EFFECT OF CONSOLIDATION ON CORPORATE FINANCIAL PERFORMANCE ON BANKING SECTORS
ABSTRACT
Bank consolidation is the process of increasing the sizes of bank that could cause potential increase in bank returns through revenue and cost efficiency gains. The aim of the study is to examine the Effect of Consolidation on Corporate Financial Performance on Banking Sectors. In achieving this aim, the following specific objectives were laid out to examine the effect of total assets on earnings per share of Nigerian banks, ascertain the effect of total deposit on earnings per share of Nigerian banks, and evaluate the effect number of branches of Nigerian banks on earnings per share of the banks. The research design used in this report is descriptive design, utilizing questionnaire method to obtain information from the respondents for this project. A total of 250 (two hundred and fifty) respondents were selected for this study to represent the entire population of the study. For null hypotheses were formulated and tested using the one-way ANOVA and the t-test statistical tools at 0.05 level of significance. Primary data were collected from the primary source which questionnaire was used as an instrument of data collection while secondary data were sources from textbooks, journals, newspapers and the internet were employed. The data were presented on a frequency distribution table and analyzed using simple percentage, while hypothesis was tested using chi-square test. This study is relevant at this period when companies with impressive income statement and statement of financial position are still faced with continuity issues.
CHAPTER ONE
1.1 Introduction
Bank consolidation was seen as one of the ways to reform the banking sector. Bank consolidation is said to be the process of increasing the sizes of bank that could cause potential increase in bank returns through revenue and cost efficiency gains. Consolidation is a fuse of the assets and liabilities in whole or in parts of two or more business establishments and the coming together of firms. Bank and cooperate consolidation could be achieved by way of merger/acquisition and re- capitalization. Many literatures indicated that bank consolidation can deepen the financial sector and reposition it for growth to become integrated into the global financial architecture; and involve a banking sector that is consulting with regional integration requirements and international best practice.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
Consolidation in the banking system is a global phenomenon, which is said to have started in advanced Economies. Notable examples of countries experiencing a wave of mergers and consolidations in the banking industry in recent times are the United States of America (USA) and Japan (Hall, 1999). According to Kwan (2004), since the enactment of the Riegle-Neal Act, which allows interstate branch banking beginning from 1997, the Number of large bank mergers in the USA has increased significantly. Today, the U.S. banking sector is reported to be in good shape, with record profits and relatively low Volumes of problem loans.
Further research on mega mergers in the USA suggests that Merged banks experienced higher profit efficiency from increased revenues than individual banks, due to the fact that they provide customers with high value added Products and services (Akhavin, Allen,Berger, David and Humphrey 1997).
Historically, the Nigeria banking industry has undergone four stages of development phases. The first stage could be described as the unguided liaises fair phase 1930 to 1958, during which several poorly capitalized and unsupervised indigenous bank failed before their tenth anniversary. The second stage was the control regime 1960 to 1985, during which the central bank of Nigeria ensured that only fit and proper banks were granted a license. The year 1986 witnessed tremendous change in the nation’s financial landscape.
This was as a result of the economic reforms embodied in the structural adjustment programmed (SAP) that marked the introduction and commencement of neoliberal philosophy of free entry from being in operation which was over stretched and banking license were dispense by the political authorities on the basis of patronage . This reform however, led to the growth in terms of number of banks, branches, product creativity and the level of operation of Nigerian banks. This was the third phase which was referred to as the post-SAP, the control regime 1986 to 2004 (Ekezie, 1997).
However, from 1987 to 1989, there were series of fluctuations experienced in the foreign exchange market and insider abuses in the Nigerian banking industry. The end result was the massive close down of banks that began to set in mainly due to poor corporate governance non- compliance with regulations, weak management and declining profits, capital efficiency, insolvency, high incidence of nonperforming loans/poor asset quality , and over reliance on foreign exchange market for income through round tripping of officially sourced foreign exchange (Yakubu, 2008).hence the need for a reform in the banking system.
Mergers and Acquisition which are divisions of consolidation are commonplace in developed countries of the world but are just becoming prominent in Nigeria especially in the banking industry. Before the recent consolidation, the Nigerian banks had not fully embraced mergers and acquisitions as expected because of their cultural background in terms of asset ownership, greediness, shame, fear of what people will say and lack of proficiency required for mergers and acquisitions, among other reasons. The issue of mergers and acquisitions in banking industry started in October, 2003 under the past president of CBN (Charles Soludo). The CBN rolled out incentives to encourage weaker banks adopt mergers and acquisitions. The incentives included concessionary cash reserve ratio for a period of two years to the newly restructured banks, conversion of overdrawn positions of weak banks to long-term loans with concessionary interest and the acquired banks could be given up to 24 months grace period for complying with the minimum liquidity ratio requirement to enable it settle down as a newly recapitalized/restructured bank.
Though, most of the feeble banks were unwilling to comply until the new order on July 6, 2004 (Famakinwa et al, 2004). The situation changed from July 6, 2004 as many banks had either merged with or acquired other banks.
The increase in awareness and scheme is due to a number of reasons such as threat of distress, regulatory driven environment, foreign inducement, persuasion from regulatory bodies and economic benefits of mergers and acquisitions. The most common of these factors that is responsible for the growth of mergers and acquisition in Nigerian Banks is regulatory factor. Thus, mergers and acquisitions as consolidation tools have become a near permanent feature of our financial system after July 6, 2004 (Ewubare, 2004). The policy of 25 billion naira minimum capital base forced banks to go into merger and or acquire one another as a strategy to meet the requirement. Part of the broad objectives of consolidation expected includes improvement of profitability and efficiency of the banks in terms of operations and finance.
Therefore, in Nigeriawhere the research was carried out, the activities that was conducted is to know the Effect of Consolidation on Corporate Financial Performance on Banking Sectors.
1.3 Statement of Problems
The need for a strong, reliable and viable banking system in Nigeria is under scored by the fact that the industry is one of the few sectors in which the shareholders’ Fund is only a small proportion of the liabilities of the enterprise. It is, therefore, not surprising that the banking industry is one of the most regulated sectors in any economy. It is against this background that the Central Bank of Nigeria, in the maiden address of its past Governor, Prof. Charles Soludo, outlined the first phase of its banking sector reforms designed to ensure a diversified, strong and reliable banking industry. The major objective of the reforms is to ensure and guarantee an efficient and sound financial system. Thus, the reforms were designed to enable the banking system develop the required resilience to support the economic development of the nation by efficiently performing its functions as the medium of financial intermediation (Lemo, 2005). Also, these reforms were to ensure the safety of depositors’ money, position banks to play active developmental roles in the Nigerian economy, and become major players in the sub-regional, regional and global financial markets.
1.4 Aim and Objectives of Study
The aim of the study is to examine the Effect of Consolidation on Corporate Financial Performance on Banking Sectors. In achieving this aim, the following specific objectives were laid out as follows:
- To examine the effect of total assets on earnings per share of Nigerian banks.
- To ascertain the effect of total deposit on earnings per share of Nigerian banks.
- To evaluate the effect number of branches of Nigerian banks on earnings per share of the banks.
CHAPTER TWO
2.0 Literature Review
2.1 Introduction
The review of relevant literature is the main topic of this chapter. A literature review covers theoretical and methodological contributions to a certain issue in addition to the state of knowledge at the time of writing. It provides information about the state of the art in relation to the subject you are writing about. It examines the body of work on the chosen subject. The literature evaluation in this study comprises the …
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TABLE OF CONTENTSPRELIMINARY PAGES
- Title page
- Approval page
- Dedication
- Acknowledgement
- Table of Contents
- Abstract
INTRODUCTION
- 1.1 Introduction
- 1.2 Background of Study
- 1.3 Statement of Problems
- 1.4 Aim and Objectives of Study
- 1.5 Research Questions
- 1.6 Research Hypothesis
- 1.7 Significance of Study
- 1.8 Scope of Study
- 1.9 Limitations of the study
- 1.10 Definition of Operational Terms
LITERATURE REVIEW
- 2.1 Introduction
- 2.2 Conceptual Review
- 2.3 History of Consolidation in Nigeria Banking Sectors
- 2.4 Banking Sector Position before Consolidation
- 2.5 Theoretical Framework
- 2.6 The Concept of Consolidated Mergers and Acquisition
- 2.7 Empirical Review
RESEARCH METHODOLOGY
- 3.1 Introduction
- 3.2 Research Design
- 3.3 Population of Study
- 3.4 Sampling and Sampling Technique
- 3.5 Validation of Research Instrument
- 3.6 Method of Data Collection
- 3.7 Method of Data Analysis
- 3.8 Questionnaire
- 3.8.1 Interview
- 3.8.2 Key Informants Interview
- 3.8.3 Observation
- 3.9 Statistical Analysis
DATA ANALYSIS, RESULT AND DISCUSSION
- 4.1 Introduction
- 4.2 Presentation and Analysis of Data
- 4.3 Test of Hypothesis 1
- 4.4 Test of Hypothesis 2
- 4.5 Discussion of Findings
SUMMARY, CONCLUSION AND RECOMMENDATION
- 5.1 Introduction
- 5.2 Summary
- 5.3 Conclusion
- 5.4 Recommendation
REFERENCES
APPENDIX A - “QUESTIONNAIRE”
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The displayed research work titled "Effect of Consolidation on Corporate Financial Performance on Banking Sectors" is stated as a research guideline towards accomplishing your assigned project / seminar research work. All the research materials on this website are ONLY for research purposes and should be used as a guideline in developing your research work. For no reason should you copy word for word as projectlist.com.ng will not be liable for any who copied the material. By ordering the complete research guideline, it signifies that you've accepted our terms of service.
PRELIMINARY PAGES
- Title page
- Approval page
- Dedication
- Acknowledgement
- Table of Contents
- Abstract
INTRODUCTION
- 1.1 Introduction
- 1.2 Background of Study
- 1.3 Statement of Problems
- 1.4 Aim and Objectives of Study
- 1.5 Research Questions
- 1.6 Research Hypothesis
- 1.7 Significance of Study
- 1.8 Scope of Study
- 1.9 Limitations of the study
- 1.10 Definition of Operational Terms
LITERATURE REVIEW
- 2.1 Introduction
- 2.2 Conceptual Review
- 2.3 History of Consolidation in Nigeria Banking Sectors
- 2.4 Banking Sector Position before Consolidation
- 2.5 Theoretical Framework
- 2.6 The Concept of Consolidated Mergers and Acquisition
- 2.7 Empirical Review
RESEARCH METHODOLOGY
- 3.1 Introduction
- 3.2 Research Design
- 3.3 Population of Study
- 3.4 Sampling and Sampling Technique
- 3.5 Validation of Research Instrument
- 3.6 Method of Data Collection
- 3.7 Method of Data Analysis
- 3.8 Questionnaire
- 3.8.1 Interview
- 3.8.2 Key Informants Interview
- 3.8.3 Observation
- 3.9 Statistical Analysis
DATA ANALYSIS, RESULT AND DISCUSSION
- 4.1 Introduction
- 4.2 Presentation and Analysis of Data
- 4.3 Test of Hypothesis 1
- 4.4 Test of Hypothesis 2
- 4.5 Discussion of Findings
SUMMARY, CONCLUSION AND RECOMMENDATION
- 5.1 Introduction
- 5.2 Summary
- 5.3 Conclusion
- 5.4 Recommendation
REFERENCES
APPENDIX A - “QUESTIONNAIRE”
Disclaimer for Complete Material Utilization
The displayed research work titled "Effect of Consolidation on Corporate Financial Performance on Banking Sectors" is stated as a research guideline towards accomplishing your assigned project / seminar research work. All the research materials on this website are ONLY for research purposes and should be used as a guideline in developing your research work. For no reason should you copy word for word as projectlist.com.ng will not be liable for any who copied the material. By ordering the complete research guideline, it signifies that you've accepted our terms of service.
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