Effects Mergers And Acquisitions On Bank Performances Finance Essay

Effects Mergers And Acquisitions On Bank Performances Finance Essay

Amalgamations and acquisitions could be seen as the purchasing, selling or combination of two or more houses to go a individual entity. It is an facet of corporate finance that is often used as a growing scheme.

The international banking industry has experienced some noteworthy developments on a monolithic graduated table. Over the past 10 to twenty old ages, there has been a high rate of bank consolidations through amalgamations and acquisitions. This has been prevalent in assorted states around the universe. The United States of America and European states, particularly in the late 1990s, experienced a tendency of accelerated fiscal consolidation. As a consequence, bank amalgamations in developed states have been studied with variable findings. Fiscal markets around the universe have become more deregulated taking to this unexpected moving ridge of amalgamations and acquisitions. Other grounds for the amalgamation wave include the globalization of fiscal and existent markets, the technological discovery that have occurred in recent times every bit good as the betterment and development of new IT systems particularly in the country of e-commerce ( Rezitis 2008 ) .

The governor of the Central Bank of Nigeria ( CBN ) , Charles Soludo, put in topographic point a strong reform scheme to better the fiscal public presentation and revolutionize the Nigerian fiscal industry. This reform gave the state ‘s legion little Bankss until the terminal of the twelvemonth 2005 to unify with larger entities or be liquidated. As a consequence, amalgamations and acquisitions have swept like wildfire through Nigeria ‘s banking sector ( Siddiqi 2005 ) . The Nigerian banking industry is presently sing rapid development as the reform exercising has brought about a model for the effectual supervising of big banking groups compared to oversing the engorged banking industry of the yesteryear ( Siddiqi 2005 ) . It is besides of note that the assorted stakeholders, stockholders every bit good as clients will be affected by this banking reform.

This survey attempts to use empirical trials on some of the amalgamations and acquisitions that have taken topographic point as a consequence of the banking sector reform initiated by the CBN to research its effects on the Nigerian banking industry. I intend to set about this research as a consequence of my fervent involvement in corporate finance, specifically amalgamations and acquisitions. I ‘ll wish to understand how amalgamations and acquisitions can better the efficiency and productiveness ( every bit good as step the effects ) of the administrations that employ them as a directional scheme. I besides believe this will assist in my future calling as I look frontward to acquiring a occupation in the fiscal service industry and stand outing at it.

3. Preliminary Review of the Literature

The hereafter is all about growing. What is the best scheme for growing is the inquiry all houses have to inquire themselves. Research has shown that about 50 per cent of the actions taken by houses to turn will neglect. Most amalgamations and acquisitions have led to a loss in stockholder value over and over once more yet it is still being used as a growing scheme. Amalgamations have been defined as “ making a new administration out of two or more administrations of more or less equal stature, pooling all resources ” . An acquisition on the other manus is defined as the add-on of a little house to the construction of a larger administration ( Emerald Group 2005 ) .

Since 2005, when United Bank for Africa Plc ( UBA ) merged with Standard Trust Bank Plc ( STB ) to go the largest fiscal service establishment in West Africa in footings of balance sheet size ( UBA Group 2007 ) , many other amalgamations and acquisitions have followed suit in the Nigerian banking industry. These have been to either run into the demands as specified by the CBN reforms or to take relatiative actions against UBA. It is the desire of the CBN to make a dependable, diversified and strong banking sector that will play an active function in the development of the Nigerian economic system every bit good as the Nigerian banking sector going an active competitory participant in the planetary banking scene. It is intended that the minimal capitalization for Bankss would be N25 billion which is an addition of N23 billion from the old degree of N2 billion. It was besides expected that the directive was complied with before the terminal of December 2005 ( Okagbue and Aliko 2004 ) .

There have been a batch of old surveies on the effects of amalgamations and acquisitions on the European banking industry. A old research shows grounds that Bankss in Europe with similar schemes have on norm undertaken amalgamations that resulted in an betterment in bank public presentations. It found that where domestic Bankss were involved in a amalgamation, establishments with similar schemes in footings of cost, loan footings, size, sedimentation, recognition and net incomes are much easier and cheaper to incorporate than those with dissimilar schemes ( Altunbas and Marques 2008 ) .

Harmonizing to Rezitis ( 2008 ) , there is grounds that Grecian Bankss that undertook amalgamation and acquisition activities during the period 1993 – 2004 had a autumn in their proficient efficiency and besides productiveness. Rezitis ( 2008 ) besides noted that the analysis he used did non cover all of the efficiency additions that could accrue as a consequence of the amalgamations and acquisitions because these additions take a long clip to come in. This determination is in line with most of the available literature on banking related to amalgamations and acquisitions and bank public presentation.

Looking at amalgamations and acquisitions and its effects from an Asiatic position, Chong, Liu and Tan ( 2006 ) supply grounds that forced bank amalgamations ( in the instance of Malaysia ) consequences in the devastation of economic value and besides that the bidders gain at the disbursal of the mark in state of affairss like this.

Peristiani ( 1997 ) investigated the post-merger public presentation of Bankss in the U.S. that took portion in amalgamations during the period 1980-1990. The survey applied the DFA attack which suggests that efficiency steps are correlated with fiscal ratios. Peristiani ( 1997 ) compared merged and unmerged Bankss in both the pre and post-merger period and he discovered “ a little but important diminution in pro-forma X-efficiency ” in the incorporate Bankss “ two to four old ages after the amalgamation ” but there was besides grounds of a small addition in efficiency of graduated table which reflected that the marks were of less scale efficiency than the geting Bankss.

A research has besides been conducted on how a house ‘s human resource can impact the effectivity of amalgamations and acquisitions. The research covered 267 banking houses in the U.S. and it involved the scrutiny of their public presentation steps. Evidence abounds that where there is an effectual human resource capableness and a high amalgamation and acquisition strength, the post-merger public presentation of the new house will be encouraging ( Lin, Hung and Li 2006 ) .

All these old surveies have been carried out on the efficiency of fiscal establishments in European banking industries, Asia-pacific and the U.S. banking sector. Although the rate of bank consolidations has been much higher in these parts of the universe, the African fiscal market is besides following in their tendencies. These surveies have n’t besides looked at how the consolidation of the banking industry affects the development of an economic system and its impacts on the growing of the fiscal system but they have laid a good foundation on the analysis of bank amalgamations and their post-merger public presentations. It is my belief that a survey of amalgamations and acquisitions in the Nigerian banking industry will open chances for more surveies to be conducted on this phenomenon in an African market and how its wake affects the economic system as a whole.

4. Research Questions and Aims

Research inquiries ;

The background and literature reappraisal brings some inquiries to mind. These are..

Should the little or average Bankss merge with themselves?

Should the big dominant Bankss get the little Bankss?

Make the amalgamations and acquisitions improve the public presentation of the Nigerian banking industry?

Is there any consequence of the amalgamations and acquisitions on the stakeholders of the Nigerian banking industry?

Research objectives ;

From the research inquiries raised above, the following aims will seek to proffer solutions. The research aims are aˆ¦

To analyze the impact of amalgamations and acquisitions on Nigerian bank public presentations.

To compare a amalgamation of little Bankss and a big bank geting smaller Bankss.

To find the impact of the bank amalgamations on stockholder value in the Nigerian banking industry.

5. Research Plan

Research position

This could be deemed as a research doctrine i.e. the manner cognition is developed. There are three positions as to how a research should continue. They include positivism, pragmatism and interpretivism. The positivism position reflects the stance of a natural scientist that would prefer working with discernible variables that could be controlled in order to do generalizations. Realism is of the position that world exists and it is independent of human beliefs and ideas. It recognises the importance of understanding people ‘s beliefs and perceptual experience in the context of seeking to understand the society, people ‘s nature and behavior. Interpretivism entails seeking to understand a peculiar state of affairs without doing generalization for similar happenings as these state of affairss are normally complex and besides with alone features ( Saunders, Lewis and Thornhill 2003: 83-85 ) .

The attack to be taken in this research is a mix of the rationalist and interpretivist. The variables to be considered such as net incomes, stock monetary values and entire assets can be observed, quantified and analysed statistically and objectively. The research besides seeks to understand a alone and complex concern state of affairs which may non be a suited campaigner for generalization of the findings as it is dependent on some fortunes which could alter in the close hereafter.

This research is inclined towards the usage of the deductive attack as I will be proving the theory of amalgamations and acquisitions taking to an betterment in public presentation and stakeholder wealth utilizing facts from the Nigerian banking industry.

Research design

A figure of research schemes could be employed for any research depending on what its inquiries and aims are. These schemes include study, experiment, instance survey, action research, cross-sectional and longitudinal surveies ( Saunders, Lewis and Thornhill 2003: 91 ) . This undertaking will unite the usage of multiple instance surveies and a longitudinal survey.

A longitudinal research design offers an chance to analyze alteration and development over a period of clip ( Saunders, Lewis and Thornhill 2003: 96 ) which will be utile in achieving my research aim. The usage of multiple instance surveies besides offers an chance to compare different scenarios merely like my 2nd research aim. The restriction in this design is that the instances used may non be the best representative for the aims to be met.

Beginning of secondary informations

This research will be conducted with secondary informations collected from assorted beginnings. This attack is less clip devouring than roll uping primary informations and it is besides cheaper. Another advantage is that informations on the Bankss will be collected from the one-year studies of the Bankss to be analysed. These studies are public paperss and so they can be accessed from the bank websites over the cyberspace. I have already gotten entree to the web sites and downloaded the one-year studies.

Datas on the unifying Bankss will be obtained from the CBN web site as these Bankss are no longer in being. I have entree to the web site and publications within the web site that are related to the amalgamations and acquisitions in the Nigerian banking industry.

Datas on the stock monetary values of the assorted Bankss to be analysed will be collected from the web sites of investing houses in Nigeria like Cash trade plus direction, Credit Discount Limited and Greenwich Investment Limited.

The sampling technique to be used in this research will be purposive trying which is a non-probability sampling technique. This technique is applied because it will assist in analyzing the Bankss that are more suited for analysis in seeking to work out each research inquiry. It is besides an cheap and easy technique to be applied and it ‘s really convenient.

Quality and usage of secondary informations

The information to be used in this undertaking will be collected in such a manner that they meet the standards of cogency, dependability and credibleness. In order to make this, I must guarantee that the information collected will turn to the research inquiries. For this ground, informations obtained from the bank one-year studies and the CBN web site will turn to research inquiries one to three and objectives one and two. The historical stock monetary values obtained from the investing houses will turn to the last research inquiry and aim.

To run into the dependability standard, this research will be conducted in a mode that anyone could retroflex the survey and its findings. The research will be decently documented all the manner.

For credibleness, the informations ( historical stock monetary values ) to be used will be compared on the different investing house ‘s web site to do certain they are accurate. The information in the bank one-year studies will besides be cross-referenced with the informations from the CBN web site. This will guarantee that the informations used is every bit accurate as can be. This research will demo how the analysis is carried out, the links between the informations, its analysis, findings and the decision I will come to.

Analyzing secondary informations

I will analyze the informations utilizing Microsoft Excel and Statistical Package for Social Sciences ( SPSS ) . An analysis of discrepancy will be conducted on the incorporate Bankss to analyze the impact of amalgamations on bank public presentation and an event survey will be carried out to find if the amalgamations and acquisitions have had any impact on the stakeholders.

Restrictions

This research has restrictions which are centred in the informations and analysis to be used. The informations collected may non function the intent that I have in head or it may be aggregated, doing it unsuitable for my research. This could impact the cogency of the research.

Using a purposive sampling technique besides does n’t let for a generalization of the findings as what is transpirating in the sample being analysed may non be a true representative of the full banking industry and therefore of small value.

Another restriction is that I could utilize the incorrect statistical analysis to accomplish my nonsubjective and this would besides impact the generalization of my research findings on similar surveies to be done in the hereafter.

6. Ethical considerations

Competence

I will prosecute this research utilizing the accomplishments I have learned and will still get in a mode that will non convey injury to the research topics, their good will and the repute of Coventry University ( Ticehurst and Veal 2000: 55 ) .

Ethical motives in research

I will larn about the moralss process and comply with the guidelines as set out in the BES Ethics Student Handbook. The Ethics checklist and conformity signifier will besides be completed at the terminal of the research by me and my supervisor.

Plagiarism

To guard against plagiarism, I will rephrase thoughts that are non mine and besides cite the beginnings used and cited in the class of my research. I will besides follow with the citing manner of the BES module of Coventry University.