Does positive relationship exist between bank mergers and asset turnover?

Hassan Yusuf and Lukman Raimi

International Journal of Ethics and Systems, 2019, vol. 35, issue 1, 133-147

Abstract: Purpose - This study aims to examine the nature of relationship that exists between merger and acquisition (M&A) and banks’ asset turnover (AT) following M&As that took place during the 2004 and 2008 banking sector reforms. Design/methodology/approach - Considering the fact that this study is empirical, the authors adopted the quantitative research method relying on financial industry data. Being a matched-sample comparison, the study evaluated whether the merged banks outperformed the stand-alone banks as a result of their involvement in M&As. Using data extracted from the annual financial reports of the banks, mean AT ratios were computed. Chow test for structural break, paired sample and independent samplet-tests were performed on the mean AT ratios to gauge the impact of M&A. Findings - The findings suggest that there is no positive relationship between M&A and banks’ AT as either the AT ratios of the banks deteriorated or at best, did not improve significantly. Furthermore, the evidence suggests that the stand-alone banks outperformed the merged banks following M&As in Nigeria. Practical implications - The major practical implication of this empirical study is that M&A has not been able to solve the fundamental problems of banks in Nigeria. Apart from improving their liquidity constraints, the unresolved problems of banks in Nigeria include poor corporate governance compliance, poor credit risk management policy and ineffective allocation of capital to businesses. Originality/value - This study supports the Keynesian argument for effective regulation supervision and control of the economy in general and financial institutions.

Keywords: Mergers and acquisitions; Asset turnover; Banks; Nigeria (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoesp:ijoes-10-2018-0147

DOI: 10.1108/IJOES-10-2018-0147

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