Financial management can be defined as the effective and efficient way of financial and money management in a way that to accomplish the goal of an organization or business set up. This term generally applies to an organization where financial management is needed. Personal finance or life finance management is defined as individual finance management. In the below text I choose to the text of merger and acquisition as my topic of study(Von Kalinowski, 2016).
MERGER AND ACQUISITION
The merger is defined as the voluntary amalgamation of two or more firm with an aim of operating together as one unit of business. The merged firm has the same point of sale, and financial management is also among the two firm where there is the joint management of the fund in the business.
Acquisition can be defined as the corporate action of one company to purchase most if not all the asset of another company. These happen when one company manages to buy most of the assets for example more than 50% of the asset. The process of acquiring company takes control of the acquired company financial and asset. It passes the management control to the acquired company which is supposed to obey. There are various reasons for the acquisition of assets by a company, for instance, may carry out the acquisition to achieve economy of scale in having many assets a company enjoy a commanding financial base and capital hence economy of scale. An organization may also be needing to expand its operation to another country instead of going on to build its branches there buying an existing firm in that country can be seen as viable option of expansion for it would start its operation instantly all what it only require to do is small decoration of the firm it has bought(Tanriverdi, 2015).
FINANCIAL STRATEGY IN MERGER AND ACQUISITION FIRM
In the discussion below a general model and strategic behavior of firm are presented for both regulated and non-regulated firms of the merger and acquisition strategy. In the non-regulated model, it is indicated that the firm issues its debt strategically to other firms and another borrower who needs their money in order to maximize the firm’s value in the market in the discussion below we mainly focus on the regulated firms (mostly monopoly firms). In these model, the manager always makes the financial decision on behalf of the shareholder of the firms mainly regarding debt issuance and investment strategies however decision are made with the view and consideration of regulatory authority of the firm in addition to the manager of the firm. The aims of regulated firms mainly monopoly is to maximize its operating profits and leads among other firms in the market seeking for the same customer.
Introduction to merger and acquisition
In most organization, the managerial decision will result in an impact to the firm preferred capital structure. With this reasoning one can assume that the Merge and acquisition approaches have an influence on the financial decision of the firm, in the same way, does a firm targeted by another for the acquisition will tend to raise they valuation in an attempt to scare away the threat of merger and acquisition by the firm. These type of commitment can be compared to the one acquired by the industrial organization, especially the use of debt as the commitment device. These have been effectively used in the oligopoly type of business
In an attempt to study the merger and acquisition financial strategy implies that we have to recognize the contribution of the two strand of literature: these are industrial economics and financial theory these will prove how fruitful these approach will be to our study these approach has been popular among researcher
Most researchers have ignored the field of case firm to the economic regulation while conducting they research in the field mentioned above of financial strategy in merger and acquisition firm which always raises specific issues(Koenig, 2014).
Capital structure has played a great role in regulation due to the interactions with the investment and financial decision associated with them of a regulated firm and its pricing option. The regulatory process of a firm is always a dynamic which can be modeled as a game in which the shareholder are considered the player in any firm which is, a regulator and outside the investment. The regulatory bodies are the one responsible for setting of the rate that’s are independent of the company level of investment and capital structure these does not therefore only reflect on the ratepayer interest but also on those of investor. In the other side capital market values equity and debt of a regulated firm with the consideration of its level of investment at that moment as well as the present and incoming (predicted) regulatory policies putting into consideration on the regulatory risk(Boschma, 2014).
In fact, the major decision regarding capital structure mostly by the manager of the regulated firm is usually tipped to cause the major effect to the outcome of control test through the effect caused by the distribution of cash flow among the non-voting debt and the voting equity. Particularly higher debt level usually cause low-profit return or level in the firm and hence lowers the chances of the firm acquisition by another firm, these are due to possible low profit to be generated by the firm with that higher level of risk. Regulated firms usually make investment and financial decision in anticipation of regulatory policies. However, these financial decisions may be having a significant effect on the capital market reaction(Holburn, 2014).
This paper presents a model of financial strategies in Merge & Acquisition of regulated and non-regulated firms. The main insight is that capital structure affects the outcome of control contest through its effect on the distribution of the cash flow between voting equity and non-voting debt. In particular higher debt level result to low profitability for any potential investor or acquisition of other firms property through acquisition. Moreover, we discuss the impact of those financial strategies in product market in particular for the case of the regulated firm. In such situation, the crucial aspect refers to the effect of that strategic use of debt regarding the regulatory game. The adoption of our general model to the regulatory process(Greve, 2016).
Von Kalinowski, J. O., Sullivan, P., McGuirl, M., Folsom, R., & Fine, F. (2016). Determining Legality and Defenses (Vol. 2). Antitrust Laws and Trade Regulation, Second Edition.
Greve, H. R., & Zhang, C. M. (2017). Institutional logics and power sources: Merger and acquisition decisions. Academy of Management Journal, 60(2), 671-694.
Holburn, G. L., & Vanden Bergh, R. G. (2014). Integrated market and nonmarket strategies: Political campaign contributions around merger and acquisition events in the energy sector. Strategic Management Journal, 35(3), 450-460.
Koenig, W. P., Kramer, G. A., & Vogel, M. B. (2014). U.S. Patent No. 8,706,599. Washington, DC: U.S. Patent and Trademark Office.
Tanriverdi, H., & Uysal, V. B. (2015). When IT capabilities are not scale-free in merger and acquisition integrations: how do capital markets react to IT capability asymmetries between acquirer and target?. European Journal of Information Systems, 24(2), 145-158.
Boschma, R., & Hartog, M. (2014). Merger and acquisition activity as driver of spatial clustering: The spatial evolution of the Dutch banking industry, 1850– 1993. Economic Geography, 90(3), 247-266.
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