Effect of mergers and acquisitions on the financial performance of companies listed in the NSE.

Date
2022
Authors
Muhindi, Peris Mwihaki
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Strathmore University
Abstract
Merger and acquisition activity is one of the main strategic financial tools that a firm can adopt so as to improve the overall performance of the company. Financial performance of a firm is crucial in that it seeks to bring out how well a company utilizes its financial assets, the method of financing, how it maintains and earns more returns as well as how the firm’s objectives can be sustainable in the future. The purpose of this study was to be used as a source of information as well as a focal point for further research to be carried out as to why certain sectors in the NSE experience more merger and acquisition activity specifically the banking and petroleum industry. This information can be used by investors, general management as well as the Government. The variables of the study that were involved are liquidity, market share and financial management practices. The study in turn adopted a descriptive research design so as to describe and predict the relationship between the effect of liquidity, market share and financial management practices. Consequently, the population of focus was all the firms listed in the NSE where purposive sampling was used to select firms that have exclusively experienced merger and acquisition activity as from 2008 to 2021. Data analysis was carried out on the data collected from the financial statements as a source of secondary data. Inferential statistics, ratio analysis, regression analysis and the event study approach were used was used to assess the impact of the event on the variables as well as on the financial performance of the firm. The findings indicated that the merger activity influenced it as there was a significant change pre- and post-acquisition. There was also a positive relationship between liquidity and market share and a negative relationship with financial management practices in association to financial performance of firms. The use of the regression model suggested that 51.2% of the variance in financial performance would be explained by liquidity, market share and financial management practices. The value of this study was that it clearly reflected on how the sectors in the NSE are differently affected by the merger and acquisition activity by use of a case-by-case example of Total Kenya and NCBA Bank Kenya.
Description
A Research Project Submitted in partial fulfillment of the requirements for the Degree of Bachelor of Commerce at Strathmore University
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