied to analyse the efficiency of the 29 banks involved in merger and acquisition activities that have taken place in Lebanon during the period from 1996 till 2015. The input-oriented DEA approach is used with interest expenses, general expenses, total deposits, and number of employees as inputs, and interest income, non-interest income, and total loans as outputs. The thesis also employs six management efficiency ratios; non-interest income to number of employees, non-interest income to total assets, net interest income to total assets, net operating income to total assets, net operating income to total equity and net interest income to total equity to compare the pre and post mergers and acquisitions performance of banks in order to identify the impact of mergers. The results are compared three years before and three years after the merger and acquisition activities.

The results of the DEA analysis indicate a negative impact on banks' efficiency of almost half of M&A operations under CCR, with no observed changes in efficiency scores before and after M&As for most operations under BCC. In ratio analysis, the results reveal a positive improvement in non-interest income to number of employees, net operating income to total assets, and net operating income to total equity ratios, with negative impact on net interest income to total assets and net interest income to total equity ratios. As for the non-interest income to total assets ratio the result is mixed.

This research serves as a preliminary initiative to narrowing the gap in the Lebanese literature, and a gate for other researchers in this field to emulate on. The findings of this study also serve as a guideline for decision makers on whether to reconsider or encourage these activities in the future.