Market Synergy and Financial Sustainability of NSE-Listed Firms with Firm Size as a Moderator

Abstract

This study investigates the effect of market synergy on the financial sustainability of listed firms in Kenya, with firm size considered as a moderating variable. Market synergy, often realized through expanded customer bases, enhanced pricing power, and increased market share following mergers and acquisitions (M&As), is presumed to contribute positively to long-term financial health. However, empirical validation in emerging markets remains limited. Drawing on Market Power Theory and Contingency Theory, the study analyzes panel data from eleven companies listed on the Nairobi Securities Exchange (NSE) that engaged in M&As between 2003 and 2023. The study uses price earnings ratio (PER) as a proxy for market synergy and the asset sustainability ratio (ASR) as a measure of financial sustainability. Results from fixed-effects panel regression reveal a significant positive association between market synergy and financial sustainability. Additionally, firm size was found to significantly moderate this relationship, amplifying the effect of market synergy in larger firms. These findings contribute to the literature on post-merger performance and offer practical insights for strategists, investors, and policymakers engaged in corporate consolidation strategies in developing economies.