The Impact of Merger and Acquisition on Firm Performance in East Africa

Abstract

The purpose of this study was to establish the impact of merger and acquisition (M&A) on firm performance in East Africa. Methodology: We employed an event study to calculate the cumulative abnormal returns to evaluate M&A performance and shareholder wealth. We also used accounting ratio - Return on Equity to evaluate firm performance. Our dataset consists of 330 observations of 234 M&A deals that occurred in a period of 2005 to 2015, using secondary data of publicly listed firms on the various East African States stock exchange markets. All the data used was obtained from Zephyr for the deals and the stock values data was from Thomson one database (DataStream). Findings: We find that mergers and acquisitions are significantly associated with firm performance. Results further indicate that M &A announcements generate significant abnormal returns to the firm’s shareholders and also, there is a positive relationship between the domestic M&A deals and firm performance. Further, there is a positive relationship between cross boarder M & A deals and firm performance and domestic merger and acquisition deals perform better than the cross border M&A deals in improving firm performance. Originality: The research gives an insight on how domestic Merger and Acquisition deals perform relative to cross border M&A deals in East Africa and how merger and acquisition can improve firm performance. The East African region has recently had some of the fastest growing M&A activities on the African continent. Thus, this study contributes to the existing literature on the effect of merger and acquisition on firm performance using evidence from the entire East African region. Further, this study is of value to the East African Community in regards to evaluating its objectives on regional economic growth through M&A influence and also driving positive business and logical decisions on M&A activities in the East African region.