Exploring the long-term trade-off between efficiency and value creation in horizontal M&As

Abstract

Purpose The purpose of this paper is to investigate the voluntary horizontal M&A impact on operating performance in Nigeria between 1995 and 2012 under different complementary approaches. Design/methodology/approach Residual income valuation (RIV), economic value-added (EVA), data envelopment analysis (DEA) and stochastic frontier analysis (SFA). Findings Results showed a statistically significant improvement in the technical efficiency of both bidder and target companies, the reduced efficiency levels of the bidder firms under DEA scores reveals the specifics of the productive technology. This may suggest that resulting merged companies in Nigeria may have not even become too big in scale or even reached the most productive scale size, despite their almost monopolistic position in the sector. This happens because the scale size of the sector is small per se, implying that the investments necessary to achieve synergistic gains have to be partially covered by price increases. Practical implications This study will guide both the M&A practitioners, investment banks, and the policy makes. In terms of having to review M&A policy as well as seeing to the improvement in the infrastructural needs. Social implications With improved performance, employment can be created thereby giving employment to the youths. This will reduce social problems. Originality/value From the literature and records, no long-term operating performance on voluntary mergers and acquisitions has not been carried out in Nigeria. The paper seeks to know the fundamental value of the firms after these transactions with the current methodology that is acceptable from the literature.

Does Mergers and Acquisitions Impact Capital Structure and Performance of Nigerian Banks?

“…It seems to support Modogliani and Miller (1958) postulation that capital structure of entities is irrelevance. However, the result did not support Lukman (2020),Abanum & Ebiaghan (2022) Abdelrahman and Elgiziry (2019), Akpan et al, (2018), andDaniya et al, (2016) that found positive and significant change in capital structure due to merger and acquisition. The result probably suggests that the consolidation has pulled funds from merged banks, and less reliability on debt (Tarila & Ogege, 2019;Taiwo & Musa, 2014).…”

Analysis of Macroeconomic Fluctuations Impact on Efficiency and Islamic Banking Quality 2015-2019

“…Banking operations should also be related to efficiency (Chitnis & Vaidya, 2018). There is a kind of synergy between the non-performing financing (NPF) ratio and the operating expense and operating income (BOPO) ratio , which is further included regarding the efficiency indicators of Islamic banking which are proxied by the two ratio (Akpan et al, 2018). Based on Figure 3 about the average of NPF, BOPO, as well as the financing to deposit ratio or FDR (Hess & Francis, 2004), it can be observed that the bad debts ratio for the last five years (2015-2019) from Islamic banks is classified as good because it is still around less than 5 per cent.…”

“…While operating income is the main income of a bank, namely income obtained from the placement of funds in the form of credit or financing and other operating income (Hess & Francis, 2004). The relationship that is formed between BOPO and the level of efficiency is that the smaller the BOPO, the more efficient the bank is in carrying out its business activities (Akpan et al, 2018), and vice versa. For a bank that has a healthy condition, the BOPO ratio is less than one; on the other hand, a less healthy bank, the BOPO ratio is more than one.…”

Prevaluating efficiency gains from potential mergers and acquisitions in the financial industry with the Resample Past–Present–Future data envelopment analysis approach

“…Varghese and Thaha (2017) examined the efficiency of India's Kotak Mahindra Bank before and after its merger, providing results that show that the merger did help improve bank efficiency. Akpan, Aik, Wanke, and Chau (2018) collected information on listed companies on the Nigeria Stock Exchange from 1995 to 2012 and used Cost Efficiency Using Residual Income Valuation, Economic Value Added, and SFA to discuss postmerger operating performance of the listed companies. The results showed that, in the long run, in terms of operating performance, the acquired company improves more significantly than the main acquired company.…”

“…For efficiency analysis of bank mergers, most studies focused on postmerger efficiency evaluation, such as Sufian et al (2012), Zhu, Chen, and White (2014), Chaudhary and Arshad (2016), Devarajappa (2017), Veenstra et al (2017), Al‐Hroot (2015), Varghese and Thaha (2017), Akpan et al (2018), and Papadimitri et al (2019). However, postmerger efficiency evaluation cannot be used as an evaluation consideration for a financial holding company.…”