Effect of mergers and acquisitions on financial performance of commercial Banks in Kenya

Abstract

In the conduct of this research, it was found that mergers and acquisitions are more prevalent in the western world hence a local aspect research into this would be welcome. Mergers and acquisitions have been pointed out in various studies especially in the western world as a factor affecting financial performance of commercial banks. The objective of this research was therefore to determine the effect of mergers and acquisitions on the financial performance of commercial banks in Kenya. To do this, the research undertook a census study on the 16 banks that have under gone mergers and acquisitions between the year 2000 and 2012 so as to bring as much recency as possible to this research. This research used secondary data such as financial statements of the commercial banks themselves and the Central Bank of Kenya (CBK) reports from which the research undertook comparative analysis on the bank’s performance pre and post merging to establish whether mergers lead to improved financial performance. Causal research design was used where banks’ performance was analyzed 4 years before and after the merger with the aid of statistical tools to determine whether there was any effect on the financial performance. This research found that there was improvement in financial performance of commercial banks after a merger or acquisition. This conclusion was reached due to there being a general increase in the profitability, capital adequacy and long-term solvency of the commercial banks after a merger or acquisition.