The Effect of Mergers and Acquisitions Strategies on Financial Performance of Commercial Banks in Kenya
Keywords:
Mergers and Acquisitions Strategies, operational efficiency, market share, financial performance, commercial banks and 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 Strategies 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 on financial performance of commercial banks in Kenya as a result of mergers and acquisitions Strategies. Operating efficiency and market share impact on the financial performance of commercial banks in Kenya formed the specific objectives. 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. By the year 2017, 30 commercial banks in Kenya had considered mergers and acquisitions strategies were considered as the population of this study. An average of three-year ratios was computed in both pre-merger and post -acquisition periods inorder to assess the impact financial performance. The years of the deal were excluded. The mean difference between the pre-Mergers and Acquisitions Strategies and post-Mergers and Acquisitions Strategies ratios was tested using the T-test.The findings were that Mergers and Acquisitions Strategies have a statically positive significant relationship with the dependent variable. Recommends from the study are that, the policymakers create policies that facilitate and encourage commercial banks to employ mergers and acquisition strategies to achieve better financial performance.
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References
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2. Aggarwal, R., & Kyaw, N. A. (2010). Capital structure, dividend policy, and multinational: Theory versus empirical evidence. International Review of Financial Analysis,19 (2), 140-150.
3. Alkhatib, A., & Harsheh, M. (2012). Financial Performance of Palestinian Commercial Banks. International Journal of Business and Social Science, 3, 175-184.
4. Asokoinsight. (2020). Kenyan's banking sector.
5. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1).
6. Barus, J. J., Muturi, P. W., Kibati, D. P., & Koima, D. J. (2017). Effect of management efficiency on the financial performance of savings and credit society in Kenya. Journal of Strategic Management, 2(1), 92-104
7. Barus, J. J., Muturi, P. W., Kibati, D. P., & Koima, D. J. (2017). Effect of management efficiency on financial Performance of savings and credit society in Kenya. Journal of Strategic Management, 2(1), 92-104.
8. Buchory, H. A. (2015). Banking intermediation, operational efficiency and credit risk in the banking profitability. International Journal of Business, Economics and Law, 7(2).
9. Buzzell, R. D. (2004). The PIMS Program of Strategy Research: A Retrospective Appraisal, Journal of Business Research, 57 (May), 478-83
10. CBK. (2020). Mergers & Acquisitions.
11. Chesang, C. J. (2002). Merger Restructuring and Financial Performance of Commercial Banks in Kenya. Unpublished Dissertation, School of Business, University of Nairobi.
12. Cowling, K. (1980). Mergers and economic Performance. CUP Archive.
13. David, U. O. (2011). The effect of bank consolidation on Bank performance in Nigeria.
14. Demirgu C-Kunt, A., & Levine, R. (2004). Bank Concentration and Fragility: Impact and Mechanics. Retrieved from http://www.nber.org.
15. EduPristine. (2015). Mergers and Acquisitions Strategies
16. Eisenhardt, M. K. (1989). Agency theory: An assessment and review Management Review. The Academy of, 14(1), 57-74
17. Ejike, S. I., & Agha, N. C. (2018). Impact of operating liquidity on the profitability of pharmaceutical firms in Nigeria. International Journal of Academic Research in Accounting, Finance & Management Sciences, 8(3) 73-82.
18. Etale, L. M., Bingilar, P. F., & Ifurueze, M. S. (2016). Market share and profitability relationship: Study of the banking sector in Nigeria. International Journal of Business, Economics and Management, 3(8), 103-112.
19. Fazlzadeh, A., & Sabbaghi, M. (2010). The Study of Relationship Between Market Share and Profitability in Tehran Stock Exchange. Open source journal SSRN.
20. Festus, F. A., Rufus, A. I., & Aseoluwa, C. N. (2019). Effect of managerial efficiency on corporate financial Performance of quoted Nigerian Firm. European Journal of Accounting, Auditing and Finance Research, 17(6), 12-39.
21. Financier Worldwide Magazine. (2020). Outlook for global M&A.
22. Finkelstein, S. (1997). Power in top management teams: Dimensions, measurement, and validation. Academy of Management Journal, 35(3), 505-538.
23. Fraering, J. M., & Minor, M. S. (1994). The industry-specific Basis of Market Share-Profitability Relationship. Journal of Marketing, 11(1), 27-37
24. Gathuku, G. M., & Njeru, A. (2016). Effect of Mergers on Financial Performance of Commercial Banks in Kenya. International Journal of Science and Research, 5(10), 1426-1434.
25. Gaughan, P. A. (2010). Mergers, acquisitions, and corporate restructuring. John Wiley & Sons
26. Green, M. B. (1990). Mergers and Acquisitions Strategies : geographical and spatial perspectives. Routledge.
27. Hagigi, M., Manzon, G. L., & Mascarenhas, B. (1990). Increase assets efficiency to gain global market share. Management International Review, 39(3): 205-222
28. Harney. (2011). Fundamentals of Financial Management in the USA. Strategic management journal, 2(38).
29. Hasen, S. (2015). The effect of pre-and post-merger factors on the Performance of mergers in Libyan government banks. Unpublished PhD thesis, Nottingham Trent University.
30. Hassan, T., Abed-Ashtiani, F., & Hashemian-Rahaghi, S. R. (2017). Review Article: Financial performance measures in mergers and acquisition studies. SSRN.
31. Heracleous, L., & Lan, L. L. (2010). Rethinking agency theory The view from the law. Academy of Management Review, 35(2), 294-314.
32. Hitchner, J. (2003). Financial valuation: applications and models. (1, Ed.) New York: John Wiley&Sons.
33. Hongxing, Y., Muhammad, H., & Gulzara, T. (2018). Profitability determinants of financial institutions: Evidence from banks in Pakistan. International Journal of Financial Studies, 6(53), 1-28
34. Ibeji, N. I. (2015). The impact of regulatory-induced consolidation on banks' Performance: a case study of an emerging economy
35. Jakada, A. B., & Aliyu, M. S. (2015). Impact of managerial efficiency (ME) on Performance of multinational corporations (MNCs) in Nigeria. KASU Journal of Management Sciences.
36. Jooste, R. (2021). Mergers and Acquisitions Strategies 2021: Uncertainties remain, but there is cause for optimism. Maverick insider.
37. Judy, K., & Gekara, J. M. (2015). Effect of Mergers and Acquisitions Strategies on the operating performance of companies listed at Nairobi securities exchange. International Scientific Research Journal in Business and Management, 1(2).
38. Kainika, O. T. (2017). Effect of mergers and Acquisition on organizational Performance of insurance industry in Kenya: A case study of Sanlam. Unpublished MBA Thesis, University of KCA University.
39. Kaneza, C. (2016). Factor affecting the financial performance of commercial banks listed on the Nairobi securities exchange. Unpublished MBA thesis, United state international university Africa, Kenya
40. Kathali, T. D. (2014). Mergers and Acquisition and Performance of commercial banks in Kenya. Unpublished MBA Thesis, Kenyatta University
41. Kiessling, T., & Harvey, M. (2006). The human resource management issues during an acquisition: the target firm's top management team and key managers. The International Journal of Human Resource Management, 17(7), 1307-1320.
42. Kimotho, T. N. (2018). Influence of Mergers and Acquisitions Strategies on the financial performance of firms listed in Nairobi securities exchange. Unpublished MBA Thesis, Strathmore Business School.
43. Korir, P. (2006). Merger effects of companies listed in the NSE. . An unpublished MBA project, University of Nairobi
44. Kouser, R., & Saba, I. (2011). Effect of the business combination on Financial Performance: Evidence from Pakistan banking sector. Australian Journal of Business and Management Research, 54-64.
45. Kumar, S., & Bansal, L. (2008). The impact of Mergers and Acquisitions Strategies on corporate Performance in India. Management Decision, 1531-1543.
46. Leverty, K. G. (2001). Market share, profits and business strategy. Management Decision, 39(8): 607-617
47. Machiraju, H. R. (2007). Mergers, Acquisition and takeovers. New Age International.
48. Marembo, O. (2012). Effects of Mergers and Acquisitions Strategies on the financial performance of banks in Kenya; Unpublished MBA Thesis, University of Nairobi.
49. Mboroto, S. (2012). The effect of Mergers and Acquisitions Strategies on the financial performance of petroleum firms in Kenya. Unpublished MBA Thesis, University of Nairobi.
50. Megeid, N., Abd-Elmageed, M., & Riad, N. (2019). Impact of Operational Efficiency and Financial Performance on Capital Structure using Earnings Management as a Moderator Variable. atasu journals.
51. Meseret, T., & Getahun, K. (2017). Determinants of Financial Performance of wheat flour producing companies in Hawassa City, South Ethiopia. Journal of Poverty, Investment and Development, 31, 7-12.
52. Meseret, T., & Getahun, K. (2017). Determinants of Financial Performance of wheat flour producing companies in Hawassa City, South Ethiopia. Journal of Poverty, Investment and Development, 31, 7-12.
53. Mishra, P., & Chandra, T. (2010). Mergers, Acquisitions and Firms" Performance Experience of Indian Pharmaceutical Industry. Eurasian Journal of Business and Economics, 3(5), 111- 126
54. Motis, J. (2007). Mergers and Acquisitions Strategies Motives. Unpublished MBA Thesis, University of Crete.
55. Muhammad, H., Waqas, M., & Migliori, S. (2019). The impact of M&A on banks financial Performance: Evidence from an emerging economy. Corporate Ownership & Control, 16(3).
56. Muiru, M., Onyuma, S., & Inoti, G. (2014). Impact of acquisitions on the financial performance of the acquiring companies in Kenya: A case study of listed acquiring firms at the Nairobi securities exchange. Journal of Finance and Accounting.
57. Muriithi, J. G., & Waweru, K. M. (2017). Liquidity Risk and Financial Performance of Commercial Banks in Kenya. International Journal of Economics and Finance, 9(3).
58. Muriithi, J., Waweru, K., & Muturi, W. (2016). Effect of Credit Risk on Financial Performance of Commercial bank in Kenya. Journal of Economics and Finance.
59. Musah, M., Kong, Y., & Mensah, I. A. (2019). Exploring the Link between Operational Efficiency and Firms' Financial Performance: An Empirical Evidence from the Ghana Stock Exchange (GSE). International Journal of Trend in Scientific Research and Development (IJTSRD), 3(4).
60. Musah, M., Kong, Y., & Mensah, I. A. (2019). Exploring the Link between Operational Efficiency and Firms' Financial Performance: An Empirical Evidence from the Ghana Stock Exchange (GSE). International Journal of Trend in Scientific Research and Development (IJTSRD), 3(4).
61. Mutshinyani, M. (2009). A study of the relationship between market share and profitability in listed South African retail companies: unpublished MBA Thesis, University of Pretoria.
62. Mutshinyani, M. (2009). A study of the relationship between market share and profitability in listed South African retail companies. Unpublished MBA Thesis, University of Pretoria
63. Muya, C. M. (2006). A Survey of Experiences of Mergers Unpublished Dissertation, School of Business, University of Nairobi.
64. Mwanza, B. (2016). Effect of Mergers and Acquisitions Strategies on the financial performance of insurance companies in Kenya. Unpublished MBA Thesis, University of Nairobi.
65. Nakamura, H. R. (2005). Motives, Partner Selection and Productivity Effects of M&As: The Pattern of Japanese Mergers and Acquisition. Unpublished PhD thesis, Institute of International Business, Stockholm School of Economics
66. Natarajan, R., Jain , R., & Metri, B. (2017). Relationship between Operational Efficiency and Financial Performance of Indian Banks: An Application of Analytics. Decision Science Institute, India.
67. Ndura, K. M. (2010). Effect of mergers on financial Performance of insurance companies in Kenya. Unpublished MBA Thesis, University of Nairobi.
68. Nga, H. T., & Kamolrat, L. (2007). Critical Success Factors in Merger & Acquisition Projects. Unpublished MBA thesis, UMEA University, USA.
69. Nguli, J., & Kyule, G. (2020). Mergers and Acquisitions Strategies : The Experience in Kenyan Banking Industry. KEPPRA.
70. Njambi, F. N., & Kariuki, P. W. (2018). Effect of Mergers and Acquisitions Strategies on the financial performance of financial institutions in Kenya. International Academic Journal of Economics and Finance, 3(1), 64-79.
71. Ochieng, A. (2006). Bank consolidations and competition the issue of Kenya's many small banks Marketing Intelligence Banking Industry Survey, 18 24.
72. Ogada, A., Njuguna, A., & Achoki, G. (2016). Effect of synergy on financial Performance of merged financial institutions n Kenya. International Journal of Economics and Finance, 8(9), 199-2017
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Published
2022-08-31
How to Cite
Gachigo, J., Ondigo, H., Aduda, J., & Onsomu, Z. (2022). The Effect of Mergers and Acquisitions Strategies on Financial Performance of Commercial Banks in Kenya. European Scientific Journal, ESJ, 18(25), 110. https://doi.org/10.19044/esj.2022.v18n25p110
Section
ESJ Social Sciences
Copyright (c) 2022 Justin Gachigo, Herick Ondigo, Josiah Aduda, Zipporah Onsomu
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
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