THE EFFECT OF BANK MERGER AND ACQUISITION ON RETURN ON INVESTMENT (A CASE STUDY OF 5 SELECTED BANKS IN NIGERIA)

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

The study on mergers and acquisition and its implicit effect on investment returns requires conceptual clarifications due to its immense significance in the promotion of investment and economic development. In recent times, mergers and acquisitions have been used as a Business strategy to build and strengthen the banking sector in Nigeria. Other merger and acquisitions drive have shown positive effects in the Nigerian economy. Conceptually, Mergers and acquisitions constitute the combination of two companies into one so as to achieve expansion, integration and growth where the new company is greater than the former two separate entities. An acquisition involves one company buying over another one and integrating it into its own operations. The purchase deal could result in a positive or negative outcome depending on the defined expectations of both companies. The relationship between the two companies differs after a merger or acquisition had occurred, but the result of both processes is the same. The Return on investment expresses the ratio between net profit and cost of investment for the merger and acquisition deal. When a high return on investment exist it indicates that there is a favorable gain on the cost of investment. ROI is used to determine the efficiency of an investment or to determine the efficiencies of different investments. It relates profit earned to invested capital. The general motives for M&A include achieving greater profit, economies of scale, revenue enhancement, tax reduction and others. The study seeks to appraise the effect of bank merger and acquisition on return on investment. (A case study of 5 selected Banks in Nigeria).

1.2 STATEMENT   OF   THE PROBLEM

There have been different results arising from M&A. The study conducted by Saple (2000) observed that mergers did not lead to an improvement in performance as measured by profitability adjusted for the industry average. Other indicators with legal requirements indicated that merger restructuring did not improve the financial performance of the majority of merger institutions as indicated by the profitability and earnings ratios (Chesang, 2008). The associated cost of acquisition and merger activities is always very high even though there also rewards attached. The problem confronting the study is to appraise the effect of bank merger and acquisition on return on investment. (A case study of 5 selected Banks in Nigeria)

1.3 OBJECTIVES   OF THE STUDY

The Main Objective of the study is to appraise the effect of bank merger and acquisition on return on investment. (A case study of 5 selected Banks in Nigeria); The specific objectives include

  1. To determine the relevance of bank merger and acquisition.
  2. To appraise the effect of bank merger and acquisition on return on investment.
  3. To determine the effect of bank merger and acquisition on return on investment. Of 5 selected Banks in Nigeria.

1.4 RESEARCH QUESTIONS

  1. What is the relevance of bank merger and acquisition?
  2. What is the effect of bank merger and acquisition on return on investment?
  3. What is the effect of bank merger and acquisition on return on investment of 5 selected Banks in Nigeria?

1.5 STATEMENT OF THE HYPOTHESIS

The statement of the hypothesis for the study is stated in Null as follows

HO    The level of returns on investment of 5 selected (Banks bank merger and acquisition) in Nigeria is low

Ho    The effect of bank merger and acquisition on return on investment of 5 selected Banks in Nigeria is low.

1.6 SIGNIFICANCE OF THE STUDY

The study provides an evaluative appraisal of the effect of bank merger and acquisition on return on investment of 5 selected Banks in Nigeria. The essence was to determine if the objective of the merger and acquisition was achieved.

1.7 SCOPE OF THE STUDY

The study focuses on the appraisal of the effect of bank merger and acquisition on return on investment of 5 selected Banks in Nigeria.

 1.8 LIMITATION OF THE STUDY

The study was confronted with logistics and geographical factors.

1.9 DEFINITION OF TERMS

FINANCIAL PERFORMANCE DEFINED

This is the measure of the firm’s financial returns or goals through the use of evaluation method or financial indicators.

BANK PROFITABILITY DEFINED

This refers to the net after-tax income or net earnings of a bank usually measured by the use of financial ratios. Financial ratios. The Financial ratios analyzes and interprets the banks financial data and accounting information to determine the performance of the bank.

 

RETURN ON INVESTMENT DEFINED

The return on investment defines the firm’s efficiency in the utilization of the invested capital. This ratio is determined as net profit after tax divided by total paid in capital.

MOBILE BANKING DEFINED

Mobile banking constitutes a recent development in electronic banking. It facilitates the access of customer account balance, transfer of funds, SMS services, payment transaction and other businesses services through the use of mobile phones.

CUSTOMER SATISFACTION DEFINED

Meeting or exceeding customer expectations

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