Do Mergers and Acquisitions Affect Firm Value? Case Study of Kenya Commercial Bank and National Bank of Kenya Aquisition

Abstract

The current study sought to establish whether M&As enhance or destroy value in Kenyan firms. Through the theoretical lenses of the synergy theory, the differential efficiency theory, the free cash flow theory and the resource-based theory, the researcher critically examined the M&A phenomenon in terms of whether or not it can create value for the firms. Using event analysis methodology, the study tests key hypotheses and establishes that M&As do not significantly improve the returns and the value of the company outside the sum of the individual values of the companies. Since the analysis finds no statistical significance in the event analysis in the short, medium and long term, it can be concluded that M&As are neither value creating nor destroying based on the sample investigated. In other words, M&As do not have significant effects on the value of the merging companies apart from their combined capitalization.