The diversification of banking capital sources and cash flow granularity in merger and acquisition transactions

Abstract

The article analyzes banking merger and acquisition (M&A) market over the past three years. The conducted analysis has shown that there is a market outflow of foreign investors, while deals become larger, and banks are consolidating, including that with other non-banking sectors in order to strengthen market positions and consolidate capital, the cost of which is dependent on several factors. The authors have developed price parameters characterizing banking capitals involved in transactions on M&A market. The price parameters include inflation rate, present discounted value, tax level, capital structure, interest rates for attraction and placement of funds of credit institutions, as well as the parameters, which have not yet been considered in the existing theories. These are the diversification level of capital sources and the granularity of the banking cash flows. The authors put forward the hypothesis about the significant impact of these price parameters on the capital cost of banks involved in mergers and acquisitions (M&As), and proposed three optimization options, namely spatial, temporal, and spatiotemporal optimization. Confirmation of the hypothesis was reflected in spatiotemporal optimization of capital sources diversification and cash flow granularity of the credit organizations.