Effect of Mergers and Acquisition on the Corporate Performance of the Companies Listed in NSE

Abstract

Mergers occurs when one or various business institutions associate or come together to form a large or a new financial institution. Financial and business institution mergers involve voluntary and friendly restructuring of resources, business, liabilities, shareholders’ interests and assets in a combination of either consolidation or absorption way. In regard to this topic, previous studies have been coming-up with conflicting findings and conclusions on the results of the corporate performance or profitability of the involved companies after the M&A deals. This study’s objective was to establish the effects of mergers and acquisitions on the corporate performance of the companies that are listed in the NSE. This research work was guided by theories including the agency theory, the mergers theory of Eat or be eaten, and the market power theory with the conceptual framework that was used to display the dependent and independent variables’ relationships. A total of sixty-four companies are listed in the NSE market, and they include eleven commercial banks and 53 non-monetary institutions. In this regard, this study used a sample size of six (6) companies listed in the NSE. These companies included KCB, I& M Bank, Diamond Trust bank Kenya Ltd., Britam Kenya, Total Kenya, and UAP Old Mutual Group. A total duration of 7 years (3 years before, the year of merger, and 3 years after the merger or acquisition) was put into consideration. An event study analysis methodology was used in this research; also, the researcher used a descriptive research design in order to make a summary of data and other various features relating to the topic of study. Conversely, the researcher used the quantitative techniques that helped in the process of obtaining data. This research established a negative impact of the M&A deals on the EPS, ROE and ROI on I&M Bank, Diamond trust Bank, Britam Insurance Kenya, and UAP. KCB bank experienced an increase in its EPS after the merger but its ROE and ROI declined after the Merger. Total Kenya Ltd. experienced a positive impact of M&A on its EPS, ROE, and ROI