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The Effect of Mergers and Acquisitions on the Financial Performance of Commercial Banks in Kenya

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dc.contributor.author Kaol, Winfred Atieno
dc.date.accessioned 2018-03-20T07:46:28Z
dc.date.available 2018-03-20T07:46:28Z
dc.date.issued 2017
dc.identifier.uri http://erepo.usiu.ac.ke/11732/3665
dc.description A Research Project Report Submitted to Chandaria School of Business in Partial Fulfillment of the Requirement for the Degree of Masters in Business Administration (MBA) en_US
dc.description.abstract Increased globalization and competition has led to the rise of mergers and acquisitions for firms seeking competitive advantage in their respective industries. Competitive advantage means that, the firms can extend their margins and market share worldwide. The general objective of this study was to determine the effects of mergers and acquisitions on the financial performance of commercial banks in Kenya. The specific objectives were: to determine the effect of asset management on financial performance; to establish the effect of shareholder’s equity on financial performance and to investigate the effect of financial stability on financial performance. The study was focused on commercial banks that had merged or undergone acquisition between the period 2008 and 2016in Kenya. The study adopted a descriptive research designto determine the relationship between the variables within a population. The population of the study consisted of financial institutions in Kenya that had either merged or undergone acquisitions from 1989 to 2017 as approved by the Central Bank of Kenya.The sample was selected using the purposive method which involved studying ten commercial banks that had merged between the years 2008 to 2016. Secondary data, three years before and three years after the event was calculated from the banks’ audited financial statements, bank supervision annual reports published by Central Bank of Kenya, and the respective bank websites. Data analysis method included descriptive statistic, correlation and regression analysis methods. Statistical Package for Social Sciences(SPSS) version 21 was used as the data analysis tool. The findings oncorrelation analysis between performance and return on assets indicated a positive significant relationship (r = 0.007,< p = 0.05). This indicated that, return on assets as a determinant of performance of Kenyan commercial banks positively influenced mergers and acquisitions. The more the merged institutions acquired assets, the better they performed. Regression results of post-merger ANOVA indicated an R2 of 0.287, indicating that28.7% of the variations in performance were explained by return on assets after the merger or acquisition event.Results also showeda slight rise in the mean values for return on assets after the merger. Findings on the effect of shareholder’s equity on financial performance revealed a positive correlation relationship between return on equity and performance (r = 0.041,< p = 0.05). This implied that institutions that had either merged or undergone acquisition with higher shareholder’s value had a higher financial performance hence higher market share. The study findings on regression analysis indicated that most of the sampled banks had an increase in return on equity after the merger or acquisition with a variation of only 0.4% explaining performance. Results on the effect of financial stability on financial performance indicated a significant negative correlation (r = 0.405,> p =0.05). Meaning that, the higher the capital adequacy ratio an institution has, the lower the financial performance of the institution. The results also indicated that some of the sampled banks posted an increase in the capital adequacy ratio while others posted a decrease after the merger event. Regression results indicated that only 3.2 % of the variations in performance were explained by capital adequacy ratio after the merger or acquisition. The study concluded that there was a significant relationship between financial performance and return on assets, there was no significant relationship between financial performance and return on equity and there was also no significant relationship between financial performance and financial stability of institutions that had either merged or undergone through acquisition. The study recommended that the banking institutions work on raising their return on assets, return on equity and capital adequacy ratios. To raisereturn on equity it was recommended that management should work on reducing the company’s operational costs and sell off fixed assets that are not being used. To increase return on equity, the study recommended increasing the overall profit generated and the amount of debt capital and reduce the excess cash on the balance sheet by paying out dividends to its shareholders. The study proposed that capital adequacy ratio be increased by issuing new equity through rights issue to existing shareholders and by replacing riskier or more expensive loans with safer ones such asgovernment securities. The study also recommended that further studies be carried out on the effect of mergers and acquisition on financial performance from time to time to establish trends for longer periods and to capture new opportunities that have recently emerged in Kenya. en_US
dc.language.iso en en_US
dc.publisher United States International University - Africa en_US
dc.subject Mergers and Acquisitions en_US
dc.subject Financial Performance en_US
dc.subject Commercial Banks in Kenya en_US
dc.title The Effect of Mergers and Acquisitions on the Financial Performance of Commercial Banks in Kenya en_US
dc.type Thesis en_US


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