Impact of Mergers and Acquisition on Financial Performance of Commercial Banks in Kenya (A Survey of Commercial Banks in Kenya)
Keywords:
: Capital, Asset, Management, Earnings and Li-quidity, Mergers and Acquisitions, Financial performance.Abstract
The aim of this study was to analyze the impact of Mergers and acquisition on financial performance of commercial banks, a comparative study of pre and post-merger financial metrics. The study was guided by three specific research questions: What are the effect of mergers on liquidity of commercial banks; What is the market share of commercial banks after merger? What are the risk diversification on financial performance after merger? The descriptive research design was employed for this study and the target population for comprised of banks in Kenya that have undergone mergers and acquisitions (M&A). These banks form the foundation of the research focus, as their experiences provided valuable insights into the impact of M&A on financial performance. The chosen data collection tool for this study is a questionnaire, a widely adopted instrument aligning seamlessly with the research objectives and the unique characteristics of the target population. Descriptive statistical measures, including mean and standard deviation, was employed to provide a comprehensive overview of the central tendencies and variability within the data. Correlation analysis was conducted to explore the relationships between different variables. Multiple regression analysis was employed to assess the impact of mergers on financial performance. The paired sample t-test was employed to evaluate the impact of a merger on three vital financial indicators: liquidity, market share, and risk diversification. The statistical analysis revealed significant improvements in each domain after the merger, shedding light on the tangible effects of the consolidation. Starting with the Liquidity Assessment, the pre-merger mean liquidity score of 2.914 (SD = 0.3079) saw a notable increase to 3.937 (SD = 0.3059) post-merger. The paired t-test yielded a highly significant result (t = -13.022, df = 34, p = 0.000), indicating a substantial improvement in liquidity. This outcome emphasizes that the merger positively impacted the organization's ability to meet short-term obligations and manage cash flows more effectively. Moving on to the Market Share Evaluation, the pre-merger mean market share of 2.994 (SD = 0.3514) experienced a remarkable surge to 3.977 (SD = 0.2901) post-merger. The paired t-test result (t = -14.392, df = 34, p = 0.000) highlighted a significant and consistent improvement in market share. This suggests that the merger had a positive and meaningful influence on the organization's competitive standing within the industry. In terms of Risk Diversification Analysis, the pre-merger mean risk diversification score of 3.006 (SD = 0.4014) witnessed a robust advancement to 3.977 (SD = 0.3623) post-merger. The paired t-test (t = -9.574, df = 34, p = 0.000) indicated a significant enhancement in risk diversification, emphasizing the positive impact of the merger on the organization's ability to manage diverse risks effectively.
References
Absa. (2013, August 1). Absa Group Limited reg-istration and listing completed. https://www.absa.africa/absaafrica/media-centre/media-releases/2013/absa-group-limited-registration-and-listing-completed/
Acharya, V. V., & Merrouche, O. (2010). "Precau-tionary Hoarding of Liquidity and Inter-bank Markets: Evidence from the Subprime Crisis." Journal of Financial Economics, 97(3), 552–568.
Adhikari, B., Kavanagh, M., & Hampson, B. (2023). A comparative analysis of the fi-nancial performance of commercial banks after mergers and acquisitions using Nepa-lese data. Central Bank Review, 23(3), 100-128.
Agarwal, R., Vichore, S., & Gupta, M. (2019). The Effects of Mergers and Acquisitions on the Performance of Commercial Banks in In-dia. Durgadevi Saraf Institute of Manage-ment Studies, 2(2), 16-31.
Aggarwal, P., & Garg, S. (2022). Impact of mer-gers and acquisitions on accounting-based performance of acquiring firms in India. Global Business Review, 23(1), 218-236.
Al-Hroot, Y. A., Al-Qudah, L. A., & Alkharabsha, F. I. (2020). The impact of horizontal mer-gers on the performance of the Jordanian banking sector. The Journal of Asian Fi-nance, Economics and Business (JAFEB), 7(7), 49-58.
Aljadani, A., & Toumi, H. (2019). Causal effect of mergers and acquisitions on EU bank productivity. Journal of Economic Struc-tures, 8, 1-22.
Allen, F., & Gale, D. (2004). "Financial Crises, Li-quidity, and the International Monetary System." Princeton University Press.
Alvarez-González, P., & Otero-Neira, C. (2020). The effect of mergers and acquisitions on customer–company relationships: Exploring employees’ perceptions in the Spanish banking sector. International Journal of bank marketing, 38(2), 406-424.
Bagehot, W. (1873). "Lombard Street: A Descrip-tion of the Money Market."
Bain, J. S. (1959). Industrial Organization. Wiley.
Bank of Kigali. (2011, August 30). Bank of Kigali and Commercial Bank of Rwanda com-plete merger. https://www.bk.rw/about-bank-of-kigali/latest-news-and-updates/bank-of-kigali-and-commercial-bank-of-rwanda-complete-merger/
Barkema, H. G., & Schijven, M. (2008). Towards unlocking the full potential of acquisitions: The role of organizational restructuring. Academy of Management Journal, 51(4), 696–722.
Berger, A. N., & Humphrey, D. B. (1997). Effi-ciency of financial institutions: Internation-al survey and directions for future research. European Journal of Operational Research, 98(2), 175-212.
Bloomfield, J., & Fisher, M. J. (2019). Quantita-tive research design. Journal of the Aus-tralasian Rehabilitation Nurses Association, 22(2), 27-30.
Boloupremo, T., & Ogege, S. (2019). Mergers, Acquisitions and Financial Performance: A Study of Selected Financial Institutions. EMAJ: Emerging Markets Journal, 9(1), 36-44.
Borodin, A., Sayabek, Z. S., Islyam, G., & Panaedova, G. (2020). Impact of mergers and acquisitions on companies’ financial performance. Journal of International Stud-ies, 13(2).
Borodin, A., Sayabek, Z. S., Islyam, G., & Panaedova, G. (2020). Impact of mergers and acquisitions on companies’ financial performance. Journal of International Stud-ies, 13(2).
Brealey, R. A., Cooper, I. A., & Kaplanis, E. (2019). The effect of mergers on US bank risk in the short run and in the long run. Journal of Banking & Finance, 108, 105660.
Brealey, R. A., Myers, S. C., & Allen, F. (2017). Principles of Corporate Finance (12th ed.). McGraw-Hill Education.
Bruner, R. F. (2004). Applied Mergers and Acqui-sitions. John Wiley & Sons.
Budhathoki, P. B., Rai, C. K., Lamichhane, K. P., Bhattarai, G., & Rai, A. (2020). The impact of liquidity, leverage, and total size on banks’ profitability: evidence from nepa-lese commercial banks. Journal of Econom-ics and business, 3(2).
Capron, L., & Mitchell, W. (2010). Selection capa-bility: How capability gaps and internal so-cial frictions affect internal and external strategic renewal. Organization Science, 21(3), 662–681.
Cartwright, S., & Cooper, C. (1996). Managing mergers, acquisitions, and strategic allianc-es: Integrating people and cultures. But-terworth-Heinemann.
Coccorese, P., & Ferri, G. (2020). Are mergers among cooperative banks worth a dime? Evidence on efficiency effects of M&As in Italy. Economic Modelling, 84, 147-164.
Diamond, D. W., & Dybvig, P. H. (1983). "Bank Runs, Deposit Insurance, and Liquidity." Journal of Political Economy, 91(3), 401–419.
Ecobank. (2011, July 22). Ecobank to acquire Oceanic Bank. https://www.ecobank.com/news-and-events/single-news/news/ecobank-to-acquire-oceanic-bank
Flannery, M. J. (1996). "Financial Crises, Payment System Problems, and Discount Window Lending." Journal of Money, Credit and Banking, 28(4), 804–824.
Gaughan, P. A. (2010). Mergers, Acquisitions, and Corporate Restructurings. John Wiley & Sons.
Ismail, S., & Ezeoha, A. E. (2010). Mergers and acquisitions: Examining performance and impact on shareholder wealth. International Journal of Economics, Commerce and Management, 1(10), 1-8.
King, D. R. (2012). Corporate Entrepreneurship: Building an Entrepreneurial Organization. John Wiley & Sons.
Kishwar, A., & Ullah, A. (2019). The role and im-pact of merger & acquisition of banking sector in pakistan.
Kotler, P., & Keller, K. L. (2015). Marketing Man-agement (15th ed.). Pearson.Bodie, Z., Kane, A., & Marcus, A. J. (2018). Invest-ments (11th ed.). McGraw-Hill Education.
Leavy, P. (2022). Research design: Quantitative, qualitative, mixed methods, arts-based, and community-based participatory research approaches. Guilford Publications.
Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7(1), 77-91.
Mason, E. S. (1939). Price and Production Policies of Large-Scale Enterprise. American Eco-nomic Review, 29(1), 61-74.
Mishkin, F. S., & Eakins, S. G. (2015). Financial Markets and Institutions (8th ed.). Pearson Education.
Mishra, S. B., & Alok, S. (2022). Handbook of research methodology.
Moudud-Ul-Huq, S., Zheng, C., Gupta, A. D., Hossain, S. A., & Biswas, T. (2023). Risk and performance in emerging economies: do bank diversification and financial crisis matter?. Global Business Review, 24(4), 663-689.
Muriu, P. (2017). A survey of the effects of mer-gers and acquisitions on the financial per-formance of commercial banks in Kenya. Unpublished master's thesis, University of Nairobi, Kenya.
Musah, A., Abdulai, M., & Baffour, H. (2020). The Effect of Mergers and Acquisitions on Bank Performance in Ghana. Asian Journal of Economics and Empirical Research, 7(1), 36-45.
Ndungu, J. G., & Muturi, W. (2019). Effect of di-versification on financial performance of commercial banks in Kenya. International journal of current aspects, 3(5), 267-285.
Nguyen, T., Ha, T. & Nguyen, M. C. (2021). Fac-tors affecting the liquidity of firms after mergers and acquisitions: A case study of commercial banks in Vietnam. The Journal of Asian Finance, Economics and Business, 8(5), 785-793.
Nyamongo, E. M., & Misati, R. N. (2018). Effects of mergers and acquisitions on financial performance of banks in Kenya. Interna-tional Journal of Economics, Commerce and Management, 6(7), 23-34.
Olowe, T. (2018, December 18). Access Bank completes acquisition of Diamond Bank. Business Day. https://businessday.ng/banking/article/access-bank-completes-acquisition-of-diamond-bank/
Pablo, A. L., & Javidan, M. (2004). Executive in-sights: Mergers and acquisitions: Creating integrative knowledge. Organizational Dy-namics, 33(1), 54–68.
Ping An. (2021). Ping An's Technology. Retrieved from https://www.pingan.cn/en/about_us/group_profile/technology
Reuters. (2020, November 17). DBS Bank to take over Lakshmi Vilas Bank in India. Re-trieved from https://www.reuters.com/article/us-lakshmi-vilas-bank-m-a-dbs-idUSKBN27W0MQ
Robinson, J. (1933). The Economics of Imperfect Competition. Macmillan.
Saidi, F., & Streitz, D. (2021). Bank concentration and product market competition. The Re-view of Financial Studies, 34(10), 4999-5035.
Sharpe, W. F. (1964). Capital Asset Prices: A The-ory of Market Equilibrium under Condi-tions of Risk. The Journal of Finance, 19(3), 425–442.
Sherman, A. J. (2016). Mergers and Acquisitions from A to Z. AMACOM.
Sudarsanam, S. (2003). Creating value from mer-gers and acquisitions: The challenges. Pear-son Education.
Tampakoudis, I., Nerantzidis, M., Subeniotis, D., Soutsas, A., & Kiosses, N. (2020). Bank mergers and acquisitions in Greece: the fi-nancial crisis and its effect on shareholder wealth. International Journal of Manageri-al Finance, 16(2), 273-296.
Tanna, S., & Yousef, I. (2019). Mergers and acqui-sitions: Implications for acquirers’ market risk. Managerial Finance, 45(4), 545-562.
The Economic Times. (2020, November 17). DBS completes takeover of Lakshmi Vilas Bank; LVB no longer exists. Retrieved from https://economictimes.indiatimes.com/industry/banking/finance/banking/dbs-completes-takeover-of-lakshmi-vilas-bank-lvb-no-longer-exists/articleshow/79227647.cms
The Wall Street Journal. (2018, December 13). Ping An's OneConnect plans U.S. IPO. Re-trieved from https://www.wsj.com/articles/ping-ans-oneconnect-plans-u-s-ipo-11544610794
Weston, J. F., Mitchell, M. L., & Mulherin, J. H. (2004). Takeovers, restructuring, and cor-porate governance (4th ed.). Pearson Edu-cation.
Wu, C. H., & Chiang, H. E. (2019). Impact of di-versified mergers and acquisitions on cor-porate risk. Journal of Economics, 15(1), 93-115.