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

Abstract

Mergers and acquisitions activities have doubled across the world and the total number of mergers and acquisitions is estimated to be over two billion as at December 2016. Mergers and acquisitions have become the contributing factor to the improved financial performance which is the main objective of every business entity. The recent upsurge of mergers and acquisitions is a clear indication of its significance among the business entities. This study investigated the effect of mergers and acquisitions on the stock returns of companies listed at the Nairobi Securities Exchange. 7 companies which had undergone mergers and acquisitions as from January 2010 to December 2017 was the population and secondary data was employed in the analysis. This study used an event study methodology for analysis. The study found that that there was no statistically significant difference between merger and acquisitions on abnormal returns. The study also revealed that there was no statistically significant difference between the mergers and acquisitions on average abnormal returns of KCB Group, Scan Groups and EABL and mergers and acquisitions had a statistically significant difference on the average abnormal returns of the DTB, EABL, Britam and Centum investments. Finally, the study found that there was a statistically significant difference between announcement of mergers and acquisitions and the cumulative average abnormal returns I&M bank, Centum investments, Scan Group and KCB bank but that there was no statistically significant difference between merger and acquisitions announcement and the cumulative average abnormal returns for DTB, EABL and Britam respectively. This study concluded that mergers and acquisitions affect the stock returns of companies listed at the Nairobi Securities Exchange. This study recommends that investors should focus on company fundamentals, which influence abnormal returns as opposed to announcements made by the firm on mergers and acquisitions.