OPERATIONAL SYNERGY ON THE FINANCIAL SUSTAINABILITY OF FIRMS LISTED ON THE NAIROBI SECURITIES EXCHANGE

Abstract

This paper investigates the effect of operational synergy on the financial sustainability of firms listed on the Nairobi Securities Exchange, while examining the moderating role of firm size. Despite a rise in merger and acquisition activities across Kenya’s corporate sector, long-term financial sustainability remains uncertain, particularly regarding whether operational efficiencies post-merger translate into lasting performance benefits. Drawing on Resource-Based View and Contingency Theory, this study employs panel data from 11 NSE-listed firms that engaged in M&As between 2003 and 2023. The analysis utilizes fixed-effects panel regression and moderation modeling to evaluate the influence of operational synergy—measured through asset turnover ratio—on financial sustainability—proxied by the asset sustainability ratio. The results reveal a statistically significant and positive relationship between operational synergy and financial sustainability. Moreover, the interaction between operational synergy and firm size is significant, suggesting that larger firms are better positioned to translate operational efficiencies into financial resilience. These findings offer theoretical and managerial insights into the role of internal process optimization and organizational scale in achieving post-merger success.