Effect of Mergers and Acquisitions on the Performance of Commercial Banks in Kenya: A Case of Selected Banks that Have Undergone M&A in Kenya

Abstract

The purpose of the study was to assess the effect of mergers and acquisition on the performance of Commercial Bank in Kenya. The study employed a survey research design. The population of the study consisted of 36 banks that merged in the period 2000 to 2010 in Kenya with purposive sampling/ Non-probability sampling method. The study used secondary sources of data from the published audited annual reports of accounts and financial statements for the respective banks over the period from C.B.K., N.S.E., C.M.A. The study found out that; (i) ROA of the banks that merged or were acquired communicate mixed signals. ROA of the new institution improved after the acquisition or the merger. However, ROA of the new institution at times dropped slightly compared to the average of the two institutions before the coming together transaction was concluded. (ii) ROE reveals a similar trend to that revealed by ROA. ROE improved gradually from the year of merger/acquisition. (iii) EPS posted mixed reactions. In most cases, EPS of the new institution formed after the merger improved tremendously after the merger/acquisition. This study recommends that commercial banks with a weak and unstable capital base should seek to consolidate their establishments through M & A so as to expand their profitability as the merger and acquisition is not just for the best interest of the managers but also shareholders as it leads to an increase in shareholders’ wealth as opposed to each financial institution operating separately on its own.

Keywords: merger & Acquisitions and performance of commercial banks