Effect of Mergers and Acquisitions on Financial Performance of Financial Institutions in Kenya

Abstract

A descriptive research was done on the relationship between financial performance and mergers and acquisitions of financial institutions in Kenya. The population for this research was the 17 firms that had undergone mergers and acquisitions among financial institutions in Kenya. Data was collected for a period 15-year period (2003-2017). The data was obtained from financial statements in the websites of the firms under study. Data from financial statements was used to calculate ratios used in the study. Three years before merger and 3-year after merger data analysis was conducted. The financial ratios were calculated, analyzed and evaluated to give the descriptive statistics like mean, standard deviation. Multiple regression analysis was also used in the data analysis. Relevant diagnostic tests were done to establish the relevance and significance of the model. There was variation of on ROA due to changes in leverage, liquidity and firm size at 95% confidence interval. The effect was found to be significant as the value of the p-value was less than 0.05. A strong positive correlation was found between ROA and leverage. Further, liquidity and ROA displayed a strong positive relationship. The correlation coefficients were found to be positive and more than 0.5. A weak positive relationship was established between firm size and ROA. The coefficient was found to be positive. The study concludes that leverage, liquidity and firm size relate positively with financial performance of merged and acquired financial institutions in Kenya. It was recommended that the government encourage merging and acquisitions in financial sector in Kenya. Merged/acquired financial firms in Kenya should increase their leverage ratio in order to enhance their financial performance. The firms should also increase their current ratio in order to improve their financial standing.