The Effect of Mergers and Acquisitions Announcement on the Stock Return Volatility of the Commercial Banks Listed at Nairobi Securities Exchange

Abstract

Many organizations merge and acquire for the sole benefit of putting the organizations in a better position than they were before in terms of lack of capital, wealth, financial performance and different operation synergies and due to this, there is an increasing level of merging and acquiring of companies. This may affect the company before the mergers or even post-merger. Critical evaluations and thorough understanding needs to be taken before accompany decides to engage in mergers and acquistions.However the benefits associated with this, clearly surpasses the failures. The objective of the study was to find out on the effect of mergers and acquisition announcement on the stock return volatility on commercial banks listed on the Nairobi securities exchange. The descriptive research design was used. The population consisted of 10 commercial banks that had undertaken mergers from the 1997- 2015 and due to the small numbers of the sample, the census approach was used. There was no sampling of the data. Based on the findings, the stock return volatility was affected and there were changes noted immediately on stock prices. In some commercial banks there were drops and others and huge increase after the merger announcements. Abnormal returns were witnessed in some banks and others did not exhibit anything at all. This therefore translated to returns on investments made by the acquiring firm’s shareholders. However, for a majority of the commercial banks listed in the NSE merger and acquisition announcements had no effect on the share returns of the listed commercial banks. In essence, this meant that shareholders of the parent banks did not attain returns on investments in the short term.