Effect Of Mergers And Acquisition On Financial Performance Of Commercial Banks In Kenya

Abstract

This study was undertaken to assess the effects of mergers and acquisition on the financial performance of commercial banks in Kenya. The business environment in all economies is ghastly evolving and with the advent of globalization, the environment has become more volatile and as a result, competition among firms in different sectors of the economy has become very stiff. Some organizations have been adversely affected by the competition level and have quit the race while others have opted to merger while others have been acquired as a wind-up strategy. The study looked at customer base, strategic realignment, asset acquisition and technical expertise acquired and how these affects the financial performance of commercial banks in Kenya. The study was based on resource dependency theory, financial synergy theory, theory of corporate control and shareholders wealth maximization theory, discuss all independent variables through empirical review as well as gaps left by past researchers, and finally present a conceptual framework to depict the relationship between the dependent and independent variables of the study. The study adopted a descriptive research design and targeted all commercial banks in Kenya. Purposive sampling was used to select a sample of 195 employees from the 39 commercial banks in Kenya. The researcher collected primary data from the bank's employees by use of structured questionnaires, which were be administered through emails as well as drop and pick basis. Secondary data was collected on financial performance of the banks from the central bank website. Collected data was analysed by use of both quantitative and inferential statistics with percentages and means responses from the mean. A regression analysis was also undertaken by the researcher to test and determine the level of connection between the independent and dependent variables. From the data analysis, the study concludes that there is a positive financial performance of commercial banks in Kenya due to acquisition and mergers. This was indicated by 1.05 units for market base, 1.39 units for technical expertise and 1.50 units increase in financial performance of banks that had mergers and acquisitions respectively The study recommended that that banks facing constraints on the market should consider merging with others and or being acquired in a bid to consolidate their energies to expand their profitability. This is because mergers/acquisition is not just for the best interest of the managers but also, shareholders as it leads to an increase in shareholders’ wealth as opposed to each financial institution operating separately on its own by increasing the number of customers a bank has. Financial institutions that are already struggling with financial crisis to consider consolidating their assets, technical expertise, market base and formulate new dynamic strategies that will improve their financial performance. With a combined approach through either merger or acquisition, banks stand a better chance to survive in the ever-changing financial sector of the economy.