Effects of mergers and acquisitions on financial performance of banks in Kenya

Abstract

Banks in modern-day financial business have evolved which creates the need of such banks to re-evaluate its assets and strategies in order to be sustainable and improve on the everchanging environment. This has brought about banks combine assets in order to maintain its performance in the financial market. Research done to explain the relationship between M&As and financial performance has never been well concluded, how firms acquire another firm's assets thus increasing its value (Bouba, 2011). According to DePamphilis (2008), a merger is a situation where companies buy shares from another company. M&A is a recycling process until it becomes a daily routine for banks and other businesses to engage in. Some studies have concluded that M & A improves financial performance of post-merger firms (Mwanza, 2013). Meanwhile, Indhumathi, Selvam, and Babu (2011) argue that M&As have similar meaning since in all offers are made through bidding firms to the shareholder of target firms. A merger is the amalgamation of two existing companies to bring forth a new company where joint firms retain their identity while an Acquisition is taking control of the company by purchasing most of the company's ownership stake with no new company being formed (Cartwright & Schoenberg, 2006). Depamhilis (2008) further asserts that a company can acquire another by buying shares of stock or purchasing a company's assets.