Effects of mergers on financial performance of non listed banks in Kenya

Abstract

The research was to determine the effects of mergers on financial performance of non listed banks in Kenya. Theoretically it is assumed that consolidation improves company performance due to increased market power, enhanced profitability and diversification of risks. The research focused on the profitability of non listed banks which merged from 1994 to 2001. Comparative analysis of the banks' performance for the pre and post merger periods was conducted to establish whether mergers lead to improved financial performance before or after merging. Secondary data was collected for 5 years before merger and five years after merger and analyzed with the aid of statistical tools. As a control, financial performance for banks that didn't merge was also analysed during the same period. The results of the data analysis showed that three measures of performance: Profit, return on Assets and Shareholders equity/Total assets had values above the significance level of 0.05 with exception of Total liabilities/Total assets. The research concludes that there was significance improvement in performance for the non listed banks which merged compared to the non listed banks that did not merge within the same period. This confirms the theoretical assertion that firms derive more synergies by merging than by operating as individual outfit is.