The information content of mergers and acquisitions announcement for companies quoted at the Nairobi Securities Exchange

Abstract

The objective of this study was to establish whether Nairobi Securities Exchange market reacts to merger and acquisition announcements. The study was conducted based on twelve listed companies that had undergone mergers and acquisition within a period of 10 years beginning 1st January 2001 to 31st December 2010. The event study methodology was used to analyze on the returns of the listed companies for a period of thirty days before the mergers and acquisitions announcements and thirty days after. A model was used to project post-merger announcement returns for each company. The projected returns were compared with the actual returns and tested for significance using 95 % confidence level. The study found that there was weak relationship between company returns for the period before and after the mergers and acquisition announcements. The regression analysis also revealed that the relationship between the returns and the dummy variables was not statistically significant. The analysis of the difference between the projected and the realized returns for the period after the mergers for the companies was significant recording a Z-value of -50.13 whose absolute value is higher than the critical value of 1.96. It was therefore concluded that the Nairobi Securities Exchange reacts to any merger and acquisition announcements. This was evidenced by the instant reaction of share prices after the announcements. The study recommends that companies should be careful when deciding to undergo merger and acquisition activity. The merger can bring about enthusiasm or despair as demonstrated by the reaction of the stock prices of the listed firm after the announcements of mergers and acquisitions.