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Isolating the ‘Pure’ Effect of the 2004/2005 Bank Consolidation Policy on Performance of Banks in Nigeria, Using the Chow Test (2000-2010)

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  • Ibrahim Gerarh Umaru

Abstract

A cursory review of existing impact study literature of 2004/2005 Nigerian bank consolidation, of which mergers and acquisitions were the main policy thrust, revealed that most studies  concluded that the policy has had a tractable and significant impact on bank intermediation, deposits mobilization and management of loans and advances as well as bank performance. However, a critical analysis of the literature showed that majority of existing studies were neither founded on a sound theoretical premise nor their models sophisticated enough to distil the ‘real’ licy from the superficial and added-up effect of pooling capital bases, deposits, credit balances and book profits of several banks. To overcome the observed shortcomings, full estimated generalized least-square (FEGLS) and fixed effect-least-squares dummy variable (LSDV) models were developed. A panel data consisting of 11-year time series data, covering six stratified randomly selected consolidated banks in Nigeria was used in the study. While FEGLS was designed to isolate the ‘pure’ impact of the policy on bank performance using the Chow test procedure, the LSDV model was deployed to test the hypothesis that the overall impact was not evenly spread across banks. The results of the empirical estimation seem to cast doubt on the validity of the general conclusion of past studies - that the policy has had ‘real’ and significant impact on bank intermediation, portfolio management and performance. The study observed that this conclusion probably due to the short-term nature of the period covered by most of the studies and recommended the use robust methodologies by subsequent research on the subject.

Suggested Citation

  • Ibrahim Gerarh Umaru, 2013. "Isolating the ‘Pure’ Effect of the 2004/2005 Bank Consolidation Policy on Performance of Banks in Nigeria, Using the Chow Test (2000-2010)," Accounting and Finance Research, Sciedu Press, vol. 2(4), pages 1-47, November.
  • Handle: RePEc:jfr:afr111:v:2:y:2013:i:4:p:47
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    References listed on IDEAS

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    1. Carlos Barros & Guglielmo Caporale, 2012. "Banking Consolidation in Nigeria," CEsA Working Papers 99, CEsA - Centre for African and Development Studies.
    2. Harvey, A C, 1976. "Estimating Regression Models with Multiplicative Heteroscedasticity," Econometrica, Econometric Society, vol. 44(3), pages 461-465, May.
    3. Sylvester Feyi Akinbuli & Ikechukwu Kelilume, 2013. "The Effects Of Mergers And Acquisition On Corporate Growth And Profitability: Evidence From Nigeria," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 7(1), pages 43-58.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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