Bank mergers and acquisitions and the post-merger and acquisition performance of combined banks

Abstract

This study sought to ascertain the effects of bank mergers and acquisitions on theperformance of merged banks in Sub-Saharan African (SSA) countries between 2003and 2019. Specifically, the study aimed to investigate the impact of regulation induced bank (M&A’s) on the post-merger profitability of merged banks in SSA. Themotivation for the study is to provide evidence for or against the regulator’s claimsthat regulation-induced bank M&As will improve the performance of merged banks inSSA. The article presents the results of the total sample of all mergers and acquisitionsexamined in the study and two sub-samples: the regulation-induced M&A sub-sampleand the voluntary M&A sub-sample. We measure profitability by return on assets,return on equity, and net interest margin. The paper employed the dynamic panelGeneralized Methods of Moments approach to analyse the relationship between bankM&As and profitability. The study found no profitability improvement after M&Aacross all profitability measures for the total sample and the two sub-samples. Instead,the empirical results reveal that bank profitability suffers after mergers and acquisitions across all profitability measures. The results show that, for regulation-inducedmergers and acquisitions, a merged bank’s profitability is adversely affected from thebeginning of the merger or acquisition to the sixth year of mergers and acquisitions.The findings also reveal that bank risk negatively affect profitability, while liquiditypositively affect profitability except returns on equity. Bank costs-to-income ratios asexpected all show negative relationship with profitability. All macroeconomic variablesshow the expected relationship, positive for GDP growth and negative for inflation.