Effect of Mergers on Financial Growth of Commercial Banks in Kenya

Abstract

Mergers perform a critical role in corporate finance in enabling firms achieve varied objectives and financial strategies. Firms merge due to various reasons but most do so to increase their profitability and gain a greater market share. The study examined the commercial banks that have merged in Kenya from 2005 to 2016. The primary objective of the study was to establish the effect of mergers on the financial growth of commercial banks in Kenya and was guided by the following variables; loan portfolio, interest income, operating expenses and bank deposits. The findings confirm whether mergers of commercial banks leads to increased profitability. The study was also based on the theory of financial synergy, free cash flow, the theory of efficiency and market power hypothesis. The research adopted a descriptive survey research design to establish the relationship between mergers and the financial growth of commercial banks in Kenya.

Keywords: Financial growth, mergers, synergy, loan portfolio, interest income, synergy.