Effect of Mergers and Acquisition Strategies on Financial Performance of Commercial Banks in Kenya

Abstract

The operating environment for commercial banks in Kenya has become very dynamic and highly competitive. The witnessed cases of bank failure and poor financial performance have made commercial banks develop strategies to improve their financial performance, remain competitive, and meet the regulator's compliance requirements. Mergers and acquisitions are on the rise as a strategy aimed to alleviate the ailing sector. In light of this, the purpose of this study was to examine the impact of mergers and acquisitions on the financial performance of Kenyan commercial banks. Specifically, the study objectives were to assess the impact of operating efficiency, managerial efficiency and market share on the financial performance of commercial banks in Kenya. The study objectives were supported by synergies theory, resource-based view theory and agency theory. The study adopted a correlational descriptive research design, including cross-sectional data analysis. The study population was 30 commercial banks in Kenya that had completed mergers and acquisitions by 2017. The study used secondary data collected through a secondary data collection template. An average of three-year ratios was computed in both pre-merger and acquisition periods to analyze the effect of mergers and acquisition strategies on financial performance. The years of the deal were excluded. The mean difference between the pre-mergers and acquisitions and post-mergers and acquisitions ratios was tested using the T-test. The mathematical relationship between the study variables in the two periods was determined using multiple regressions. F-Test was used to measure the predictive ability of the model. The coefficient of determination (R₂) was used to establish the model's goodness of fit. The findings were that mergers and acquisitions strategies have a statically significant relationship with the financial performance of commercial banks. The study recommends that policymakers create policies that facilitate and encourage commercial banks to employ mergers and acquisition strategies to achieve better financial performance. Keywords: Mergers and acquisitions strategies, operational efficiency, managerial efficiency, market share, financial performance, commercial banks and Kenya.