Value Creation through Company Merger in the Financial Sector: Empirical Evidence from Slovenia

Abstract

The paper explores value creation through company merger in the financial sector. The merger took place at a time when, due to the past financial crisis, the demands of regulators and central banks were aimed at abolishing leasing companies and integrating them with banks. The aim of the paper is to identify the basic areas necessary to assess the feasibility of the merger and to ensure the safe and profitable operation of leasing companies. The present study provides evidence on the integration of business resources and human resources. Moreover, the impacts scenarios on provisioning and profit of a company with credit ratings and the IFRS 9 standard are introduced. Simulations of the possible scenarios calculations are based on different parameters such as probability of default, loss given default, credit rating. Based on empirical research we find that the establishment of credit ratings is essential for the provisioning process. The latter are also a key factor in making impairments, which directly affect the balance sheet results. The projection of the merged company’s business operations brings acceptable returns and corresponding growth, which guarantees a long-term existence and a competitive position of the merged company.