| dc.description.abstract | The broad objective of the study was to determine the effect of mergers and acquisitions
on the scale and cost efficiency of the combined commercial banks in Kenya. The study
hypothesized that the combined firms should demonstrate improved efficiency after
conclusion of the merger, take over, or stock swap. This hypothesis was based on the
argument that the newly formed firm (post-merger) is highly capitalized and brings
together a pool of technically equipped workforce, besides the infrastructure. In
achieving the above objective, the study applied secondary data obtained from the
audited financial statements of the commercial banks for the period 1994-2009. Data
were obtained from the Banks Supervision Department at the Central Bank of Kenya. In
order to measure the cost and profit efficiency of the listed banks, the study employed the
Data Envelopment Analysis (DEA) technique.
The key findings of the study are as follows. First, the findings indicated that firm which
engaged in take-over of subsidiaries had no significant changes in levels of their cost
efficiency after mergers. However, some of the firms that merged with other banking
institutions demonstrated significant declines in their cost efficiency that would most
likely be attributable factors such as overstaffing due to the combined workforce, the long
learning curve of management on how to best use technology to reduce costs, and
increase operational costs occasioned by the integration of operations from the two
previously independent institutions. Secondly, it emerged that a decline (or no change) in
CE does not necessarily translate to profit efficiency for the combined bank. This is
because the staff who are responsible for bringing new business are not able to generate
revenues to offset their expenses which are fixed and this affects both the cost efficiency
and profit efficiency. Thirdly, the findings showed that after the mergers and takeovers,
the combined commercial banks continued to realize profits against declining cost
efficiency and relatively low profit efficiency because they are key players in lending to
the government through the low risk treasury bonds and bills, from which they realize
good returns | en |
