Study on Regulatory-Induced Consolidation through Mergers and Acquisitions and its Implication on Banks Performance in Nigeria

Abstract

This paper examined regulatory-induced consolidation through mergers and acquisitions (M&A) and its implications on banks performance in Nigeria. The scope of the paper is from 2000 to 2010 using eight bank performance ratios consisting of pre-merger and post merger periods. Descriptive statistics and the paired t-test tool of analysis were employed. The descriptive statistics showed that the financial performance of the banks after the regulatory–induced M&A deteriorated and they became riskier in terms of profitability, liquidity, and some leverage performance ratios (such as Net worth to total asset and loan to total Deposit ratios) employed except capital adequacy ratio. The t-test results revealed that there is no statistically significant improvement change at 5% level of significance for the profitability, liquidity and leverage performance ratios considered. The study recommends that when contemplating mergers and acquisitions in the future, policy makers and merging firms should sufficiently understand the economic and market conditions prevailing before deciding on any policy to drive consolidation through M&A. Also, sufficient time is proposed if regulatory-induced mergers and acquisitions are favoured as against creating a market- driven M&A. In addition, all merging parties must design an acceptable memorandum of understanding which should be devoid of personal or group gains/interest. This of course will improve the overall banking sector and enable it to play its intermediation role, resource mobilization, resource allocation, facilitating the payment system and enhancing the effectiveness of the nation’s monetary policy.