Impact of Corporate Restructuring on Value Creation in the Nigerian Banking Industry


Affiliations

  • University of Jos, Jos, Nigeria
  • Nigerian Defence Academy, Kaduna, Nigeria

Abstract

This study aims at determining the impact of corporate restructuring on the creation of shareholder value in the Nigerian banking industry. Secondary data are collected in respect of all the 21 banks listed on the Nigerian Stock Exchange. The data are analysed using the Difference in Means (Descriptive Statistics) Method. The study establishes the fact that in the Nigerian banking industry, mergers, acquisitions and capital restructuring have significant impacts on value creation; but capital restructuring has the greatest positive impact on the creation of shareholder value. It is also found that most banks have to restructure as a result of problems like weaknesses in corporate governance, weak ownership structure, conflict of interest between management and shareholders, environmental problems, and internal problems. The findings of this study imply that banks involved in mergers may not be able to create or enhance value for their shareholders. It is recommended that industry regulators and practitioners seeking to create value for shareholders should, among other things, focus on capital restructuring and acquisition and strategies that favour growth, expansion and performance improvement.

Keywords

Corporate Restructuring, Banking, Mergers, Acquisitions, Shareholder Value, Value Creation, Performance Improvement.

Subject Discipline

Financial management

Full Text:

References

Aghion, P. and Stein, J. (2006). Growth vs. margins: destabilizing consequences of giving the stock market what it wants, Working Paper, Harvard University

Athanasoglou, P. P., Brissimis, S. N. and Delis, M. D. (2005). Bank-Specific, Industry-Specific and Macroeconomic Determinants of Bank Profitability ; Bank of Greece Working Paper, No. 25

Banerjee, A. and Eckard, E. W. (1998). Are megamergers anticompetitive? Evidence from the first great merger wave; RAND-Journal-of-Economics; 29(4): 803-27, winter

Barajas, A., Steiner, R. and Salazar, N. (1999): Interest spreads in banking in Colombia 1974-96; IMF Staff Papers, (46) pp 196-224

Barlow, J. and Maul, D. (2000). Emotional value: creating strong bonds with your customers, San Francisco: Berrett-Koehler Publishers, Inc. 300 pp. Downloaded from: www.tmius.com/ eval3.htm on 3rd April, 2009.

Bartram, S. M. (2000). Corporate risk management as a lever for shareholder value creation; Financial Markets, Institutions and Instruments, 9(5) Ben-Naceur, S. and Goaied, M. (2001). The determinants of the Tunisian deposit banks’ performance; Applied Financial Economics, 11: 317-19

Berger, A. N., Saunders, A., Scalise, J. M. and Udell, G. F. (1998). The effects of bank mergers and acquisitions on small business lending; Journal of Financial Economics; 50(2): 187-229, November. Available at http://www.elsevier.com/ homepage/sae/econbase/finec

Boston Consulting Group (2003). Succeeding with growth: creating value in banking 2003; BCG Report

Boston Consulting Group (2005). Succeeding with growth: creating value in banking 2005; BCG Report

Boston Consulting Group (2006). Succeeding with growth: creating value in banking 2006; BCG Report

Boston Consulting Group (2007). Creating value in banking 2007, bigger, better banking: emerging titans, soaring profitability, and continued growth; BCG Report

Boston Consulting Group (2008). Creating value in banking 2008: managing shareholder value in turbulent times; BCG Report

Bounfour, A. (2000). Le valeur dynamique du capital immateriel (the dynamic nature of intangible capital), Revue Francaise de Gestion; 0 (130), September – October

Bowman, E. H., Singh, M. U. and Bhadury, R. (1999). When does restructuring improve economic performance? California Management Review, 41 (2): 33-54

BPP (2009). ACCA: advanced financial management (3rd ed.), London: BPP Learning Media Ltd.

Brealey, R. A. and Myers, S. C. (1996). Principles of corporate finance (5th ed.); New York: McGrawHill Inc. 998p

Brealey, R. A., Myers, S. C. and Marcus, A. J. (1999). Fundamentals of corporate finance (2nd ed.), Boston: Irwin/McGraw-Hill

Brownbridge, M. (1998). The causes of financial distress in local banks in Africa and implications for prudential policy; United Nations Conference on Trade and Development (UNCTAD), Geneva No 132 March: Downloaded from: http://www.unicc.org/unctad/en/pressref/prdis.htm

Burns, R. and Others (1998). Value Creation in bundling utility mergers: a corporate focus anomaly; Journal of Energy Finance and Development; 3(2): 185-92

Caby, J. and Others (1996). Strategie et finance: le processus de creation de valeur. Revue Francaise de Gestion (With English Summary); 108, 49-56 Central Bank of Nigeria (2006). Code of corporate governance for banks in Nigeria post consolidation; Abuja: Central Bank of Nigeria

Chander, S. and Aggarwal, P. (2007). Determinants of corporate growth: an empirical study of Indian drugs and pharmaceutical industry. The Icfaian Journal of Management Research 6 (10): 50-70, October. Available at SSRN: http://ssrn.com/ abstract=1035702

Chen, S. and Dodd, J. L. (1997). usefulness of operating income, residual income, and EVA™: a valuerelevance perspective, Working Paper, Social Science Research Network.

Cuervo, A. (1999). Reasons for mergers and acquisitions: organizational and non-explicit factors as determinants of success; New York University, Salomom Center Working Paper S/99/ 23, June p.19

de-Andres-Alonso, P., Azozfra-Palenzuel, V. and Rodriguez-Sanz, J. A. (2000). Endeudamiento, oportunidades de crecimiento y estructura contractual: un contraste empirico para el caso espanol. (Debt, growth opportunities and contractual structure: a Spanish firms analysis); Investigaciones-Economicas, 24 (3), September

Echebarria-Miguel, M. C.and Barrutia-Legarreta, J. M. (1999). De valor en banca (Creation of value in banking system); Informacion-ComercialEspanola-Revista-de-Economia; 0 (775), Dec 1998-Jan 1999

Faccio, M., Masulis, R. and McConnell, J. (2005). Political connections and government bailouts, Journal of Finance.

Fairfield, P. M., Ramnath, S. and Yohn, T. L. (2005). Does industry-level analysis improve profitability and growth forecasts? Working Paper Series. Available at SSRN: http://ssrn.com/abstract=589361

Fama, E. F. and French, K. R. (2007). The anatomy of value and growth stock returns, Financial Analysts Journal, 63 (6). Available at SSRN: http:// ssrn.com/abstract=1071124

Fernández, P., Valuing companies by cash flow discounting: ten methods and nine theories (December 27, 2006), EFMA 2002 London Meetings. Available at SSRN: http://ssrn.com/ abstract=256987

Filatotchev, I. R., Buck, T. and Wright, M. (1996). Corporate restructuring in Russia privatization: implications for U.S. investors; California Management Review, 38 (2)

Fruhan, W. E. (1979). Financial strategy: studies in the creation, transfer and destruction of shareholder value. Homewood, IL: R. D. Irwin

Fuller, J. and Jensen, M. (2002). Just say no to Wall Street, Journal of Applied Corporate Finance, Forthcoming in Spring

García-Herrero, A. (2003). Determinants of the Venezuelan banking crisis of the mid-1990s: an event history analysis, MIMEO Economía Mexicana, Vol. XIV, No. 1, Primer Trimestre, 2005, December. Available at SSRN: http://ssrn.com/ abstract=1433238

Ghoshal, S., Hahn, M. and Moran, P. (1997). Management competence, firm growth and economic progress; INSEAD Working Papers, 97/ 21/SM, February

Gilson, S. C. (1998). Course overview: creating value through corporate restructuring; Boston: Havard Business School

Gleason, K. C., Mathur, I. and Wiggins III, R. A. (2003). Evidence on value creation in the financial services industries through the use of joint ventures and strategic alliances; The Financial Review 38(2), May. Available at www.ssrn.com

Glushkov, D., (2007). The importance of catering incentives: growth or profitability? Working Paper Series. Available at SSRN: http://ssrn.com/ abstract=943439

Goddard, J., Molyneux, P. and Wilson, J. O. S. (2004). The profitability of European banks: a crosssectional and dynamic panel analysis; Manchester School, 72 (3): 363-381

Gong, G., Louis, H. and Sun, A. X. (2007). Earnings management and firm performance following open-market repurchases, Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/ abstract=962611

Hailemariam, S. (2001). Corporate value creation, governance and privatization: restructuring and managing enterprises in transition – the case of Eritrea. Unpublished Ph. D Thesis

Hamilton, R. (1977). An introduction to merchandize In: G. C., Biddle, R. M. Bowen, and J. S. Wallace (1997) Evidence on the relative and incremental information content of EVA (TM), residual income, earnings and operating cash flow, Journal of Accounting and Economics 24(3)

Hellwig, K. (1998). Creating value; International Review of Economics and Finance, 7(2) Katib, M. N. (2000). Market structure and performance in the Malaysian banking industry: a robust estimation. Working Paper Series available at www.ssrn.com

Kazmi, A. (1992). Business policy, New Delhi: Tata McGraw-Hill

Koller, T. (1994). What is value based management? The Mckinsey Quarterly No. 3

Levesque, M. and Minniti, M. (2007). Short term sacrifices for long term benefits: a look at high growth firms, Babson College Entrepreneurship Research Conference (BCERC) 2007; Frontiers ofEntrepreneurship Research Available at SSRN: http://ssrn.com/abstract=1064921

Lockett, A., Wiklund, J. and Davidsson, P. (2007). Reexamining and extending Penrose’s growth theory: updating Penrose for the 21st century, Babson College Entrepreneurship Research Conference (BCERC) 2007; Frontiers of Entrepreneurship Research Available at SSRN: http://ssrn.com/abstract=1059841

Mahmood, W. M. and Mohamad, R.(2007). Does operating performance really improve following mergers: the case of Malaysian banks; ICFAI Journal of Merger and Acquisition. Downloaded from: Social Science Electronic Publishing Inc. at http://www.ssrn.com

Maimako, S. S. (2010). Principles of corporate governance. Abuja: Eriba Publishing Company, 232p

Marshall, A. (1890). Principles of economics. In: G. C., Biddle, R. M. Bowen, and J. S. Wallace (1997) Evidence on the relative and incremental information content of EVA (TM), residual income, earnings and operating cash flow, Journal of Accounting and Economics 24 (3)

Martin, X. (2007). Inter-temporal persistence and mispricing of accruals and growth in long-term net operating assets: growth or accounting distortions? Working Paper Series, March. Available at SSRN: http://ssrn.com/abstract=975850

McCarthy, D. J., Minichiello, R. J. and Curran, J. R. (2000). Business policy and strategy (4th ed.), Homewood: Richard D. Irwin

Moran, P. and Ghoshal, S. (1997). Value creation by firms; INSEAD Working Papers: 97/19/SM, February

Muhammed, R. (2005). Understanding mergers and acquisitions, Business Day, February 17

Naceur, S. B. (2003). The determinants of the Tunisian banking industry profitability: panel evidence, Tunis; ERF/Working Paper Series, October

Naceur, S. B. and Goaied, M. (2003). The value creation process in the Tunisian Stock Exchange; API/ Working Paper Series No 9903; October

Nunamaker, J., Briggs, R. O. , Vreede, G. D. and Sprague, R. (2001). Enhancing organizations’ intellectual bandwidth: the quest for fast and effective value creation; Journal of Management Information Systems (special Issue) 17 (3): 3 – 8, winter. Retrieved from: http://jmis.bentley.edu/ issues/Winter_2001/index.html on Tuesday, January 15th 2008

Olowe, R .A. (1997). Financial management: concepts, analysis and capital investments. Lagos: Briely Jones Nig. Ltd.

Osho, M. (2004). Consolidation through mergers and acquisitions: the African experience; Conference Proceedings on Consolidation of Nigeria’s Banking Industry, Abuja: Central Bank of Nigeria.

Pandey, I. M. (2002). Financial Management (8th ed.); New Delhi: VIKAS Publishing PVT Ltd. 1226p

Pariente, S. (2000). Rendement boursier, creation de valeur et donnees comptables: une etude sur le marche franchais (With English summary); Revue Finance Controle Strategie, 3 (3), September

Pearce, J. A. and Robinson, R. B. (2000). Strategic management: formulation, implementation and control (7th ed.), Boston: Irwin/McGraw-Hill Penrose, E. T. (1959). The theory of growth of the firm, Blackwell: Oxford

Pierrat, C. and Martory, B. (2000). Les specificites du pilotage de i’mmateriele (unique aspects of managing intangible assets); Revue Francaise de Gestion, 0 (10), September – October

Poynton, T. A. (2007). Ezanalyze (version 3.0) [Computer software and manual]. Retrieved from: http://www.ezanalyze.com

Qureshi, S., and Briggs, R. O. (2003). Revising the intellectual bandwidth model and exploring itsuse by management team, Proceedings of the 36th Hawaii International Conference on System Sciences (HICSS’03), IEEE.

Ramezani, C. A., Soenen, L. A. and Jung, A. R. (2001). Growth, corporate profitability, and shareholder value creation, Working Paper Series, Available at SSRN: http://ssrn.com/abstract=304880 or DOI: 10.2139/ssrn.304880

Rappaport, A. (1987): Corporate performance standards and shareholders value; The Journal of Business Strategy, 28-38

Rossi, M. J. (2006). Determinants of the relationship between strategic performance and shareholder’s value creation: beyond financials; April. Available at SSRN: http://ssrn.com/ abstract=933300

Sadka, G. and Sadka, R. (2008). Predictability and the earnings-returns relation, Journal of Financial Economics, Forthcoming in November. Available at SSRN: http://ssrn.com/abstract=1307089

Salem, H. Organizational performance management and measurement: the Lebanese experience; Paper presented at the Expert Consultative Meeting on Public Administration and Public Accounting Development with stress on Electronic Tools jointly with The Innovation of Public Administration in the Euro-Mediterranean Region (UNDESA), Beirut 1-3 July, 2003. United Nations Economic and Social Commission for Western Asia

Sanyal, P. and Shankar, R. (2005). Financial sector reforms and bank efficiency in developing countries: lessons from India; Working Paper Series. Available at www.ssrn.com

Seligman, E. R. A. (1905). Principles of Economics, New York pp. 179-82 and 192-93 downloaded from: http://spartan.ac.brocku.ca/%7Elward/ Anderson_1911/Anderson_1911_note.html on Friday, March 27, 2009

Seth, A., Song, K. P. and Pettit, R. (2000): Synergy, managerialism or hubris? An empirical examination of motives for foreign acquisition of U. S. firms; Journal of International Business Studies; 31(3), 3rd Quarter.

Shivdasani, A and Kang, J. K. (1996). Corporate restructuring during performance declines in Japan; Working Paper Series. Available at www.ssrn.com

Slater,S. F. and Zwirlein, T. J. (1996). The structure of financial strategy: patterns in financial decision making; Managerial-and-Decision-Economics; 17(3), May-June

Smith, A. (1776). In Cannan, E. (Eds.) The wealth of nations, New York, NY: Modern Library, (1937) Stern, Stewart & Co. (1997). The EVA Company downloaded from: www.sternstewart. com/ publications/art_real_key.html on Friday, March 27, 2009

Umoh, P. N. (2004). Capital restructuring of banks: conceptual framework; Conference Proceedings on Consolidation of Nigeria’s Banking Industry, Abuja: Central Bank of Nigeria.

Van Horne, J. C. (2002). Financial management and policy (12th ed.) New Delhi: Prentice-Hall of India 814p

Varelas, E., Karpetis, G. C., and Konikarpeti, G. (2004). Effects of operational cost on bank profitability and bank clients: a methodical approach; Journal of Financial Management and Analysis 17(1): 546. Available at www.ssrn.com

Vélez-Pareja, I. (1999). Construction of free cash flows a pedagogical note Part I, Working Paper, Social Science Research Network.

Vélez-Pareja, I. (2000). Construction of free cash flows: a pedagogical note. Part II, Working Paper, Social Science Research Network.

Velez-Pareja, I. (2001): Value creation and its measurement: a critical look at EVA; Bogotá, School of Industrial Engineering

Weissenrieder, F. (1997). Value based management: economic value added or cash value added?, Working Paper, Social Science Research Network.

Young, J. O. (2001). Art and knowledge, London: Routledge; 180p


Refbacks

  • There are currently no refbacks.