The Effect of Mergers and Acquisitions on Financial Performance of Banks (A Survey of Commercial Banks in Kenya)

Mergers and Acquisitions perform a vital role in corporate finance in enabling firms achieve varied objectives and financial strategies. In Kenya, banks have been merging with the goal of improving their financial performance. Studies done on mergers and acquisitions have not conclusively established whether or not banks benefit from mergers. Most studies have observed that mergers did not lead to an improvement in financial performance as indicated by their profitability and earnings ratios. This study examined the banks that have merged or acquired in Kenya for the period between 2000 and 2014.  The aim of the study was to analyze whether the merger had any effect on the banks’ performance. The study was guided by the following specific objectives; to determine the effect of the mergers and acquisitions on the shareholders’ value and to examine the implication of mergers and acquisitions on profitability. The study was a census of which all the 14 banks that have merged or acquired others in the period from 2000 to date were investigated. Data was collected by use of questionnaires with both open and closed ended questions. The collected data was analyzed using SPSS where the co-efficient of correlation obtained was used to determine the nature of the relationship between the independent and dependent variables. The study found out that the mergers and acquisitions raised the shareholders’ value of the merged/acquiring banks in Kenya. The study further revealed that the main reason why most banks merged or acquired was to raise their profitability. The research questions were significant to the study and useful in arriving data conclusion. The researcher recommended that thorough feasibility studies should be carried out before the merger/acquisition process can be done. On areas of further research, it was recommended that effect of mergers/acquisitions in other sectors of the economy should be established with a view of drawing a parallel with the effects of the same processes in the banking sector.  

Mergers and Acquisitions perform a vital role in corporate finance in enabling firms achieve varied objectives and financial strategies. In Kenya, banks have been merging with the goal of improving their financial performance. Studies done on mergers and acquisitions have not conclusively established whether or not banks benefit from mergers. Most studies have observed that mergers did not lead to an improvement in financial performance as indicated by their profitability and earnings ratios. This study examined the banks that have merged or acquired in Kenya for the period between 2000 and 2014.  The aim of the study was to analyze whether the merger had any effect on the banks’ performance. The study was guided by the following specific objectives; to determine the effect of the mergers and acquisitions on the shareholders’ value and to examine the implication of mergers and acquisitions on profitability. The study was a census of which all the 14 banks that have merged or acquired others in the period from 2000 to date were investigated. Data was collected by use of questionnaires with both open and closed ended questions. The collected data was analyzed using SPSS where the co-efficient of correlation obtained was used to determine the nature of the relationship between the independent and dependent variables. The study found out that the mergers and acquisitions raised the shareholders’ value of the merged/acquiring banks in Kenya. The study further revealed that the main reason why most banks merged or acquired was to raise their profitability. The research questions were significant to the study and useful in arriving data conclusion. The researcher recommended that thorough feasibility studies should be carried out before the merger/acquisition process can be done. On areas of further research, it was recommended that effect of mergers/acquisitions in other sectors of the economy should be established with a view of drawing a parallel with the effects of the same processes in the banking sector.