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 facto research 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.



Title Page i

Certification ii

Approval Page iii

Dedication iv

Acknowledgment v

Abstract vi

Table of content vii

List of tables and figures x


Background of the Study1

Statement of the Problem2

Objectives of the Study3

Research Questions3

Research Hypotheses4

Scope of the Study4

Significance of the Study4

Operational definition of terms5

References 7


Conceptual framework9

Merger and Acquisition9

Reasons for mergers and acquisition10

Consequences of mergers and acquisition12

Brand implication of M&A on banks12

Structural implications of M&A on banks15

Theoretical Review16

M & A research paradigms16

Economic and finance perspective17

Strategy perspective17

Organisational behaviour perspective17

Human resource management perspective18

Stages of M & A19

Corporate strategy development19

Organising for acquisition20

Deal structuring and negotiation20

Post acquisition integration21

Post acquisition and organisational learning22

Nigerian banking sector regulatory agencies22

Federal ministry of finance23

Central bank of Nigeria23

Nigerian deposit insurance corporation24

Securities and exchange commission24

Empirical Review24

Trends in Bank consolidation24

Mergers and acquisition waves27

An overview of the Nigerian bank consolidation exercise28

Strategies for consolidation adopted by Nigerian banks29

Post consolidation33

Elements of the banking reform36

Legal Hurdles for M& A38

Traditional views of the value of M&A38

Critical success issues of M&A40

Challenges of the banking reforms43

Prospect and effect of banking consolidation45

Some prior study51


References 58


Research Design68

Nature and Sources of Data68

Population and Sample Size69

Model Specification69

Description of Research Variables71

Independent Variable71

Shareholders’ Equity71

Dependent Variable72

Liquidity Ratio72

Return on Equity72

Debt/Equity Ratio72 Earning Per Share 73

Techniques of Data Analysis73

References 75



Presentation of Data76

Computation of the Ratio Values76

Stationarity Test76

Test of Hypothesis78

Test of Hypothesis One78

Test of Hypothesis Two80

Test of Hypothesis Three81

Test of Hypothesis Four83

Granger Causality Test85

Implication of the result86

References 88


Summary of Findings95

Conclusion of the Study95

Recommendations of the Study95

Recommendation for Further Studies97

Contribution to Knowledge97

References 98

Appendices 99

Bibliography 122


Table 4.1 Values of Model Proxies 99

Table 4.2 Computed Ratio Values of the Model Proxies 104

Table 4.3 Augmented Dicker fuller unit root test (after detrending and differencing) 77

Table 4.4 Shows the new data set after differencing and detrending 113

Table 4.4.1 Ordinary Least Square result of hypothesis one 79

Table 4.4.2 Ordinary Least Square result of hypothesis two 80

Table 4.4.3 Ordinary Least Square result of hypothesis three 82

Table 4.4.4 Ordinary Least Square result of hypothesis four 83

Table 4.5 Granger causality test 84

Table 2.2List of Banks in Nigeria as at January 1, 2006

Table 2.3 Basic indicators of banking sector consolidation results pre-consolidation 34

Table 2.4 Distressed banks and the new banks that acquired those 34

Table 2.5 List of existing banks in Nigeria 35

Table 2.1 Summary of major mergers and acquisition waves in the US 28

Figure 1 Line graphs showing the stationarity of panel data series: SHE 108

Figure 2 Line graphs showing the stationarity of panel data series: liquidity ratio 109

Figure 3 Line graphs showing the stationarity of panel data series: return on equity 110

Figure 4 Line graphs showing the stationarity of panel data series: debt/equity ratio 111 Figure 5 Line graphs showing the stationarity of panel data series: earning per share112



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 31st, 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 31st, 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

of saying survival of the fittest that is to say a bigger, more efficient, better-capitalized, more skilled industry.

As the banks are devising ways of improving efficiency and ensuring the optimization of the available resources, policy makers and regulatory authorities are moving towards openness, competiveness, and at the same time ensuring market discipline. This is in tandem with the trend in the banking sector globally. Ahmed (2000:33)  described  this  development  as  a magic one which caused quite a substantial number of Nigerian banks to be sick while some became healthier. In his view, he contended that growth in the banking sector should be transmitted easily into growth of the real sector. But as banks continued to record impressive growth in all economics, indices show a declining margin of economic growth.  This makes  one wonder where the impacts of the impressive performance of the banks as reported in the financial reports are being felt. Even the NDIC (Nigerian Deposit Insurance  Corporation) which is established to insure the deposit liabilities of licensed banks has liquidated some distressed banks. The action, Ezeikpe (1993: 36-38) commended while arguing that some distressed banks should be liquidated as a way of survival for the banking system.

This study seeks to evaluate the effect of mergers and acquisitions as strategic growth option   in the Nigerian banking sector, with a view to find out if mergers and acquisitions result in superior financial performance, efficient, reliable and sound capital base for  the  bank  that fully embraced it.

Statement of the Problem

The outbreak of bank mergers in Nigeria is attracting much attention, partly because of heightened interest in what motivates firms to merger and how mergers affect efficiency. However, there are often two distinct views to the rationale  behind merger and acquisition.  The first held view of mergers, especially those involving mega firms, is that firms  are  merging just to get bigger and not to get more efficient. Accompanying that notion is the fear that as merging firms grab greater market share, individual freedoms, competition and efficiency are threatened, because bigger is perceived as greater concentration of power.

The second view holds that firm’s merger not just  to get bigger but  also  to be more efficient. It is claimed that mergers enable the banking industry to take advantage of new opportunities created by changes in the technological and regulatory environment. Fallout of this is the reduction in the number of banks nationwide but the concentration of power in local banking markets has not increased. And the very force of regulatory change that spurred bank merger

is also bringing new sources of competition of local banking market (especially the management of the country’s external reserves). The post-consolidation performance of all Nigerian banks was overcast in 2009 by the global financial and economic crisis, which was precipitated in August 2007 by the collapse of the sub-prime lending market in the United States. Sanusi (2010) attributed the post consolidation challenges of  Nigerian banking industry to  the inability of the industry and the regulators to sustain and monitor the  sector’s  explosive growth which as a result led to risk-build in the system. This study shall investigate the effect  of the merger and acquisition that had taken place in the Nigerian banking sector on the performance of the selected banks 1998-2012.

Objectives of the Study

In a broad framework, the general objective of the study is to  examine the effect of mergers  and acquisitions on the performance of the Nigerian banking sector

The specific objectives of this study were to:

1. ascertain the impact of mergers and acquisitions on the liquidity profile of commercial banks in Nigeria.

2. examine how mergers and acquisitions adopted by commercial banks impacted on the return on equity of the affected banks.

3. evaluate the impact of mergers and acquisitions on the debt/equity profile of  commercial banks in Nigeria.

4. examine the extent to which earning per share of commercial banks improved as a  result of mergers and acquisitions.

Research Questions

The following research questions are considered relevant for the purpose  of  this  research work:

1. What effect does mergers and acquisitions have on the liquidity profile of commercial banks in Nigeria?

2. Do mergers and acquisitions have any effect on return on  equity of commercial banks in Nigeria?

3. What effect does mergers and acquisitions have on the debt equity profile of the commercial banks in Nigeria?

4. To what extent have mergers and acquisitions adopted by banks impacted on  the earning per share of the affected banks?

Research Hypotheses

For the purpose of this research, the following hypothetical statements stated in their  null  forms are considered relevant in order to guide the researcher properly:

H1: Mergers and acquisitions do not have any significant positive effect on the liquidity profile of the affected banks.

H2: Mergers and acquisitions have no significant positive effect on the return on equity of commercial banks.

H3: Mergers and acquisitions do not have any significant positive effect on the debt equity profile of commercial banks in Nigeria

H4: Mergers and acquisitions have no significant positive  impact  on the earning per share of the affected banks.

Scope of the Study

This research focus on the effect of mergers and acquisitions on the performance of the Nigerian banking industry.The time frame for the analysis is 1998 – 2012, a period of fifteen

(15) years. This is with the understanding that the time frame will only be fair and balance for analyzing their performance. It  is also extended to 2012 to ensure that the  information and  data used are timely, up to date and accurate enough to represent the current position of the banks under study.

Significance  of Study

The major significance of this study relates to the evaluation of mergers and acquisitions in terms of its impact on the performance in the post-consolidation era in the Nigerian banking sector, this will serve as a yardstick for the justification of the exercise.  This study will also  add to the general body of knowledge on the subject matter of mergers and acquisitions and  also compliment the work of other authors.

In furtherance to the above, this research will also be significant to:

The policy makers and regulators of the banking industry, it will present a  schema,  through its analysis that could assist them in evolving policies and reforms that will positively impact on the performance of the banking industry.

To the public, it will enlighten the general public on the effect of bank consolidation on the performance of banks in Nigeria, and also provide a better understanding of the dynamics of  the Nigerian banking industry and how it has performed within the period under review.

To investors in general, the study exposes the relationship existing between relevant variable used in this study.  Investors will be in a better position to make rational investment decisions  as the study will make them understand better the nature of relationship existing between mergers and acquisitions and various performance index of the Nigerian banking industry.

To students, the research will assist those who wish to take a career in economics, banking   and finance to advance their understanding of the concept and mechanism of mergers and acquisitions and its effects.

Finally, the research work will serve as a reference material for future researchers on similar topic.

Operational Definition of Terms

Merger: In business or economics a merger is a combination of two  companies into  one  larger company. Such actions are commonly voluntary and involve stock swap or  cash  payment to the target. Stock swap is often used as it allows the shareholders of the two companies to share the risks involved in the deal.

Acquisition: This means the buying of one company (the target) by another. An acquisition may be friendly or hostile. In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the targets board has no prior knowledge of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one.

Bank Re-Capitalization: It is the act of supplying long-term funds of the owners of the bank  to meet the requirement of monetary authority. Osiegbu (2005).

Consolidation: It is the reduction in the number of banks and other deposit taking institution with a simultaneous increase in the size and concentration of the consolidation entities in the sector (BIS, 2001:2)

Shareholder’s fund: are alternative terms for owners’ or shareholders equity.  It  represents  the funds invested in the company through stock purchase or other private investments.

Economy: The relationship between production, trade and the supply of  money  in  a  particular country or region. It is the system of trade and industry by which the wealth of a country is made and used.


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