Abstract
The value gains that alleged to accrue to the large and growing wave of merger and acquisition activity have not been verified. Thus leading the research community in quandary on whether the industry has followed a path of massive restructuring on a misguided belief of value gains or whether the financial regulators and operators are lying to the public and shareholders about the effects of their activity on shareholders value and banking performance. It is important to address this issue by reconciling data with empirical reality of continued merger and acquisition activity. This paper fills the gap by investigating the effects of mergers and acquisitions on the efficiency of financial intermediation in the Nigerian banking industry. This is carried out by estimating a model that incorporates some key financial variables in a model that regress interest rates on these financial variables. Two models are estimated: one for the lending activity and the other is for the deposit activities. The model for lending activity has interest rate on loan as the dependent variable and deposit rate represents the dependent variable in the deposit model. The study found evidence to support the thesis that the consolidation programme-induced mergers and acquisitions in the banking industry had improved competitiveness and efficiency of the borrowing and lending operations of the Nigerian banking industry.
Highlights
Banks are the linchpin of the economy of any country
A reading of the literature suggests that the value gains that alleged to accrue to the large and growing wave of merger and acquisition activity have not been verified (Pautler 2001)
It is important to address this issue by reconciling data with empirical reality of continued merger and acquisition activity
Summary
Banks are the linchpin of the economy of any country. They occupy central position in the country’s financial system and are essential agents in the development process. The decade 1995 and 2005 were traumatic for the Nigerian banking industry; with the magnitude of distress reaching an unprecedented level, thereby making it an issue of concern to the regulatory institutions and to the policy analysts and the general public. The need for a drastic overhaul of the industry was quite apparent. In furtherance of this general overhauling of the financial system, the Central Bank of Nigeria introduced major reform programmes that changed the banking landscape of the country in 2004. Out of the 89 banks that were in operation before the reform, more than 80 percent (75) of them merged into 25 banks while 14 that could not finalized their consolidation before the expiration of deadline were liquidated
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