Do Bank Mergers Enhance Profitability? An Assessment of Post-Merger Net Profit Margins in Nigeria
Hassan Yusuf, Professor Aminu Diyo Sheidu

In 2005, there was an industry-wide wave of bank mergers and acquisitions (M&As) in Nigeria in response to the consolidation/recapitalization directive of the Central Bank of Nigeria (CBN). This study investigated the nature of relationship that existed between M&A and Net Profit Margins (NPM) of the banks following mergers, as M&A performance is still an open issue in the strategic management literature. The hypothesis: bank mergers do not have positive relationship with NPM was tested using data extracted from the financial reports of the banks three years before mergers (2002 - 2004) and three years after mergers (2006 – 2008). Trend analysis, Chow tests for structural break and t-tests were performed on the NPMs. The trend analysis suggested the existence of positive relationship between bank M&A and NPM. However, findings from Chow structural break test and tstatistic both suggested that M&As do not enhance bank NPM. Similarly, the results indicated that the Standalone banks out-performed the merged banks in this respect after mergers. Among others, the study recommends that rather than the ‘one size fits all’ policy of consolidation, CBN should redirect its attention on recreating sustainably profitable banks regardless of number or size.

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