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Acquisition banking in merger nigeria operation papers term

February 04, 2016; Accepted Date: March 04, 2016; Published Date: March 11, 2016 Citation: Arabian J Bus Manag Review 6: This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

View PDF Download PDF Abstract The overall objective of this study is to examine the impact of mergers and acquisitions on the financial performance of some selected deposit money banks in Nigerian from 2002 to 2008. Four Nigerian banks were selected using convenience and judgmental sampling techniques. The study utilized secondary data retrieved from the annual reports and accounts of the studied banks. Data for the study were analyzed using T-test statistics and it was revealed that bank witnessed improved and robust financial performance owing to merger and acquisition leading to more financial efficiency in the Nigerian banks.

The paper recommends that banks should be more aggressive in financial products marketing to increase financial performance in order to reap the benefit of post mergers and acquisition bid in the Nigerian banking sector. Keywords Impact ; Merger; Acquisitions; Financial performance; Deposit ; Money acquisition banking in merger nigeria operation papers term Nigeria Introduction Various financial sector reforms of the past two decades in Nigeria brought about some changes in terms of the number of institutions, ownership structure as well as depth and breadth of the financial market.

The recent reforms introduced in 2004 prompted regulatory induced restructuring and engendered the realignment of banks and banking groups into merger of some, and the acquisition of others to ensure a sound, responsive, competitive and transparent banking system suited to the demands of the Nigerian economy and the challenges of globalisation. In Nigeriathe ability of the banking industry to play its role has periodically been punctuated by its vulnerability to systemic distress and macro-economic volatility, making policy fine tuning inevitable.

In the words of Nnanna [ 1 ] as cited by Kama [ 2 ], the Nigerian banking industry evolved through four stages. The first stage can best be described as the unguided laisez faire phase 1930 to 1959during which several poorly capitalized and unsupervised indigenous banks failed in their infancy. The emerging fourth stage is the era of consolidation 2004 to a foreseeable future with major emphasis on recapitalization and proactive regulation based on risk-based or risk focused supervision framework.

The current banking system reform represents the fundamental restructuring needed to address the structural and operational problems of the system in order to create a strong and reliable banking sector which will play active roles in the Nigerian economy. Two major elements of the reform were the requirement for Nigerian Banks to increase their capital base to a minimum of N25 Billion by the end of December, 2005 and consolidation through mergers and acquisitions [ 3 ].

Previous studies on the relationship between banks consolidation and banks performance provide mixed evidence and many failed to show clear and empirical relationship between mergers and acquisitions on one hand and financial performance on the other hand.

This study therefore critically examined the impact of mergers and acquisitions on the financial performance of deposit money banks in Nigeria. Literature Review The concept of consolidation Consolidation is viewed as the reduction in the number of banks and other deposit taking institutions with a simultaneous increase in size, concentration and efficiency of the remaining entities in the sector [ 4 ].

Impact of Merger and Acquisitions on the Financial Performance of Deposit Money Banks in Nigeria

Berger, Demsetz and Strahan are of the opinion that consolidation is mostly motivated by technological innovations, deregulation of financial services, enhancement of intermediation and increased emphasis on shareholder value, privatisation and international competition. Bello [ 5 ] opined that the process of consolidation has been argued to enhance bank efficiency through cost reduction and increase in revenue in the long run.

It also reduces industry risk by eliminating weaker banks and acquiring the smaller ones by bigger and stronger banks as well as creates opportunities for greater diversification and financial intermediation. He further stated that the pattern of banking system consolidation could be viewed in two different perspectives, market-driven and government led consolidation.

The former is more pronounced in the developed countries as a way of broadening competitiveness with added comparative advantage thereby eliminating excess capacity more efficiently, while the latter arises from the need to resolve problems of financial distress in order to avoid systemic crises as well as restructure inefficient banks. The concept of merger and acquisition Merger and acquisition are global phenomena which many organizations employed to grow internally, by expanding its operations both globally and domestically.

Merger is different from acquisition. Merger acquisition banking in merger nigeria operation papers term the combination of two or more businesses that leads to the formation of a new business, but acquisition is the takeover or purchase of one business by other business. Brockington [ 6 ] defines a merger which is consonance with Afolabi [ 7 ] as the result of a process whereby two or more previously autonomous concerns come under common control.

Merger and acquisition benefit shareholders when the consolidated post-merger firm is more valuable than the simple sum of the two separate pre-merger firms. In line with this, Enyi [ 8 ], concluded that the banks consolidation exercise of 2005 as supervised by the Central Bank of Nigeria has yielded basket full of benefits in terms of improved banking environment and renewed customer confidence in the banking industry.

Soludo [ 9 ], opined that mergers and acquisitions are aimed at achieving cost efficiency through economies of scale, and to diversity and expand on the range of business activities for improved performance. Merger and acquisition is adopted to attain the operating and financial efficiencies.

According to the efficiency theory, the main motive of mergers and acquisition is to gain operating and financial synergy. Corporate financial performance measures Corporate financial performance is an important moderator used to test hypothesis through the employment of different measurement strategies and establishing whether correlations between different corporate financial performance measures are similar across subgroups, or whether different measures lead to systematically different effect sizes across studies.

Generally, the financial performance of banks and other financial institutions has been measured using a combination of financial ratio analysis, benchmarking, measuring performance against budget or a mix of these methodologies [ 10 ]. Much of the current bank performance literature describes the objective of financial organizations as that of earning acceptable returns and minimizing the risks taken to earn this return.

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According to Orlitzky et al. This research work will analyze the data collected using the accounting-based accounting returns and the market-based investor returns financial performance measures in the pre-consolidation and post-consolidation years considered in the research work in order for meaningful conclusions to be drawn. Review of related empirical studies The previous studies on the relationship between banks mergers and acquisitions and banks performance provided mixed evidence and many failed to show a clear relationship between mergers and acquisitions and performance.

Many researchers [ 15 - 17 ] agreed that banks have been able to significantly improve their profit potential through merger and they agreed that merger and acquisition has helped Nigerian banks to be more efficient in financial intermediation.

The studies of Carletti et al. Joshua [ 15 ], discovered that the post- merger and acquisitions period was more financially efficient than the pre-merger and acquisitions period. Olagunju and Obademi [ 16 ] also found that there is significant relationship between pre and post mergers and acquisitions on one hand and capital base of commercial banks and level of profitability on the other hand.

Walter and Uche [ 18 ] posited that mergers and acquisitions made Nigerian banks more efficient. Elumide [ 17 ], also agreed that mergers and acquisitions had improved competitiveness and efficiency of the borrowing and lending operations of Nigeria banking industry.

Evidence as provided by Caprion Calomiris and Karenski, and De-Nicolo [ 19 ] suggested that mergers and acquisitions acquisition banking in merger nigeria operation papers term the financial system could impact positively on the efficiency of most banks. Owolabi and Ogunlalu [ 21 ], discovered that it is not all the time that consolidation transforms into good financial performance of bank and it is not only capital that makes for good performance of banks.

  • It may be friendly or hostile;
  • This type of merger is predicated on the assumption that it will provide economies of scale from the larger unit when they fuse together;
  • The ISA charged the SEC with, amongst other duties contained in the Act, to from time to time prescribe a lower and an upper threshold of combined annual turnover or assets, or a lower and an upper threshold of combination of turnover and assets in Nigeria, in general or in relation to specific industries, for purposes of determining categories of mergers28;
  • Different legislations have also been passed to regulate and support business combinations in Nigeria;
  • Much of the current bank performance literature describes the objective of financial organizations as that of earning acceptable returns and minimizing the risks taken to earn this return.

DeLong and Deyoung and Amel et al. While Beitel et al. An event study methodology was used using 44 events as the sample size.

Acquisition banking in merger nigeria operation papers term

Onaolapo and Ajala [ 23 ] studied The effects of merger and acquisition on the performance of selected Commercial Banks in Nigeria using the regression analysis through statistical package for social sciences and found that post-merger and acquisition period was more financially improved than the pre-merger and acquisition period on the seven selected banks for a period of ten years 2001-2010. The result showed that post-merger has not significantly impacted on banks profitability.

Suberu and Aremu [ 26 ], conducted a study on Corporate Governance and Merger Activity in the Nigerian Banking Industry using twenty-five 25 successful mergers arising from the regulatory demand for consolidation.

The major finding revealed that the Banking Sector is partly responsible for the poor state of the Nigerian Economy through its support for the import dependence nature of the economy rather than financing of sustainable economic development through shareholder values maximization. Onikoyi [ 27 ], carried out a research on mergers and acquisitions and banks performance in Nigeria. Using simply linear regression through review between 2003-2008 on two banks.

The result revealed that all the two groups produced in addition to operational and relational synergy, financial gains far more than the synergistic effects. Ratio technique and inferential statistical tools were used to highlight synergistic effects on the merging banks.

Ikpefan [ 28 ], carried out an empirical study on post-consolidation effect of mergers and acquisitions on Nigeria deposit money bank. This study acquisition banking in merger nigeria operation papers term carried out to find out the challenges faced by the banks during and after the exercise, the performance of these banks postconsolidation and if mergers and acquisitions has in anyway affected the banks and if so, in what ways.

Okpanachi [ 29 ] conducted a comparative analysis of the impact of mergers and acquisitions on financial efficiency of banks in Nigeria. This paper used gross earnings, profit after tax and net assets of the selected banks. For this paper, three Nigerian banks were selected using convenience and judgmental sample selection methods using analyzed applying t-test statistics through statistical package for social sciences. From the reviewed of literature and empirical studies on the impact of mergers and acquisitions on the performance of banks in Nigeria, scholars appear to have different conclusion.

The position of the scholars that posited positive relationship between merger and acquisition; and bank performance make logical sense because the essence of mergers and acquisition is to improve efficiency in financial intermediation thereby propelling the banks toward profit maximization. It is therefore expected in this study post-merger periods will better in terms of efficiency than the pre-merger periods. Research Methodology Research design The research design used for this study is the ex post facto research design.

This design is used where the phenomenon under study has already taken place [ 30 ]. Previous data relating to the subject matter will collect to establish the relationship between the phenomena under study. Population of the study The population of the study consists of all the twenty five 25 banks that scale through the 2005 consolidation exercise.

This includes all the banks that recapitalized through the issuance of common stock, merger and acquisition. All the banks the met the capitalization requirements of the CBN together with their respective status during consolidation are shown in the Table 1.