Impact of Mergers and Acquisitions on Financial Performance of Commercial Banks in Kenya

Abstract

One of the most well-known inorganic investment strategies used to develop and extend corporate operations globally is mergers and acquisitions. Studies, however, indicate that there are differing consequences of mergers and acquisitions on the commercial banks' financial performance. Even though mergers and acquisitions have been the subject of numerous studies globally, additional research is still needed in Kenya because little is known about how these transactions affect the financial performance of commercial banks. The purpose of the study was to evaluate how mergers and acquisitions affected Kenya's commercial banks' financial performance. The objective of the study was to determine the effect of merger and acquisition on financial performance of commercial banks in Kenya. The study was guided by three theories; agency theory, market power theory and synergy theory. The study has adopted descriptive research design; financial data pre and post-merger will be collected and compared to see whether there was any change. Descriptive research involves gathering data, evaluating it, and classifying it according to the variables under study in order to make an interpretation. Because the survey to be utilized has a high degree of reliability and is acceptable for a broad population, this research strategy is appropriate for the study. The secondary data for mergers and acquisitions that took place between 2013 and 2023 was gathered using descriptive statistics and paired sample t-tests for the three years prior to and following the merger or acquisition. Convenient sampling was used to choose ten banks. Following the analysis, the financial performance metrics yielded inconsistent findings. The analysis of the capital adequacy and asset quality ratios revealed a notable enhancement in the business's financial performance. According to the report, the banks' average Return on Assets (ROA) ratio was 2.06% during the pre-merger period. The findings indicate the banks recorded relatively lower financial performance as measured by ROA compared to the industry average of about 4.8% for the period. The average capital adequacy of the banks for the period was 20.6% while the asset quality was 1.2%. The study also showed an average ROA of 2.18% in the post-merger period. This was higher than the 2.06% in the period before the M&As. The average capital adequacy was 17.78% while the capital adequacy for the period was 2.74%. The regression analysis showed improvement of R-squared from pre-merger of 46.30% to post-merger of 52.60% with p-value of 0.000. The study will close the knowledge gap and support bank managers, investors, and shareholders, among others, in making important choices about mergers and acquisitions as a long-term corporate strategy.