Using financial modeling to trade-off between financial strategies

Majeed Mohsen Mohammad, Karar Muhsin Thajil

Article ID: 2203
Vol 6, Issue 1, 2023

VIEWS - 174 (Abstract) 108 (PDF)

Abstract


This research aims to examine the trade-off between strategies to cope with financial failure because Iraqi banks suffer from a high level of risk. Some of these banks work more with return on investment compared to risk-free return, while others are able to achieve a higher return for the same period. In this situation, there is a need for a trade-off between the elected strategies as expressed in the following research question: How can financial strategies be traded-off to cope with financial failure? The research hypothesis is: “The trade-off between financial strategies to cope with financial failure can be achieved by using financial modeling.” For the purpose of this research, the merger and acquisition strategies were used. Data was collected from the financial reports of 13 banks (covering the period of 2011–2020). Eight banks were selected and examined for their lowest and highest return on assets (ROAs). Four recorded low ROAs and the remaining four recorded high ROAs. Then, one bank was selected from each group, of which respective strategies were compared covering the period from 2016 to 2021. The financial modeling using the Excel program showed that the Eps of merger strategy is higher than the Eps of acquisition.


Keywords


merger strategy; acquisition strategy; financial modeling

Full Text:

PDF


References


1. Benninga S. Financial Modeling, 4th ed. The MIT Press; 2014.‏

2. Hawash MK, Taha MA, Hasan AA, et al. Financial inclusion, foreign direct investment, green finance and green credit effect on Iraq manufacturing companies sustainable economic development: A case on static panel data. Cuadernos de Economía 2022; 45(128): 53–60.‏ doi: 10.32826/cude.v1i128.706

3. Crépey S. Financial Modeling: A Backward Stochastic Differential Equations Perspective. Springer Berlin; 2013. doi: 10.1007/978-3-642-37113-4

4. Klink J. Do financial models reshape un-cooperative cities? On urban founder’s profit and collaborative-communicative planning in times of austerity. Urban Studies 2023; 60(2): 213–237. doi: 10.1177/00420980221096039‏

5. Abdullah HO, Thajil KM, Alnoor A, et al. Predicting determinants of use mobile commerce through modelling non-linear relationships. Central European Business Review 2022; 11(5): 23. doi: 10.18267/j.cebr.306

6. Lee J, Chang JR, Kao LJ, Lee CF. Financial analysis, planning, and forecasting. In: Essentials of Excel VBA, Python, and R: Volume II: Financial Derivatives, Risk Management and Machine Learning. Springer Cham; 2023. pp. 433–455.‏ doi: 10.1007/978-3-031-14283-3_20

7. Mohammad MM, Thajil KM. Financial performance in light of knowledge management core. European Journal of Interdisciplinary Research and Development 2023; 11: 218–229.‏

8. Aquaro M, Damioli G, Lengyel B. Innovative mergers and acquisitions and the broker regions of European integration. Regional Studies 2023; 57(2): 287–299. doi: 10.1080/00343404.2021.1998418

9. Koirala S, Rao S, Farag H, Marshall A. The market for corporate control and risk-taking: Evidence from global merger and acquisition laws. British Journal of Management 2022; 34(2): 997–1022. doi: 10.1111/1467-8551.12625

10. Chen X, Liang X, Wu H. Cross-border mergers and acquisitions and CSR performance: Evidence from China. Journal of Business Ethics 2023; 183(1): 255–288. doi: 10.1007/s10551-021-05025-6‏

11. Gigante G, Cerri A, Leone G. The impact of mergers and acquisitions on shareholders’ value: An empirical study of pharmaceutical companies. Managerial Finance 2023; 49(2): 1241–1264. doi:‏ 10.1108/MF-01-2022-0015

12. Liang X, Li S, Luo P, Li Z. Green mergers and acquisitions and green innovation: An empirical study on heavily polluting enterprises. Environmental Science and Pollution Research 2022; 29(32): 48937–48952. doi: 10.1007/s11356-022-19270-3

13. Niemczyk J, Sus A, Borowski K, et al. The dominant motives of mergers and acquisitions in the energy sector in western Europe from the perspective of green economy. Energies 2022; 15(3): 1065. doi: 10.3390/en15031065

14. Ray KG. Mergers and Acquisitions: Strategy, Valuation and Integration. PHI; 2010.

15. Bauer F, Friesl M. Synergy evaluation in mergers and acquisitions: An attention-based view. Journal of Management Studies 2022. doi: 10.1111/joms.12804

16. Hong X, Lin X, Fang L. Application of machine learning models for predictions on cross-border merger and acquisition decisions with ESG characteristics from an ecosystem and sustainable development perspective. Sustainability 2022; 14(5): 2838. doi: 10.3390/su14052838

17. Aggarwal P, Garg S. Impact of mergers and acquisitions on accounting-based performance of acquiring firms in India. Global Business Review 2019; 23(1): 218–236. doi: 10.1177/0972150919852009

18. Feldman ER, Hernandez E. Synergy in mergers and acquisitions: Typology, life cycles, and value. Academy of Management Review 2022; 47(4): 549–578. doi: 10.5465/amr.2018.0345

19. Irwin K, Gilstrap C, McDowell W, et al. How knowledge and uncertainty affect strategic international business investment decisions: Implications for cross-border mergers and acquisitions. Journal of Business Research 2022; 139: 831–842. doi: 10.1016/j.jbusres.2021.10.001

20. Kobayashi A, Bremer M. Lessons from mergers and acquisitions of regional banks in Japan: What does the stock market think? Journal of the Japanese and International Economies 2022; 64. doi: 10.1016/j.jjie.2022.101202

21. Andersson L, Vergeer VL. Acquisitions vs corporate-startup collaboration: Corporations quest to be more innovative. A case study on the advantages and disadvantages of startup acquisitions and startup collaboration [Master’s thesis].‏ Linnaeus University; 2023.

22. Lebedev S, Peng MW, Xie E, Stevens CE. Mergers and acquisitions in and out of emerging economies. Journal of World Business 2015; 50(4): 651–662. doi: 10.1016/j.jwb.2014.09.003

23. Merkert R, Morrell PS. Mergers and acquisitions in aviation—Management and economic perspectives on the size of airlines. Transportation Research Part E: Logistics and Transportation Review 2012; 48(4): 853–862. doi: 10.1016/j.tre.2012.02.002

24. Serdar Dinc I, Erel I. Economic nationalism in mergers and acquisitions. The Journal of Finance 2013; 68(6): 2471–2514. doi: 10.1111/jofi.12086

25. Patel A. A study of the impact of cross-border mergers and acquisitions on economic growth and development in emerging markets. South Asian Law & Economics Review 2023; 8: 65–84.

26. Haeruddin MIM. Mergers and acquisitions: Quo vadis? Management 2017; 7(2): 84–88.‏ doi: 10.5923/j.mm.20170702.02

27. Degbey WY, Eriksson T, Rodgers P, Oguji N. Understanding cross-border mergers and acquisitions of African firms: The role of dynamic capabilities in enabling competitiveness amidst contextual constraints. Thunderbird International Business Review 2020; 63(1): 77–93.‏ doi: 10.1002/tie.22138‏

28. Vertakova Y, Vselenskaya I, Plotnikov V. Mergers and acquisitions risk modeling. Journal of Risk and Financial Management 2021; 14(9): 451. doi: 10.3390/jrfm14090451

29. Raj P, Pathak P. Level of job satisfaction among acquisition and erstwhile bank employees after merger and acquisition. Journal of Humanities and Social Sciences Studies 2022; 4(3): 113–118.‏ doi: 10.32996/jhsss.2022.4.3.7

30. DePamphilis DM. Cross-border mergers and acquisitions: Analysis and valuation. In: Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Case, and Solution, 11th ed. Academic Press; 2021. pp. 507–535.

31. Yang Y, Ba Y, Huang J. Analysis on the motivation of Internet enterprise strategic mergers and acquisitions and financial synergies—A case study of Tencent’s merger and acquisition of China Music Group. In: Advances in Social Science, Education and Humanities Research, Proceedings of the 2020 International Conference on Modern Education Management, Innovation and Entrepreneurship and Social Science (MEMIESS 2020); 6 February 2021; Xi’an. Atlantis Press; 2021. pp. 201–208.‏ doi: 10.2991/assehr.k.210206.041

32. Gudmundsson SV, Merkert R, Redondi R. Cost structure effects of horizontal airline mergers and acquisitions. Transport Policy 2020; 99: 136–144. doi: 10.1016/j.tranpol.2020.08.017‏

33. Schweizer D, Walker T, Zhang A. Cross-border acquisitions by Chinese enterprises: The benefits and disadvantages of political connections. Journal of Corporate Finance 2019; 57: 63–85. doi: 10.1016/j.jcorpfin.2017.12.023

34. ‏Provenzano B. The UK Public Accounting Industry: Maximizing Post-Merger and Acquisition Performance on a Firms’ Scope Economies, Stakeholder Value Added and Economic Profit [PhD thesis]. The University of Liverpool; 2022.‏

35. Arko AC, Abor JY, Sheikhbahaei A, Yawson A. Mergers and acquisitions in the oil and gas sector. In: Abor JY, Karimu A, Brännlund R (editors). The Economics of the Oil and Gas Industry: Emerging Markets and Developing Economies.‏ Routledge; 2023. pp. 219–235.

36. Zhang J, Pang D, Yang L, Ouyang W. Risk and synergy of multinational enterprise mergers and acquisitions under the background of the COVID-19 pandemic. Economic Analysis and Policy 2023; 78: 718–729. doi: 10.1016/j.eap.2023.03.025




DOI: https://doi.org/10.24294/fsj.v6i1.2203

Refbacks

  • There are currently no refbacks.


Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Creative Commons License

This site is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.