This paper evaluates bank performance as a
determinant of mergers in the German cooperative banking sector. Based on
annual time series data since 1990, a bivariate Vector Error Correction (VEC)
model is specified and estimated. The results identify return on equity (ROE)
as a driver of mergers. The higher ROE, the higher the merger intensity,
defined as the ratio of mergers by the number of last years’ banks. A reverse
causality cannot be found as mergers do not significantly affect ROE. The
results confirm some literature findings that were obtained from cross-section
data. Our findings do not confirm the hypothesis that mergers are induced by
worse economic performance.
JEL classification numbers: G21, G34, L25, P13.
Keywords: Bank mergers,
cooperative banks, bank profitability, VEC model.