Improving the Sustainability of City Commercial Banks through M&A Innovations: An Efficiency Decomposition Perspective

Against increasingly multiple challenges from economic fluctuations, social transformation, climate change, and geopolitics, how to promote the sustainable development of commercial banks has become a pressing issue for countries worldwide. Mergers and acquisitions (M&As) among banks are an effective way to enhance their core competitiveness through optimization, synergy, and economies of scale. This article uses the data envelopment analysis (DEA) methodology to pre-evaluate the merger performance of city commercial banks in Hebei Province from an efficiency decomposition perspective. Specifically, we decompose the potential merger efficiency into technical, collaborative, and sales efficiencies. Innovatively, we consider various M&A combinations, including pairwise mergers and threefold mergers, until all the banks are merged into one. Our analysis shows that city commercial banks can achieve efficiency gains through M&As, and the gains mainly stem from the enhancement of collaborative and technical efficiencies. The merger of all city commercial banks may not be beneficial, and M&A innovations among technically noneffective banks are more conducive. Additionally, banks with overlapping markets have more desirable performance after M&As. Our findings suggest that city commercial banks could improve their sustainability through M&A innovations. It should also fully consider technological gaps and market overlaps among banks when implementing M&As and avoid blind full-scale merging.