Effect of mergers and acquisitions on growth of commercial banks in Kenya

Abstract

Mergers and acquisitions (M&A) are being increasingly used world over for improving competitiveness of companies through gaining greater market share, broadening the portfolio to reduce business risk, for entering new markets and geographies, and capitalizing on economies of scale not forgetting strategic positioning. Mergers and Acquisitions (M&A) are the most popular means of corporate restructuring or business combination, which have played an important role in the external growth of a number of leading firms in the world. In Kenya for instance, economic activities have been characterized by a low number of local and crossborder mergers and acquisitions over the years despite the benefits that accrue in terms of increase in share capital, investment and globalization. The study set to examine whether the many mergers that have happened in Kenya’s banking Sector had influenced growth. The study conducted a descriptive research. The population of this research consisted of all the 43 commercial banks in Kenya, from which a sample of 10 banks was utilized. The researcher utilized secondary sources to collect the data. The sources were obtained from NSE and CBK sites. Secondary sources included financial statements for a period of 10 years (2005-2014) and including internet resources, and publications. The study utilized a regression model to predict the relationship between M&A and firm growth. The findings revealed that there is a significant positive relationship between Return on Assets and firm growth. A significant positive relationship was found between return on equity and firm growth. In addition, the findings indicated a significant positive relationship between bank size and firm growth. The analysis and results show that Commercial Banks performed better in the postmerger/acquisition era as compared to the pre-merger/acquisition era. This study recommends that commercial banks with unstable growth and those that want to increase their sizes thus strengthening their capital bases should seek to consolidate their establishments through mergers and acquisitions.