Effect of Mergers and Acquisitions on Financial Performance of Commercial Banks in Kenya

Abstract

Restructuring of the business entities is a business strategy aimed at improving the financial performance. one such strategy is restructuring through mergers and acquisitions (M & As) which aims at the creation of synergy which is the strategy that ensures the firms use the resources efficiently and effectively for the benefit of the stakeholders. Synergy implies the resultant outcome is more powerful than when firms operate as separate entities. The research sought to determine the effect of M & As on financial performance of commercial banks in Kenya. Commercial banks in Kenya which had undergone M & As before and after 2010 to 2014 formed the population of study from which a sample of 11 commercial banks was selected for study. Secondary data was used in this study which was obtained from the financial statements of the banks. Secondary Data was obtained from Capital Markets Authority and Central Bank of Kenya. The study first calculated various ratios of financial performance (ROA, ROE, EPS and DPS) and then the paired samples t- test was employed as the analytical model for the study at 5% significance level. From the analysis, it was confirmed that M&As had a significant effect on ROE. However, M&As was confirmed to have an insignificant effect on ROA, EPS and DPS. The study concluded that M & As affect the financial performance of the banks in Kenya. This study recommends M & As as a restructuring strategy aimed at improving the financial performance of the commercial banks.