The effect of mergers and acquisitions on the financial performance of financial institutions in kenya

Abstract

Financial institutions strength depends on activities that enable the institutions to maximize profits, increase customer base, and minimize costs and also a strong capital strength. In order for financial institutions to be the top provider of financial services mergers and acquisitions between institutions enables them to be innovative, customer focused towards delivery of products and services of superior quality and also delivering value to our shareholders through positive financial performance. This study examined the effect of mergers and acquisitions on the financial performance of financial institutions in Kenya. Mergers and acquisitions theories predict that the activities influence a firm’s financial performance. The financial performance measures like ratios are considered essential indicators that capture the trend of the success or failures of the financial institutions. The performance can be either in the long term or short term. The research focused on the financial institutions in Kenya that have merged or being acquired from the period 2000 to 2010. The data that was used comprised of annual reports from the Central Bank of Kenya from the year 2000 to 2011 in order to meet the desired objective. The analysis of the financial institutions performance for pre and post merger periods was conducted to establish whether there was significant improvement of financial performance on areas of profitability, investment and liquidity. Secondary data was collected for 2 years pre and post merger and analyzed with the aid of statistical tools. The data analyzed are for different years since M&A take place at different years. The results of the data analyzed showed that Return on Asset and Return on Investment indicate a insignificant difference while Return on Equity and Debt Equity Ratio indicate significant difference between measures of performance before and after merger.