EFFECT OF MERGERS ON MARKET PERFORMANCE OF COMMERCIAL BANKS LISTED IN THE NAIROBI SECURITIES EXCHANGE IN MOMBASA COUNTY
Abstract
The main objective of the study was to establish the effect of mergers on market performance of commercial banks listed in NSE and operating in Mombasa County. The study found out that Mergers generated value added due to efficiency gains, led to increased net profit margin and mergers affected bank’s sales growth positively. However, majority of the respondents were unsure that mergers enabled banks to gain dominant market power effect. There is a strong positive correlation between mergers and market performance of listed commercial banks in Mombasa County (r=0.963). Vertical mergers had positive significant effect on market performance of listed commercial banks (r value=0.694, p-value=0.000). Vertical integration resulted in lowering prices by the merged banks and brought efficiencies by reducing the transaction costs associated with the market exchange. Horizontal mergers had positive significant effect on market performance of listed commercial banks (r value=0.654, p-value=0.000). Mergers were common in industries with fewer firms, competition was higher and potential gains in market share were much greater. Horizontal mergers led to increased market power of the merged banks’. However, majority of the respondents were not sure that horizontal merger increased the concentration and eliminated competition. Conglomerate mergers had no significant effect on market performance of listed commercial banks (r value=0.021, p-value=0.871). Mixed conglomerate merger was appropriate for banks that were looking for product extensions or market extensions and conglomerate merger helped to greatly reduce business risk in the banks through diversification. Product extension mergers had positive significant effect on market performance of listed commercial banks (r value=0.888, p-value=0.000). Product extension mergers enabled banks to group together their products, get access to a bigger set of consumers and to penetrate the market hence improved return on assets. The study recommended that horizontal merger should be adopted with caution since horizontal mergers may not necessarily lead to increase market concentration and eliminate market competition.
Key terms: Conglomerate merger, Horizontal merger, Merger, Product-extension merger, Vertical merger
CITATION: Mwapaga, A. N., Mukhongo, A. & Datche, E. (2019). Effect of mergers on market performance of commercial banks listed in the Nairobi Securities Exchange in Mombasa County. The Strategic Journal of Business & Change Management, 6 (2), 1188 –1206.
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DOI: http://dx.doi.org/10.61426/sjbcm.v6i2.1180
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