Effect of Mergers and Acquisitions Announcements on the Stock Returns of the Companies Listed at the Nairobi Securities Exchange

Abstract

Mergers and acquisitions activities around the world have tripled according to the recent survey around the globe, this has been due to high competition hence the need for alternative models for conducting businesses and the ultimate goal is to improve the stock returns of business entities involved. This study aimed at determining the mergers and acquisitions influence on stock returns for the quoted firms under the NSE of Kenya. The paper employed the descriptive study design in the analysis and the population comprised 8 companies that had undergone mergers and acquisitions between 2008 and 2017. Secondary data was used for the study and an event test methodology was formulated to determine the influence of an event on a certain variable that is the dependent variable. The paired sample test results for abnormal returns (AR) revealed that there was no statistically significant variance between the mergers and acquisitions the announcements on abnormal returns of the listed companies in Kenya. The paired samples for average abnormal returns (AAR) revealed there was no statistically significant variance associating the announcement of mergers and acquisitions on average abnormal returns (ARR) of Stanbic Bank, KCB Group, Scan Groups, Centum Investments, BRITAM, EABL and I&M Holdings. The results however established that the acquisitions announcement had a statistically significant variance on the average abnormal returns of the Diamond Trust Bank. The paired samples test for CAAR established that there was a statistically significant variance involving announcement of mergers and acquisitions and the cumulative average abnormal returns (CAAR) for Stanbic bank, KCB, Scan Group, Centum investments and I&M bank. The results also established that there was no statistically significant variance associating mergers and acquisitions announcement with the cumulative average abnormal returns (CAAR) for BRITAM, EABL and DTB respectively. The paper suggests that the firms’ management should consider adequate due diligence before engaging in mergers and acquisitions to make sure they are advantageous to the company.