EFFECT OF DIVERSIFICATION ON THE FINANCIAL PERFORMANCE OF MERGED INSTITUTIONS
DOI:
https://doi.org/10.47672/ajf.98Keywords:
diversification, financial performance, merged institutions.Abstract
Purpose: The purpose of the study was to assess the effect of diversification on the financial performance of merged institutions.
Methodology: The study adopted a mixed methodology research design. The study population included all the 51 merged financial service institutions in Kenya. Purposive sampling was used. Primary data was obtained from questionnaires and a secondary data collection template was also used. The researcher used quantitative techniques in analyzing the data. Descriptive analysis for the study included the use of means, frequencies and percentages. Inferential statistics such as correlation analysis was also used. Panel data analysis was also applied. Further, a pre and post merger analysis was used.
Results: Diversification had no significant effect on financial performance of merged institutions.
Unique contribution to theory, practice and policy: The study findings call for a re-assessment of the literature on diversification. Further research is necessary to study why sometimes the diversification-performance relationship is positive, others negative, and often quadratic. Further research is needed to investigate whether diversification effects on performance depends on the industries considered. This study recommends that companies with a weak and unstable capital base should seek to consolidate their establishments through mergers and acquisitions. Through mergers and acquisitions, these companies will be able to extend their market share and revenue base hence increase their profitability. In addition, mergers and acquisition leads to a higher CAR which improves the financial soundness of the companies.
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Copyright (c) 2016 Agnes Ogada, George Achoki, Amos Njuguna
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