The Test of Synergy in a Policy Induced Consolidation of Selected Nigerian Banks
Abstract
The 2005 banking sector reforms in Nigeria induced by the Central Bank of Nigeria (CBN) have resulted in merger waves in the banking sector. In order to increase their capital base to the required N25 million, many banks in Nigeria have witnessed significant merger and acquisition activities. It is often argued that merger of companies creates synergy. This study was conducted to test whether there was synergy in a policy induced consolidation of banks in Nigeria. It also examined the impact of strategic similarities in bank mergers on post-merger financial performance. The study used secondary data collected over a period of 2001 and 2010 from the published annual reports and the merger schemes of the sampled banks. As dependent variable, we measured change of performance as the difference between the merged banks' five-year average return on equity (ROE) and the weighted average of the ROE of the merging banks four years before the merger. Regression analysis, using pooled panel fixed effects and random effects estimation methods were executed to analyze the data. The results indicated that not all banks that have undergone deals of mergers or acquisitions have shown significant improvements in performance. That is the merger did not create the expected synergy. We therefore recommended that the regulatory authorities should in future weigh carefully the effects of a particular reforms policy before imposing it on banksKeywords: Mergers, Acquisitions, Consolidation, Synergy, Return on Equity.References
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