The Effect of Mergers and Acquisitions on Shareholder’s Value of Commercial Banks in Kenya

Abstract

The study sought to find out the effect of mergers and acquisitions and acquisitions on shareholder‟s value on commercial banks in Kenya. The objective of the study was to establish the effect of mergers and acquisitions on shareholder‟s value. The purpose of this study is to establish effect of mergers and acquisitions on shareholder‟s value in commercial banks in Kenya. The population comprised of 36 commercial banks that have undertaken mergers and acquisitions merged in the period 2002to 2013 in Kenya. The sample comprised of six bank institutions that had undertaken mergers and acquisitions by the year 2013. They included Kenya Commercial Bank, Equatorial Commercial Bank, CFC Stanbic Bank Ltd, Prime Bank Limited, Commercial bank of Africa Limited, and Co-operative Bank Limited. The study used secondary sources of data from the audited annual reports of accounts for the respective banks over the period. Financial data from Statement of financial position, Statement of comprehensive Income and Statement of Cash Flow of the respective commercial banks for three years before and after the mergers was used to calculate and analyze the profitability ROE, ROA and EPS) from the published financial Statements and reports for the merged banks for the period under study. The paper attempted a comparative analysis of the impact of pre-merger and post-merger on shareholder‟s wealth of selected banks in Kenya. This was done using chi-square analysis where it‟s compared if there is any significant difference accruing to efficiency in terms of Return on Assets, Return on Equity and Earnings per share. The collected data were analyzed using t - test statistic at 5% level of significant with the aids of statistical package for social sciences (SPSS) version 17 which is an improvement on the ordinary student t-test as used by the t -test statistic formula The results showed an enhanced performance leading to improved shareholder‟s wealth .Using chi-square analysis, the study established that following the merger or the acquisition, the Returns on Assets, Earnings per share and Returns on equity both improved as the assets of the company improved after the mergers and acquisitions. The study recommends that companies undergoing difficult times should resort to mergers and acquisitions to increase their profitability leading to maximization of shareholder‟s valu