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Effect of Synergy on Financial Performance of Merged Financial Institutions in Kenya

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  • Agnes Ogada
  • Amos Njuguna
  • George Achoki

Abstract

Mergers and Acquisitions deals that create value constitute at least one or a combination of financial and operational synergy. This paper investigates the effect of synergy on financial performance of merged institutions in the financial services sector in Kenya. The paper adopted a mixed research design, pre and post-merger secondary data was collected from 40 (forty) institutions in the Kenyan financial services industry that had concluded their merger processes by 31 December 2013. Financial synergy was proxied using the liquidity ratio while operating synergy was measured using growth in sales. Primary data was used to explain the results of the secondary data. Panel data analysis was used to determine the change in the study variables and trends over time between 2009 and 2013, event window (pre-merger and post-merger) analysis was used to test for any significant difference in performance means before and after merger as a result synergy, while regression analysis was used to determine the relationship between synergy and profitability. Results show that there is a positive relationship between performance, operating synergy and financial synergy, and that there was significant improvement in performance post-merger. From these findings, the study recommends that institutions should critically evaluate the overall business and operational compatibility of the merging institutions and focus on capturing long-term financial synergies as this has a positive effect on the performance.

Suggested Citation

  • Agnes Ogada & Amos Njuguna & George Achoki, 2016. "Effect of Synergy on Financial Performance of Merged Financial Institutions in Kenya," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(9), pages 199-207, September.
    • Handle: RePEc:ibn:ijefaa:v:8:y:2016:i:9:p:199-207
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    References listed on IDEAS

    as
    1. Sayan Chatterjee, 1986. "Types of synergy and economic value: The impact of acquisitions on merging and rival firms," Strategic Management Journal, Wiley Blackwell, vol. 7(2), pages 119-139, March.
    2. Sara B. Moeller & Frederik P. Schlingemann & René M. Stulz, 2005. "Wealth Destruction on a Massive Scale? A Study of Acquiring‐Firm Returns in the Recent Merger Wave," Journal of Finance, American Finance Association, vol. 60(2), pages 757-782, April.
    3. Hankir, Yassin & Rauch, Christian & Umber, Marc P., 2011. "Bank M&A: A market power story?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2341-2354, September.
    4. Cornett, Marcia Millon & McNutt, Jamie John & Tehranian, Hassan, 2006. "Performance Changes around Bank Mergers: Revenue Enhancements versus Cost Reductions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1013-1050, June.
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    Cited by:

    1. Anjala Kalsie & Neha Singh, 2023. "Deal Size and Synergy Gains: A Case of Indian M&A," Vikalpa: The Journal for Decision Makers, , vol. 48(4), pages 255-268, December.
    2. Okuku Washingtone Oluoch & Dr. Fredrick W.S. Ndede, 2024. "Synergistic Effects and Financial Performance of Kenya Agricultural and Livestock Research Organization," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(5), pages 2213-2223, May.
    3. Rebecca Jeruto Keitany & Dr. Fredrick Warui, 2021. "Effects of Liquidity on Financial Performance of Non-Financial Institutions’ Listed at Nairobi Securities Exchange, Kenya," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(10), pages 632-636, October.

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    More about this item

    Keywords

    mergers and acquisitions; ROA; ROE; operating synergy; financial synergy; financial services sector;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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