Mergers, Acquisitions and Financial Performance: A Study of Selected Financial Institutions

Authors

  • Tarila Boloupremo University of Africa
  • Samson Ogege University of Lagos

DOI:

https://doi.org/10.5195/emaj.2019.162

Keywords:

Corporate Strategy, Mergers, Acquisition, Consolidation, Finance

Abstract

The aim of the study is to examine the impact of mergers and acquisition on financial performance in the Nigerian financial system. The study examined selected financial institutions in the banking sector. Specifically, some financial indicators such as asset profile, credit risk, capital structure, liquidity, size and cost control ratios, were extracted from the audited financial reports of the selected banks for the period 2000-2010 to compare the performance of the selected financial institutions in the ex-ante period and compare these performance with the ex post period of their mergers and acquisitions. Longitudinal and time series analyses were employed to observe the performance of the selected banks. Results from the analysis suggest that credit risks showed a better post merger performance, but were statistically insignificant and negatively related with the performance of the selected financial institution pre-merger. Asset profile was found to be significant and positively related with post-merger in relation to the performance of the selected financial institutions, but it was insignificant and negatively related to the financial performance of the selected firms pre-merger. Capital structure of the selected firms was found to be significant and positively related to the performance of the firms’ pre-merger, but insignificant and negatively related to the performance of the firms post-merger. Liquidity of the firms indicated a significant and positive relationship with the performance of the banks pre-merger. However, post merger result indicates that, there was no significant and positive relationship between the liquidity of the firms and financial performance post-merger. The size of the selected banks indicated a significant relationship with their performance in both the pre-merger and post-merger periods. The cost control variable indicated a statistically significant and negative relationship with the performance of the banks post-merger period, but showed no significant relationship with performance of the banks in the pre-merger period. Finally, the results indicate that mergers and acquisitions can have significant impact on the performance of the selected financial institutions in Nigeria.

References

Akpan, A. B. (2005). Effectiveness of Bank Capitalisation and consolidation in Building Market Confidence: An Assessment of Customers Perception in Nigeria. Journal of Business Administration, 1(2).

Amel, D., Barnes, C., Panetta, F and Salleo, C. (2004). Consolidation and Efficiency in the financial sector: a review of the international evidence. Journal of Banking and Finance, 28, 2493-2519.

Andrade, G. and Stafford, E. (2004). Investigating the Economic role of mergers. Journal of Corporate Finance, 10, 1-36.

Auster, E. and Sirower, M. (2002). The dynamics of merger and acquisition waves: A three-stage conceptual framework with implications for practice. Journal of Applied Behavioural Science, 38(2), 216-244.

Beccalli, E. and P. Frantz. (2009). M&A Operations and Performance in Banking. Journal of Financial Services Research 36(2): 203-226.

Becher, D. A. (2000). The valuation effects of mergers. Journal of Corporate Finance, 6, 189–214.

Behr, A. and Heid, F. (2011). The Success of Bank Mergers Revisited. An Assessment Based on a Matching Strategy. 18(1), 117-135.

Berger, A. and Demsetz, R. and Strahan, P. (1999). The Consolidation of the Financial Services Industry: Causes, Consequences and Implications for the future. Journal of Banking and finance, 23, 135-194.

Bernard, C., Fuentelsaz, L. and Gomez, J. (2010). The effects of merger and acquisitions on productivity: An empirical application to Spanish banking. Omega, 38(5), 283-293.

Bryman, A. and Bell, E. (2001). Business Research Methods. 3rd Ed. Oxford: Oxford University Press.

Cassiman, B., Colombo, M. Garrone, P. and Veugelers, R. (2003). The Impact of Mergers and Acquisitions on the Research and Development Process: An Empirical Analysis of the role of Technological and market Relatedness. Res Policy, 34, 195-220.

Chanmugan, R., Shill, W., Mann, D., Ficery, K. and Pursche, B. (2005). The intelligent clean room: ensuring value capture in mergers and acquisitions. Journal of Business Strategy, 26 (3), 43-49.

Chatterjee, S., Lubatkin, M., Schweiger, D. M and Weber, Y. (1992). Cultural Differences and shareholder value in related mergers: linking equity and human capital. Strategic Management Journal, 7, 119-139.

Chu, K. H. (2010). Bank mergers, branch networks and economic growth: Theory and evidence from Canada, 1889- 1926. Journal of Macroeconomics, 32(1), 265-283.

Cyree, K. (2010). What do banks acquirers value in non-public bank mergers and acquisitions?. The Quarterly Review of Economics and Finance, 50(3), 341-351.

Denis, D., Denis, D. and Yost, K. (2002). Global Diversification, Industry diversification and Firm Value. Journal of Finance, 57, 1951-1979.

Delong, G. and Deyoung, R. (2007). Learning by observing: Information spillovers in the execution and valuation of commercial Banks M &A. Journal of Finance, 62(1), 181-216.

Devos, E., Kadapakkam, P. and Krishnamurthy, S. (2009). How do Mergers create Value? A comparison of taxes, market power and efficiency improvements as explanations for Synergies. Review of Financial Studies, 22, 1179-1211.

Deyoung, R., Hunter, W. C. and Udell, G. F. (2004). The Past, Present and Probable future for Community Banks. Journal of Financial Services Research, 25, 85-133.

DeYoung, R. (2005). The performance of internet-based business models: Evidence from the banking industry. Journal of Business, 78, 893–947.

Epstein, M. J. (2005). The Determinants and Evaluation of Merger Success. Business Horizons, 48, 37-46.

Focarelli, D. (2002). Why Do Banks Merge?, Journal of Money, Credit and Banking, 34(4), 1047-1066.

Ghaughan, P. (2011). M & A Resurgence: Good or Bad?, Journal of Corporate Accounting and Finance, 22(2), 3-8.

Ghaughan, P. (2002). Mergers, Acquisition and Corporate Restructurings. 3rd Ed. New Jersey: John Wiley and Sons.

Ghauri, P. and Gronhaug, K. (2010). Research Methods in Business Studies. 4th Ed. Harlow: Prentice Hall.

Hillier, D., Ross, S., Westerfield, R., Jaffe, J. and Jordan, B. (2010). Corporate Finance: European edition. London: Mc Graw-Hill.

Houston, J., James, C. and Ryngaert, M. (2001). Where do merger gains come from? Bank mergers from the perspective of insiders and outsiders. Journal of Financial Economics, 60(2), 285-331.

Houston, J. and Ryangaert, M. (1994). The Overall Gains From Large Bank Mergers. Journal of Banking and Finance, 18(6), 1155-1176.

Huyghebaert, N. and Luypaert, M. (2010). Antecedents of growth mergers and acquisitions: Empirical results from Belgium. Journal of Business Research, 63, 392-403.

Jemison, D. and Sitkin, S. (1986). Corporate Acquisitions: a process Perspectives. Academy of Management Review, 11, 145-163.

Jimmy, A. E. (2016). An Evaluation of Organic Growth and Mergers and Acquisition As Strategic Growth Options in the Nigerian Banking Sector. MA thesis, University of Nottingham.

Jin, Q. J. and Ligon, J. A. (2011). How much is reasonable? The size of termination fees in mergers and acquisitions. Journal of Corporate Finance, 17, 959-981.

Lehto, E. and Lehtoranta, O. (2004). Becoming an Acquirer and Becoming Acquired. Technol Forecast Social Change, 71, 635-650.

Lemo, T. (2005). Regulatory Oversight and Stakeholder Protection. A Paper Presented at the BGL Mergers and Acquisitions Interactive Seminar, held at Eko Hotels& Suits. V. I., on June 24.

Lubatkin, M. (1986). Towards Reconciliation of Market Performance Measures to Strategic Management Research. Academy Of Management Review, 11(3), 490-512.

Moruff,S.O., Adebiyi, J.A. & Benneth, U.Z. (2018). Innovation and Internationalization of Nigeria Deposit Money Banks. Emerging markets journal, 8(1), 1-11.

Maire, S. and Collerette, P. (2011). International Post-Merger Integration: Lessons from an Integration Project in the Private Banking Sector. International Journal of Project Management, 29, 279-294.

Malmendier, U. and Tate, G. (2008). Who Makes Acquisition? CEO overconfidence and the market’s reaction. Journal of Finance Economics, 89, 20-43.

Moeller, S. B. and Schlingermann, F. P. (2005). Global Diversification and Bidder Gains: A comparison between Cros border and domestic Acquisitions. Journal of Bank Finance, 29, 533-564.

Ogbonna, A. (2007). Can The Real Sector Count on Nigerian Banks?. The Sun News Online (online) 18 October 2007. Available at: <http://www.sunnewsonline.com/webpages/features/money/2007/oct/18/mone y-18-10-07-002.htm.

Okpanachi, J. (2015). Comparative analysis of the Impact of mergers and Acquisitions on the financial Efficiency of banks in Nigeria. Journal of Accounting and Taxation, 3(1), 1-7.

Okafor, E. E. (2009). Post Consolidation Challenges and Strategies for Managing Employees Resistance to Change In the Banking Sector in Nigeria. Journal of Social Sciences, 19(2), 129-139.

Okonkwo, C. O. (2004). Legal Framework for Mergers and Acquisitions. Central Bank of Nigeria (online). Available at: <http://www.cenbank.org/out/publications/bsd/2005/legal%20framework%20for%20mergers%20%acquisitions.pdf

Olsen, G. T., & Pagano, M. S. (2005). A new application of sustainable growth: A multi-dimensional framework for evaluating the long run performance of bank mergers. Journal of Business, Finance and Accounting, 32, 1995–2036.

Palia, D. (1993). The Managerial, Regulatory and Financial determinants of Bank Merger Premiums. Journal of Industrial Economics, 41, 91-102.

Pilloff, S. J., & Santomero, A. M. (1998). The Value Effects of Bank Mergers and Acquisitions in Y. Amihud, & G. Miller (Eds.), Mergers and Acquisitions. NY: Kluwer Academic Publishers 59–78.

Powell, R. and Yawson, A. (2005). Industry aspects of Takeovers and divestitures: Evidence from the UK. Journal of Bank Finance, 29, 3015-3040.

Ramaswamy, K. (1997). The Performance Impact of Strategic Similarity in Horizontal Mergers: Evidence from the U.S. Banking Industry. Academy of Management Journal 40, 697-715.

Roll, R. (1986). The Hubris Hypothesis of corporate takeovers. Journal of Business 69, 197-216.

Sanusi, L. (2011). Banks in Nigeria and national Economic Development: A Critical Review (online). BIS Central Bankers Speeches. Available at: http://www.bis.org/review/r110323b.pdf

Schiereck, D., Sigl-Grub, C. and Unverhau, J. (2009). Investment Bank Reputation and Shareholder Wealth Effects in Mergers and Acquisitions. Research in International Business and Finance. 23(3), 257-273.

Shleifer, A. and Vishny, R. (2003). Stock Market Driven Acquisitions. Journal of Finance Economics, 70, 295-311.

Schneider, W. (2003). Trouble at the Top: A Sign of Deal Disorder. Mergers and Acquisition: The dealmakers Journal, 38 (4), 30-33.

Soludo, C. C. (2004). Consolidating the Nigerian Banking industry to meet the development challenges of the 21st century. BIS Review, 43.

Umoren, A. and Olokoyo, F. (2007). Merger and Acquisition in Nigeria: Analysis and Performance Pre and Post Consolidation. Lagos Journal of banking, finance and Economic issues, 1(1), 1-17.

Valkanov, E. and Kleimeier. (2007). The Role of Regulatory Capital in International Bank Mergers and Acquisition. Research in International Business and Finance, 21(1), 50-68.

Vennet, V. R. (2002). Cross-Border mergers in European Banking and Bank Efficiency. University of Gent Working Paper, 152.

Vennet, V. (1996). The Effect of Mergers and Acquisitions On the Efficiency and Profitability of EC Credit Institutions. Journal of Banking and Finance,20, 1531-1558.

Went, P. (2003). A Quantitative Analysis of Qualitative Arguments In a Bank Merger. International Review of Financial analysis, 12(4), 379-403.

Weston, J. F. and Jawien, P. S. (1999). Perspectives on Mergers and Restructuring. Journal of Business Economics, 34, 29-33.

Wheelock, D. C. and Wilson, P. W. (2000). Why Do Banks Disappear? The Determinants of U.S. Bank Failures and Acquisitions. The Review of Economics and Statistics, 82(1), 127-13.

Downloads

Published

2019-08-05

Issue

Vol. 9 No. 1 (2019)

Section

Articles

License

Authors who publish with this journal agree to the following terms:

  1. The Author retains copyright in the Work, where the term “Work” shall include all digital objects that may result in subsequent electronic publication or distribution.
  2. Upon acceptance of the Work, the author shall grant to the Publisher the right of first publication of the Work.
  3. The Author shall grant to the Publisher and its agents the nonexclusive perpetual right and license to publish, archive, and make accessible the Work in whole or in part in all forms of media now or hereafter known under a Creative Commons Attribution 4.0 International License or its equivalent, which, for the avoidance of doubt, allows others to copy, distribute, and transmit the Work under the following conditions:
    1. Attribution—other users must attribute the Work in the manner specified by the author as indicated on the journal Web site;
    with the understanding that the above condition can be waived with permission from the Author and that where the Work or any of its elements is in the public domain under applicable law, that status is in no way affected by the license.
  4. The Author is able to enter into separate, additional contractual arrangements for the nonexclusive distribution of the journal's published version of the Work (e.g., post it to an institutional repository or publish it in a book), as long as there is provided in the document an acknowledgement of its initial publication in this journal.
  5. Authors are permitted and encouraged to post online a prepublication manuscript (but not the Publisher’s final formatted PDF version of the Work) in institutional repositories or on their Websites prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work. Any such posting made before acceptance and publication of the Work shall be updated upon publication to include a reference to the Publisher-assigned DOI (Digital Object Identifier) and a link to the online abstract for the final published Work in the Journal.
  6. Upon Publisher’s request, the Author agrees to furnish promptly to Publisher, at the Author’s own expense, written evidence of the permissions, licenses, and consents for use of third-party material included within the Work, except as determined by Publisher to be covered by the principles of Fair Use.
  7. The Author represents and warrants that:
    1. the Work is the Author’s original work;
    2. the Author has not transferred, and will not transfer, exclusive rights in the Work to any third party;
    3. the Work is not pending review or under consideration by another publisher;
    4. the Work has not previously been published;
    5. the Work contains no misrepresentation or infringement of the Work or property of other authors or third parties; and
    6. the Work contains no libel, invasion of privacy, or other unlawful matter.
  8. The Author agrees to indemnify and hold Publisher harmless from Author’s breach of the representations and warranties contained in Paragraph 6 above, as well as any claim or proceeding relating to Publisher’s use and publication of any content contained in the Work, including third-party content.

Revised 7/16/2018. Revision Description: Removed outdated link.