ABSTRACT
The study examined the effect of mergers and acquisitions on banks’ profitability in Nigeria using time series data from 1991 to 2017. The data used for the study was sourced from Central Bank of Nigeria statistical bulletin and Nigeria Deposit Insurance Corporation annual report. Mergers and acquisition was captured by dummy variables and total assets of banks, while banks’ capital and profitability was measured using capital base and return on assets respectively. For the analysis, regression analysis technique was used. From the results of the data analysis, it was found that mergers and acquisition had no significant effect on banks capital, while the effect of banks’ total assets on capital base was significant. Also, mergers and acquisition had an insignificant effect on return on assets while the effect of total banks assets on return on assets was significant. Based on these findings, it was recommended among other things that individual banks experiencing distress should go into recapitalization and consolidation using mergers and acquisitions to enable them attain consistent growth in their total assets, profits, deposits and capital base.
TABLE OF CONTENTS
Tittle Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Content vi
List of Tables ix
Abstract x
CHAPTER ONE: INTRODUCTION
1.1 Background to the study 3
1.2 Statement of problem 4
1.3 Objectives of the study 4
1.4 Research questions 5
1.5 Research hypothesis 5
1.6 Scope of the study. 5
1.7 Significance of the Study. 6
CHAPTER TWO: LITERATURE REVIEW
2.1 Conceptual
framework of mergers and acquisition. 7
2.1.1Concept of
mergers and acquisition. 9
2.1.2 Reasons for
mergers and acquisition. 10
2.1.3 motives for
mergers and acquisition. 14
2.2 Theoretical
Review 14
2.2.1 Theory of
synergy 15
2.2.2 The Value of
increasing Theory. 15
2.2.3 Concentration Theory. 16
2.2.4 Mergers an Acquisition in Nigeria. 17
2.2.5 Bank
performance measures 18
2.3 Empirical
Review 23
CHAPTER THREE:
RESEARCH METHODOLOGY
3.1 Research
design 24
3.2 Nature and
Source of Data 24
3.3 Method of Data
Analysis 24
3.4 Model
Specification 25
3.5 Description of
Research Variables 26
3.5.1 Dependent Variable. 26
3.5.2 Independent
Variables 26
3.6 Techniques of Data Analysis 27
CHAPTER FOUR: PRESENTATION OF DATA,
ANALYSIS AND DISCUSION
4.1 Presentation
of Data 28
4.2 Data Analysis
and Discussion of Finding 29
4.2.1 Descriptive
Analysis 29
4.2.2 Regression
Analysis 32
4.2.3 Hypotheses
Testing 33
CHAPTERFIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 Summary of
findings 34
5.2
Conclusion 34
5.3
Recommendation 35
Reference
Appendix
LIST OF TABLES
4.1 Aggregate
Dataset Used for the Study 28
4.2 Descriptive
Statistics 29
4.3 Regression
Results (dependent variable, BC) 30
4.4 Regression
Results (dependent Variable, ROA) 31
CHAPTER ONE
INTRODUCTION
1.1
Background
to the study
Banks are the main source of fund to the economy of
any country. They occupy a central position in the country’s financial system
and are essential agents in the development process. Generally, the financial
system is more than being just institution that facilitate payments and extend
credit. It encompasses all functions that direct real resources to their
ultimate users, they intermediate between the surplus and deficit unit within
an economy. Banks play a critical role of mobilizing and facilitating efficient
allocation of national savings, thereby increasing the quantum of investments
and hence improving national output, (Afolabi, 2004). Through financial
intermediation, banks facilitate capital formation (investment) and promote
economic growth. Banks need payment system infrastructure to exchange claims
securely and markets in which to hedge the risks raising from their intermediation
activities. The banking system functions more effectively and efficiently when
there is a robust and efficient payment system infrastructure. The government
also raises funds through the banking system to finance its development
programs and strategic objectives, (Olagunju and Obademi, 2010).
Banks have experienced a lot of hardship especially
between the decade of 1995 and 2005,, with the magnitude of distress reaching
an unprecedented or unseen level thereby making it an issue of concern not only
to the regulatory agencies but also to the policy analysts and the general
public,(Okpanachi, 2011). Therefore, there was need for a drastic renovation of
the Nigeria banking sector in order to restore the already dying confidence of
the general public and other foreign investors who would not sleep with their
eyes closed as a result of the weak financial system that the Nigerian banks
operated, (Okpanachi, 2011). The Nigerian banking industry has witnessed a
dramatic transformation since December 2005 deadline for bank recapitalization.
The central bank of Nigeria introduced major reforms programs that change the
banking landscape of the country in 2004 that resulted to the liquidation of
some banks in Nigeria. The introduction of the reform known as the 13-point
agenda which began in 2004 was aimed at strengthening the banks, (wartick,
2008). This policy was based on improving the banks and position them to play a
pivotal role in driving development across the sector of the economy by raising
the capital base from ₦2million to minimum of ₦25bilion and as a result of this
banks were consolidated through mergers and acquisitions. Mergers and
acquisition are global phenomena which many organizations employ to grow
internally, by expanding its operations both globally and domestically.
Merger is the
combination of two or more business that leads to the formation of one
business. Acquisition is the takeover or purchase of one business by other
business. Mergers and acquisition benefit shareholders when the consolidated
post-merger firm is more valuable than the simple sum of the two separate
pre-merger firms. Soludo opined that mergers and acquisitions are aimed at
achieving cost efficiency through economics of scale, and to diversify 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 is to gain operating and financial synergy.
(Daniya, Onotu and Yahaya, 2010)
The major reason or vision of the 13point reform
agenda according to CBN, (2004) was to implement a revolutionary transformation
of the banking system to achieve the following objectives:
1 To
establish a banking system that will rapidly stimulate Nigerian economic growth
and development.
2 To
integrate the Nigeria banking system into the global financial system, to
target at least on Nigeria Bank in top 100 banks in the world within the next
10 years.
3 To
make Nigeria the African financial hub in the long run.
4 To
create a new central bank of Nigeria for the 21st century that is
best managed and most effective.
The prescription of
minimum shareholders’ funds of 25 billion naira for the Nigeria deposit money
banks on or before december31, 2005 made the banking sector experience steady
consolidation through recapitalization, mergers and acquisitions that have
resulted in fewer banks holding a greater value of the total assets in the
banking sector, (Okpanachi, 2011). An unprecedented process of mergers and
acquisition had taking pattern in the Nigeria banking sector, immediately after
the recapitalization deadline ended in December 31st, 2005, the number of
operating banks in the country reduced from 89 banks to 25 banks but later
reduced further to 23with the merger of some banks like first Atlantic bank
plc. and inland bank form the fin bank plc. Stanbic plc. and IBTC bank. The
banking communities are coming to reality with the new face of the Nigerian
banking industry. Apparently, there has been series of assignments; realignments
and slight balance of power shift amongst the industry frontrunners as
customers adjust to the new dispensation and as competition heats up amongst
the saving banks, (Kama, 2004). It is against this background that this study
is to examine the effect of merger and acquisition on banks profitability in Nigeria.
1.2
Statement of Problem
Mergers and
acquisitions has been described in this work as global phenomena which many
organizations employ to grow internally by expanding its operation both
globally and domestically, (Daniya et al,
2010).This study tends to solve the problem attributed tolarger scale merger
and acquisition which generates a considerable amount of change in the
profitability and liquidity of commercial banks. Mergers and acquisition logic
is sometimes superseded by events; Even the strategic planner can occasionally
fail to see sudden and large-scale changes in the external market. Where such
change does occur, the whole rationale behind the merger or acquisition can
equally dissipate, sometimes with disastrous results. Battle for corporate
control which involves competing management groups of the merging banks who
seek to establish their positions through appeals to corporate stakeholders and
the community at large (the conflict between those who will control the
operations of the firm. This research is therefore carried to examine how
efficiency of merger and acquisition will help in improving the banking
sector’s profitability.
1.3
Objective of the Study
The general objective of this study
is to examine the effect of mergers and acquisition on banks profitability in
Nigeria. From the above objective the following include the specific objectives
of this study;
i.
To ascertain the effect
of mergers and acquisition on banks’ capital in Nigeria.
ii.
To examine the effect of
mergers and acquisition on the return on assets of commercial banks in Nigeria.
1.4 Research
Questions
In line with the specific objectives the study
provides answers to the following questions.
i.
To what extent does
mergers and acquisition affect the capital funds of banks in Nigeria?
ii.
How has mergers and
acquisition affected the return on asset of bank?
1.5. Research hypotheses
Two hypotheses will be tested in the study in Line
with the research objectives and research questions which are in null form,
they include;
Ho1: There is no significant
effect of mergers and acquisition on
banks capital in Nigeria.
Ho2: There is no significant
relationship on the effect of return on assets of commercial banks in Nigeria.
1.6
Scope
of The Study
The intellectual focus of this study is to investigate
the effect of mergers and acquisition on banks profitability in Nigeria. In
achieving this, the study shall adopt data from 1991 to 2017 in order to
investigate the effect of mergers and acquisition on banks profitability in
Nigeria and evaluate the performance of the banks during this period.
1.7
Significance of Study
1.
Maximization of Bank’s
Shareholders Wealth: This goal is interpreted to mean maximizing the market value
of the firm’s ordinary shares. Wealth maximization, in turn, requires that
managers evaluate the present value of cash flows under uncertainty with
larger, near-term cash flows proffered when evaluated on a risk adjusted basis.
2.
Further Academic Research:
It also
triggers off further research in the field of management science and be of
assistance to tutors, students and prospective researchers in similar topic.
3.
Monetary authorities: through this research
monetary authorities like the central bank of Nigeria will be able to implement
policies that would boost the activities of the banking sector and hence
improve banks profitability and liquidity.
4.
Banking industries: mergers and acquisitions
aim at restructuring and restoring solvency, increase profitability, liquidity,
capital base of the Nigerian banks.
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