Journal of Business & Economic Policy

Impact of Forced Bank Consolidation on Return on Assets (Roa) In Nigeria: An Empirical Investigation
Professor Aminu Diyo Sheidu, Hassan Yusuf

Abstract
The Central Bank of Nigeria (CBN) had repeatedly persuaded banks in Nigeria to consolidate by way of voluntary mergers and acquisitions (M&As) in order for the banks to become strong and reliable, and to ensure among others, higher returns to shareholders while being competitive players in the regional and global financial systems. However, after years of unsuccessful persuasion, the CBN in an unprecedented move in July 2004 directed banks to consolidate by recapitalizing. This policy led to the 2004/2005 industry-wide forced M&As in Nigeria. Within this context, this study evaluates the effect of the forced mergers on shareholder value by studying post-merger change in ROA. The study hypothesized that Positive correlation does not exist between forced bank M&As and Return on Assets (ROA). We performed Chow Structural Break tests, Paired Sample t-statistics and Independent Sample t-statistics on the mean ROA of the banks’ pre and post-mergers. Consistent with some prior empirical findings, we obtained evidence which suggest that forced bank mergers and acquisitions, at best, do not enhance shareholder value; and in some cases, is diminished. Thus, the study concludes that forced bank consolidation does not enhance Return on Assets. The study therefore recommends that regulatory authorities should ideally not compel banks to consolidate as such efforts may be doomed from the outset because the desired synergic merger effects have indeed in many cases, translated into negative returns.

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