MERGERS AND ACQUISITIONS ON FINANCIAL PERFORMANCE AMONG SELECTED COMMERCIAL BANKS, KENYA
Christine Ombaka - Masters of Business Administration (Finance), Kenyatta University, Kenya
Dr. Ambrose Jagongo - Lecturer, Department of Accounting and Finance, Kenyatta University, Kenya
ABSTRACT
There has been a recent upsurge in M&A activity within the Kenyan banking industry which is attracting attention, specifically in trying to understand the various motivations for mergers and how M&As affect financial performance and operational efficiency. This study looked at the effects of mergers and acquisitions on financial performance of commercial banks in Kenya. This study set to establish whether the many mergers and acquisitions that have happened in Kenya’s banking sector have influenced financial performance. The main objective of the study was to establish the influence of mergers and acquisitions on financial performance of commercial banks in Kenya. The specific objectives of the study was to find out the influence of operating synergy, differential efficiency, risk diversification and market share development on financial performance of commercial banks in Kenya. Descriptive research was employed to investigate the effect of M&A on a specific financial performance of the commercial banks in Kenya. The study was anchored on three theories which include differential efficiency theory, financial synergy theory and hubris theory. The population of a study consisted of 9 banks that have merged or acquired in the period 2010 to May 2017 in Kenya. This included 3 mergers and 6 acquisitions. The study was collected using questionnaires to collect primary data. The study also used secondary data from audited annual financial statements of respective banks over the period. Financial data from statements of financial positions, statement of comprehensive income statements and statements of cash flows of respective commercial banks for five years before and after mergers were used to calculate and analyse the ROA, ROE and C/I from the published financial statements and reports for the merged banks for the period under study. Data collected was purely quantitative and it was analyzed by descriptive analysis. The descriptive statistical tools such as Statistical Package for Social Sciences (SPSS Version 21.0) and MS Excel was used to extract frequencies, percentages, means and other central tendencies. Tables and figures were used to summarize responses for further analysis and facilitate comparison. A multiple regression analysis was conducted to show the strength of the relationship between the variables. The study established that operational synergy, differential efficiency, risk diversification and market share development as indicators of mergers and acquisitions have a significant influence on the financial performance of the commercial banks in Kenya. The variables explained 98.2% of the changes in financial performance of the commercial banks. A unit improvement in the operational synergy led to a 0.755 increase in financial performance of the banks, a unit improvement in differential efficiency led to a 0.886 increase in financial performance of the banks, a unit improvement in risk diversification transformed to a 0.885 increase in performance of the commercial banks while a unit increase in market share development due to mergers and acquisitions led to a 0.959 increment in their financial performance. The study recommends that firms before mergers or acquisitions should conduct thorough risk analysis and assess ability of their partners before engaging in the transactions.
