Effects of Mergers and Acquisitions Announcements on Stock Returns of Listed Companies in the Nairobi Securities Exchange

Abstract

Globalization has opened up many countries to foreign direct investments placing Kenya on the forefront as the hub of East Africa. This has been enhanced by the rapid rise of mergers and acquisitions deals as the most preferred method of gaining control of local businesses. With the onset of mergers and acquisitions trend, it becomes necessary to know how such news is received by the capital markets players in Kenya. The study aimed at assessing the effects of mergers and acquisitions announcement on the share returns of listed companies in Nairobi Securities Exchange. Purposive sampling techniques was used with the study sample of 10 companies that had undergone mergers and acquisitions during the period 2015-2023.The study was conducted with the aid of secondary data collected from NSE data base, companies’ newsletters and respective companies’ annual reports. Event study methodology was employed with a 31 days event window (15 days before and 15days after) and day 0 as the event date. Daily share prices data and NSE All share index data were collected for further analysis. Market model was used to calculate expected returns of shares, expected returns of market, abnormal returns, average abnormal returns and cumulative average abnormal returns. Excel and SPSS were used for data analysis .AAR and CAAR were plotted on line graphs to show the trends. The graphs exhibited an upward and downward curvy patterns of abnormal returns depicting the market reactions to the M&A announcement. The paired t-tests were administered on the AAR and CAAR to test the significance of mean differences. Based on the P-value of 0.05 and t-statistic value; cumulatively the mean differences were statistically significant. The null hypothesis was therefore rejected that there is no variation in stock returns in the period before and after M&A announcement and the alternative hypothesis adopted. A conclusion was made that mergers and acquisitions announcements indeed have significant effect on stock returns of listed companies in the NSE