Mergers and Acquisitions, Risk Management, Institutional Characteristics and Financial Performance of Commercial Banks in Kenya

Abstract

Commercial banks operate in a volatile operational and legal environment that is fraught with competition. Commercial bank regulators have established stringent requirements to protect depositors in the event of a bank failure. Commercial banks are looking for ways to ensure compliance while improving overall performance considering the demanding and competitive operating and legal environments. The research examined the relationship among mergers and acquisitions, risk management, institutional characteristics, and financial performance of commercial banks in Kenya. The specific objectives were to determine the effect of mergers and acquisitions on the financial performance of commercial banks in Kenya, the determination of moderating role of institutional characteristics on the relationship between mergers and acquisitions and financial performance commercial bank, and to determine the mediating role of risk management on the interaction among mergers and acquisitions and financial performance of commercial bank. Synergies theory, resource-based view theory, agency theory, and concentration theory were used to anchor the study. A correlational descriptive research design with cross-sectional data analysis and positivism paradigm was used to accomplish the project's goals. The thirty Kenyan commercial banks that had undergone mergers and acquisitions by 2017 formed the population of the study. The data was gathered from publicly available financial statements, which were split into two; three years before and three years after mergers and acquisitions, with the transaction year been excluded. To determine the mathematical connection among the variables in the study, multiple regressions analysis was used. The results of the study showed that mergers and acquisitions had a significant positive effect the on the financial performance of commercial banks in Kenya. The study also found that the connection between mergers and acquisitions and commercial bank financial performance is moderated by institutional characteristics. The study's findings also revealed that risk management failed to mediate the connection between mergers and acquisitions and commercial bank financial performance. Finally, the combined impact of mergers and acquisitions, risk management, and institutional characteristics on commercial bank financial performance was found to be significant. The findings of the research provide answers to the inconsistencies found in the prior reviewed studies by empirically testing the study variables thus contributing to knowledge by providing new insights based on the variables studied. The research findings contribute to theory by revealing the relationship among the supporting theories. Synergies theory results to increased value of the firm, where agency theory highlights possible misuse of free cash flows and guides on solutions to avoid the agency problem, while resource-based view supports mergers and acquisitions as a means of mopping excess cash flow by combining homogeneous resources for competitiveness. The research findings further contribute to the policy and practice in the sense that the insights will help decision making processes geared toward targeted outcome. The study results are limited to elements of the study and hence a recommendation of similar study using other attributes in varied context and scope.