The Impact of Mergers and Acquisitions Announcement on Shareholder Returns of Firms Listed at the Nairobi Securities Exchange

Abstract

The study sought to investigate the impact of mergers and acquisitions announcement on shareholder returns of firms listed in the NSE. The population comprised of all the 64 firms listed at the NSE. The sample comprised of nine bidding firms that had undertaken mergers and acquisitions between the periods of 2005-2015 and had been listed at the NSE at the time of merger announcement. They included Kenya Commercial Bank, CFC Bank Ltd, Unga group limited, Kenol Limited, British American Insurance Company, Total Kenya Limited, Centum Investments Company Limited, Trans century Limited and East African Breweries Limited. The study used secondary sources obtained from Nairobi Securities Exchange reference Library and past newspapers from University of Nairobi Jomo Kenyatta Memorial Library. The research design was event study methodology design which was designed to measure if there are abnormal returns resulting from an unanticipated event (M&A). The observations were centred within an 11-day event window that is 5 days before and 5 days after the M&A announcement. The Market Model was used find the expected returns which was subtracted from the actual returns to get the abnormal returns. This provided a basis for examining whether or not shareholder returns were influenced by mergers and acquisitions announcements. The research findings showed that most mergers and acquisitions of bidding firms gain small but positive insignificant cumulative abnormal returns for its shareholders. Therefore, they are indeed wealth creating projects for investors at the Nairobi Securities Exchange since they were able to positively influence share returns even in the short term. The study recommended that mergers and acquisitions should only be undertaken if they have an incremental value.