The Effect of Mergers and Acquisitions on Profitability of the Consolidated Firms in the Petroleum Industry in Kenya

Abstract

A Merger alludes to the blend of at least two firms, in which the subsequent firm keeps up the personality of one of the organizations, generally the bigger. A procurement, otherwise called a takeover or a buyout, is the purchasing of one company (the ‘target’) by another. The study set out to find the how mergers and acquisition impact on profitability of companies in the oil industry in Kenya. This was by conducting an industry examination of the oil industry in Kenya. The study was limited to publicly listed companies in the Kenyan business environment between the years 2000-2015 that merged/acquired. Data from Annual Reports of the firms comprised: Return on Assets, board size, board independence, board expertise, board diligence, firm age and firm leverage The comparison was on 15 year period comprising of years before merger and after M&A. The year succeeding merger is referred to as post-merger and the one preceding merger is referred to as pre-merger coded as one and zero respectively. The study used Random Effects Regression Model in estimating the relationship. The results revealed that mergers and acquisitions and crisis period have a positive effect on profitability of the consolidated firms in the petroleum industry in Kenya. On the other hand, diversifying deals was found to have a negative effect on profitability of the consolidated firms in the petroleum industry in Kenya. Other determinants were found to have no statistical relationship with profitability of the consolidated firms in the petroleum industry in Kenya