Research Proposal
1. Title
The effects mergers and acquisitions have on bank performances in Nigeria
2. Background
Mergers and acquisitions could be seen as the buying, selling or companies coming together to become a single entity. It is an aspect of corporate finance that is regularly used as a strategy of promoting growth.
The global banking industry has passed through important development n a large scale. For the last one to two decades. Majority of banks have come together to form mergers and acquisitions. This has been a common occurrence in most country on an international scale. Financial consolidation was especially on a high gear in European countries and the US in the later days of 1990 causing a keen interest of researchers on mergers and acquisitions and more so in the banking industry. The prevalence of mergers and acquisitions has consequently resulted to deregulation of the global financial markets.
Other important contribution to the proliferation of mergers include globalization in as far as the real and the financial markets are concerned, the breakthroughs made in technological advancements in the recent past and the major strides that have been made in IT systems development most notably in e-commerce (Rezitis 2008).
The Central Bank of Nigeria (CBN) governor, Charles Soludo, implemented a potent strategy of reform aimed at revolutionalizing and enhancing the financial industry in Nigeria. The enacted reforms allowed the majority of the small banks in this country up to the later days of 2005 to establish mergers with rgw larger institutions or face liquidation. This is an action that has contributed to a high proliferation of of mergers and acquisitions in the banking sector in Nigeria (Siddiqi 2005). Due to the occurrence of a reform exercise in the country, there has been a rapid rate of development in the banking industry in Nigeria that called for efficient supervision of the banking groups of significantly large sizes in comparison to the supervision of the congested banking industry which was a tradition of the past (2005). The banking reform has caused significant effects among the stakeholders, customers and the shareholders.
According to the study, some empirical tests have been applied on notable mergers and acquisitions that have been effected due to the reforms in the banking sector that have been enacted by CBN for the purpose of exploring possible effects in the banking industry in Nigeria. I intend to undertake this research as a result of my ardent interest in the field of corporate finance, with specific interests on mergers and acquisitions. I’ll like to understand how mergers and acquisitions can improve the efficiency and productivity (as well as measure the effects) of the organisations that employ them to serve the purpose of directional strategy. I also believe this will help in my future career as I look forward to getting a job in the financial service industry and excelling at it.
3. Preliminary Review of the Literature
The future of business institutions rests on growth and it is the responsibility of different organizations to determine the most appropriate strategy to be adopted to realize the intended growth. The findings of the researches so far conducted indicate that 50 % of the strategies that are adopted towards the achievement of growth are doomed to failure. Majority of the mergers and acquisitions that have been implemented have lost the shareholder value over time despite the insistence of firms to continuously put them in place. The common definition of mergers has been “creating a new organisation out of two or more organisations of more or less equal stature, pooling all resources”. Conversely, the definition that has been given to an acquisition is the “addition of a small firm to the structure of a larger organisation” (Emerald Group 2005).
Since the year 2005, at the time that the “United Bank for Africa Plc” (UBA) formed a merger with “Standard Trust Bank Plc” (STB) creating the biggest West African monetary service institution based on the size of the balance sheet (UBA Group 2007), majority of similar actions have been adopted in the banking industry in Nigeria. The anticipated gals have been complying with the specifications of CBN reforms or to retaliate against UBB. The intentions of CBN relates to the creation of a banking sector that is reliable, strong and diversified to an extent of actively contributing to the development of the economy of Nigeria along with transforming the banking sector in to a dynamic and competitive player in international banking scene. The laid down intentions are that minimum capitalization in banks shold fall in the range of N25 billion creating a difference of N23 billion as compared to the previous N2 billion mark. The deadline of compliance to the directive was set at before December 2005 (Okagbue and Aliko 2004).
Much research has been done previously on the potential impacts of mergers and acquisitions in the banking industry in European countries. According to the findings of a recent research, there is an indication of implications of similar strategies in European banks on the average mergers that have been undertaken resulting in improvements on the performance of banks. It as identified that when domestic banks are involved in mergers, the institutions that adopted the same strategies in consideration of cost, size, the terms of loan credit as well as earnings are easily and cheaply integrated as compared to others having dissimilar strategies (Altunbas and Marqués 2008).
Rezitis (2008) has documented that the Greek banks that adopted mergers and acquisitions in 1993 to 2004 experienced a considerable fall in as far as their technical efficiencies and productivity were concerned. Rezitis (2008) further postulates that his applicable analysis failed to account for all efficiency gains which might have accrued based on the adoption of mergers and acquisitions as a result of the time required for implementing them. The findings of Rezitis agree with the literature that is already available concerning banking with regard to the mergers and acquisitions coupled with the performance of the banks.
The close consideration of mergers and acquisitions along with its effects from an Asian perspective as done by Chong, Liu and Tan (2006) gives proof of economic value destruction if the mergers are implemented in a forced manner such as is the case with Malaysia. This results to more gains going to the biders relative to the target in this situation.
Peristiani (1997) examined the post-merger performance of the US banking institutions which participated in mergers around 1980 to 1990. The research made use of the approach of DFA that stipulates a correlation of efficiency measures to financial ratios Peristiani (1997) made a comparison of the banks involved in mergers and those that did not considering the pre and the post merger period and he made a discovery of “a small but significant decline in pro-forma X-efficiency” in the merged banks “two to four years after the merger”. This was also associated with a minor increment in the efficiency of scale that had a reflection of the targets being less scale efficient as compared to acquiring banks.
Another research concentrated on the manner in which the human resources of a bank can be influential to how the mergers and acquisitions are effective. The study covered 267 banking organizations in the U.S. and entail the assessment of their measures of performance. Evidence abounds that where the existence of effective human resource potentials coupled with a high merger and acquisition intensity, the new firm post-merger performance shall be encouraging (Lin, Hung and Li 2006).
All these earlier studies were carried out looking at the efficiency of monetary institutions in the banking industries in European, Asia-pacific as well as the U.S. banking sector. Although the rate of bank consolidations has been much higher in these regions of the planet, the African financial market is following in their inclinations. These studies have also failed to looked at how the nature of consolidation in the banking industry impacts on the development of an economy coupled with the potential impacts on growth of financial system but they emphasized on a good foundation based on analysis of the bank mergers along with their post-merger performances. It is my belief that a study of mergers and acquisitions in the Nigerian banking industry will open opportunities for more studies to be conducted on this phenomenon in an African market and how its aftermath affects the economy as a whole.
4. Research Questions and Objectives
Research questions;
The background and the literature review leads to some important questions to consider including the following:
Is there need for small or the medium banks merging within themselves?
Is there need for large dominant banks to acquire small banks?
Do mergers along with acquisitions lead to the improvement of performance considering the scenario of Nigerian banking industry?
Is there any effect of mergers along with acquisitions on stakeholders in Nigerian banking industry?
Research objectives;
From the research questions raised above, the following objectives will try to offer solutions. The research objectives include the following”
Examining the impact of mergers and acquisitions on bank performances in Nigerian.
To compare the effects of a merger of small banks to that of a large bank acquiring smaller banks.
To determine the impact of bank mergers on shareholder value in the banking industry in Nigerian.
5. Research Plan
Research perspective
This could be thought as a research philosophy i.e. the way information is developed. There are three important perspectives on how a research should be undertaken. They consist of positivism, realism in addition to interpretivism. The positivism perspective leads to the reflection of the stance of a natural scientist that in a way may prefer working by way of observable variables that are in a position of being controlled in to come up with generalisations. Realism posits to express the existence of reality exists in an independent manner to the beliefs and thoughts of human. It recognises the significance of a clear understanding of the beliefs of people in addition to the perception while attempting to understand the society, the people’s nature as well as their behaviour. Interpretivism involves attempting to gain an understanding of a particular situation with the absence of making generalisation with regard to similar occurrences because such situations are habitually complex and they are associated with unique characteristics (Saunders, Lewis and Thornhill 2003: 83-85).
The approach to be taken in this research is a mix of positivist along with the interpretivist. The variables of consideration like the profits, the stock prices in addition to total assets may be observed, quantified as well as analysed statistically and also objectively. The research also seeks to understand the uniqueness and the complexity of the business situation which might not be a an appropriate candidate for generalisation of findings as it entirely depends on some circumstances which could transform in the near future.
This research is inclined towards the applying deductive approach as I will be testing the theory of mergers and acquisitions that leads to an improvement in performance along with stakeholder wealth using facts from the Nigerian banking industry.
Research design
A variety of research strategies are available for application for any type of research based on the nature of the questions and objectives. They include survey, experiment, case study, along with action research, cross-sectional plus longitudinal studies (Saunders, Lewis & Thornhill 2003: 91). This project posits to combine multiple case studies with longitudinal study.
A longitudinal research design is a good means of studying transition together with development for an extended time period (Saunders, Lewis and Thornhill 2003: 96) and it shall be helpful in attaining my research objective. The use of multiple case studies as well offers a chance for comparison of divergent scenarios in a similar manner to my second research objective. The limitation in this design is that the cases used may not be the best representative for the objectives set to be met.
Source of secondary data
This research will be conducted with secondary statistics collected from a wide array of sources. This approach proves to be less time consuming as compared to collection of primary data and it also proves to be cheaper. Another benefit associated with this approach is that data on the banks shall be collected from the annual reports of the banks set for being analysed. These reports are public documents and so they can be accessed from the websites of respective bank over the internet. I have already gotten access to the websites and downloaded the annual reports.
Data on the merging banks shall be sort from the website of CBN as these banks are no longer in existence. I have access to the website and publications within the website that are related to the mergers and acquisitions in the banking industry in Nigerian.
Data on the stock prices of the a variety of banks set for being analysed shall be collected from the websites of investment firms in Nigeria such as Cash craft asset management, Credit Discount Limited in addition to Greenwich Investment Limited.
The sampling technique to be used in this research is set to be the purposive sampling which is a non-probability sampling technique. This technique is applied because it will help in analysing the banks that are more suitable for analysis in trying to solve each research question. It is also less expensive and also easy technique to be used and it’s very convenient.
Quality and use of secondary data
The data to be used in this project will be collected in such a way that they meet the criteria of validity, reliability and credibility. In order to do this, I must ensure that the data collected will address all research questions. For this reason, data obtained from bank annual reports in addition to the CBN website shall address research questions 1-3 and objectives 1-2. The historical stock prices acquired from the investment firms shall address the last research question along with the objective.
To meet the reliability criterion, this research will be conducted in a manner that anyone could replicate the study and its findings. The research will be properly documented all the way.
For credibility, the data (historical stock prices) to be used will be compared on the website of different investment firm to ascertain that they are accurate. The data in the annual reports of the banks shall also be cross-referenced with the data from the website of CBN. This will ensure that the data used is as accurate as can be. This research will show how the analysis is carried out, the links between the data, its analysis, findings and the conclusion I will come to.
Analysing secondary data
I will analyse the data using Microsoft Excel and the Statistical Package for Social Sciences (SPSS). An analysis of variance shall be conducted on the merged banks to asses the impact of mergers on performance of banks and an event study shall be carried out to establish if the mergers and acquisitions have had any significant impact on the stakeholders.
Limitations
This research has limitations which are centred in the data and analysis to be used. The data collected might not serve the purpose that I have in mind or it might be aggregated, making it unsuitable for the research. This could affect the validity of the research.
Using a purposive sampling technique also fails to allow for a generalisation of the findings as what is transpiring in the sample being analysed might not be a true representative of the entire banking industry and thus of little or no value.
Another limitation is that I could use the wrong statistical analysis to achieve my objective and this would also affect the generalisation of the research findings on similar studies to be done in the future.
6. Ethical considerations
Competence
I will pursue this research using the skills I have learned and I will still acquire in a manner that shall not bring harm to any of the research subjects, their goodwill as well as the reputation of Coventry University (Ticehurst & Veal 2000: 55).
Ethics in research
I will learn about the ethics procedure and comply with the guidelines as set out in the BES Ethics Student Handbook. The Ethics checklist and the compliance form shall also be completed at the end of research by me and my supervisor.
Plagiarism
To guard against plagiarism, I will paraphrase ideas that are not mine and also reference the sources used and cited in the course of my research. I will also comply with the referencing style of the BES faculty of Coventry University.
7. References
Altunbas, Y. & Marqués, D., (2008) ‘Mergers & Acquisitions and the Bank Performance in Europe: The Role of Strategic Similarities.’ Journal of Economics and Business 60, (3) 204-222 available from <http://www.sciencedirect.com/science/article/B6V7T-4NJ7WB3-1/1/daadb89aa652dc89099e33c7e95cfdf3>
Chong, B.-S., Liu, M.-H. & Tan, K.-H., (2006). ‘The Wealth Effect of Forced Bank Mergers & Cronyism.’ Journal of Banking & Finance 30, (11) 3215-3233 available from <http://www.sciencedirect.com/science/article/B6VCY-4KFV3CR-3/1/bfc7d40e209b92c8d5076fa39b38989a>
Emerald Group, (2005). ‘Acquire, Ally or Merge?: The Best Strategies for Successful Growth.’ Strategic Direction 21, (1) 19 – 21 available from <http://www.emeraldinsight.com/10.1108/02580540510571700>
Lin, B.-W., Hung, S.-C. & Li, P.-C., (2006). ‘Mergers & Acquisitions; Human Resource Strategy: Evidence from Us Banking Firms.’ International Journal of Manpower 27, (2) 126-142 available from <http://www.emeraldinsight.com/ijm.htm
http://search.ebscohost.com/login.aspx?direct=true&db=ecn&AN=0886317&site=ehost-live>
Okagbue, S. N. & Aliko, T. B. Banking Sector Reforms in Nigeria [online] available from <http://www.imakenews.com/iln/e_article000336415.cfm?x=b11,0,w> [1 June 2008]
Peristiani, S., (1997). ‘Do Mergers Improve the X-Efficiency and Scale Efficiency of U.S. Banks? Evidence from the 1980s.’ Journal of Money, Credit & Banking 29, (3) 326-337 available from <http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=9709251953&site=ehost-live>
Rezitis, A. N., (2008). ‘Efficiency and Productivity Effects of Bank Mergers: Evidence from the Greek Banking Industry.’ Economic Modelling 25, (2) 236-254 available from <http://www.sciencedirect.com/science/article/B6VB1-4P2S2D5-1/1/1e4a42601b39f02c3586800d70b1eaab>
Saunders, M., Lewis, P. & Thornhill, A. (2003). Research methods for the business students.3rd Ed. Pearson Education Limited
Siddiqi, M., (2005). ‘Nigeria’s Banking Revolution.’ [online]. available from <http://findarticles.com/p/articles/mi_qa5327/is_200510/ai_n21380484> [24 May. 2008]
Ticehurst, G. W. & Veal, A. J., (2000). Business research methods: managerial approach. Pearson Education Australia
UBA Group, About Us [online] available from <http://www.ubagroup.com/group_info/about.asp> [2 June 2008]
Gantt Chart for the dissertation February 2008 starter Activities 16-Jun 30-Jun 14-Jul 28-Jul 11-Aug 25-Aug 31-Aug 8-Sep 22-Sep 6-Oct 20-Oct 3-Nov 17-Nov 1-Dec 15-Dec 29-Dec
Read Literature
Draft objectives
Finalise objectives
Read methodology literature
Devise research approach
Draft research plan
Source for data
Analyse data
Draft chapter on findings
Submit draft to tutor for feedback
Make adjustments to draft
Update literature review and research plan
Complete remaining chapters
Submit draft dissertation – await feedback
Revise draft
Print, bind and submit dissertation
Submission date: 9th January 2009
