EFFECT OF MERGERS AND ACQUISITIONS ON PERFORMANCE OF THE NIGERIAN BANKING INDUSTRY 1998 – 2012

TABLE OF CONTENT

Title Page

Certification

Approval Page

Dedication

Acknowledgment

Abstract

Table of content

List of tables and figures

CHAPTER ONE: INTRODUCTION

1.1       Background of the Study

1.2       Statement of the Problem

1.3       Objectives of the Study

1.4       Research Questions

1.5       Research Hypotheses

1.6       Scope of the Study

1.7       Significance of the Study

1.8       Operational definition of terms

            References

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1       Conceptual framework

2.1.1    Merger and Acquisition

2.1.2    Reasons for mergers and acquisition

2.1.3    Consequences of mergers and acquisition

2.1.3.1 Brand implication of M&A on banks

2.1.3.2 Structural implications of M&A on banks

2.2       Theoretical Review

2.2.1    M & A research paradigms

2.2.1.1 Economic and finance perspective

2.2.1.2 Strategy perspective

2.2.1.3 Organisational behaviour perspective

2.2.1.4 Human resource management perspective

2.2.2    Stages of M & A

2.2.2.1 Corporate strategy development

2.2.2.2 Organising for acquisition

2.2.2.3 Deal structuring and negotiation

2.2.2.4 Post acquisition integration

2.2.2.5 Post acquisition and organisational learning

2.2.3    Nigerian banking sector regulatory agencies

2.2.3.1 Federal ministry of finance

2.2.3.2 Central bank of Nigeria

2.2.3.3 Nigerian deposit insurance corporation

2.2.3.4 Securities and exchange commission

2.3       Empirical Review

2.3.1    Trends in Bank consolidation

2.3.2    Mergers and acquisition waves

2.3.3    An overview of the Nigerian bank consolidation exercise

2.3.4    Strategies for consolidation adopted by Nigerian banks

2.3.5    Post consolidation

2.3.6    Elements of the banking reform

2.3.7    Legal Hurdles for M& A

2.3.8    Traditional views of the value of M&A

2.3.9    Critical success issues of M&A

2.3.10  Challenges of the banking reforms

2.3.11  Prospect and effect of banking consolidation

2.3.12  Some prior study

2.4       Summary

            References

CHAPTER THREE: RESEARCH METHODOLOGY

3.1       Research Design

3.2       Nature and Sources of Data

3.3       Population and Sample Size

3.4       Model Specification

3.5       Description of Research Variables

3.5.1    Independent Variable

3.5.1.1 Shareholders’ Equity

3.5.2    Dependent Variable

3.5.2.1 Liquidity Ratio

3.5.2.2 Return on Equity

3.5.2.3 Debt/Equity Ratio

3.5.2.3 Earning Per Share

3.6       Techniques of Data Analysis

            References

CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA

4.1       Introduction

4.1.1    Presentation of Data

4.2       Computation of the Ratio Values

4.3       Stationarity Test

4.4       Test of Hypothesis

4.4.1    Test of Hypothesis One

4.4.2    Test of Hypothesis Two

4.4.3    Test of Hypothesis Three

4.4.4    Test of Hypothesis Four

4.5       Granger Causality Test

4.6       Implication of the result

            References

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

5.1       Summary of Findings

5.2       Conclusion of the Study

5.3       Recommendations of the Study

5.4       Recommendation for Further Studies

5.5       Contribution to Knowledge

            References

            Appendices

            Bibliography

ABSTRACT

This study examined the effect of mergers and acquisitions on the performance of Nigerian banking industry. In order to strengthen the competitive and operational capabilities of banks in Nigeria with a view towards returning global and public confidence to the Nigerian banking sector and the economy in general, the Central Bank of Nigeria instituted a banking reform in 2004, which saw most of the then existing 89 banks merging with each other. The fundamental objectives of this research is to ascertain the impact of mergers and acquisitions on the liquidity profile of commercial banks in Nigeria, examine how mergers and acquisitions adopted by commercial banks impacted on the return on equity of the affected banks, evaluate the impact of mergers and acquisitions on the debt/equity profile of commercial banks in Nigeria and examine the extent to which earning per share of commercial banks improved as a result of mergers and acquisitions. An ex post factoresearch design was adopted in this study. The population of the study comprises of all 21 commercial banks in Nigeria. The study covered a period of 15years from 1998 to 2012. Secondary sources of data were used in this study. The data were handpicked from the annual reports of the sampled banks and internet. The data obtained were analyzed using panel data analysis. The method of estimation used is the Ordinary Least Square (OLS). The result of the study indicated that overall mergers and acquisitions has a positive effect on the liquidity profile, return on equity, debt/equity profile and earning per share of commercial banks. The study recommends that the monetary authorities should establish an institutional framework to sustain the positive and improved performance of the banking industry in response to mergers and acquisitions.

CHAPTER ONE

1.0             INTRODUCTION

1.1             Background of the Study

The Nigerian banking sector has undergone remarkable changes over the years, in terms of the number of institutions, ownership structure, as well as the depth of operations. These changes have been influenced largely by challenges posed by deregulation of the financial sector, globalization of operations, technological innovations and adoption of supervisory and prudential requirements that conform to international standards.

The Nigerian banking industry witnessed dramatic transformation during the recapitalization exercise which deadline was December 31^st, 2005. Overall, the banking sector experience steady consolidation through recapitalization and mergers and acquisitions that have resulted in fewer banks holding a greater value of the total assets in the sector (Okpanachi, 2011). Spearheaded by the announcement of the Central Bank of Nigeria on July 6, 2004 about a major reform program that would transform the banking landscape of the country, an unprecedented process of merger and acquisition took place in the Nigerian banking sector, shrinking the number of banks.

Immediately after the recapitalization deadline ended on December 31^st, 2005, the number of operating banks in the country reduced from 89 banks to 25banks but later reduced further to 23 with the merger of some banks like First Atlantic Bank Plc and Inland Bank to form Fin Bank Plc. Stanbic Bank Plc and IBTC to form Stanbic-IBTC Bank. The number of operating bank later increased to 24 banks with the entry of Citibank Nigeria Limited. The merger and acquisition of the nine rescued banks i.e. the merger of Access Bank Plc with Intercontinental Bank Plc: Merger of Ecobank Transnational Incorporation with Oceanic Bank Plc: merger of First City Monumental Bank with Fin Bank Plc further reduced the number of banks operating in Nigeria to 21.

The wave of mergers and acquisitions that had taken place in the Nigerian banking industry raises an important question of whether bank consolidation enhances the financial performance of Nigeria banks. Hosono et al (2007) argued that consolidation may increase or decrease the performance of a bank. Mergers and Acquisitions are common place in developing countries of the world but are just becoming prominent in Nigeria especially in the banking industry. Umoren (2007) says that merger and acquisition is simply another way...

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