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Economic Analysis: Theory and Practice
 

Evaluating the synergy effect of consolidation process under the cognitive modeling method

Vol. 16, Iss. 7, JULY 2017

Received: 24 May 2017

Received in revised form: 8 June 2017

Accepted: 22 June 2017

Available online: 27 July 2017

Subject Heading: EVALUATION OF INVESTMENT PROJECTS

JEL Classification: G11, L10, L25

Pages: 1286–1306

https://doi.org/10.24891/ea.16.7.1286

Izhevskii V.L. Nosov Magnitogorsk State Technical University, Magnitogorsk, Russian Federation
ivlmag@yandex.ru

Kononov V.N. Nosov Magnitogorsk State Technical University, Magnitogorsk, Russian Federation
DieuMaar@mail.ru

Importance Striving for synergy, modern corporations often consolidate, i.e. incorporate other business units into their structure. However, the nature and methods to assess the synergy effects lack accurate definition, and this is indicated by many studies revealing a high proportion of economically inefficient consolidation processes.
Objectives The study aims to develop a comprehensive methodology to evaluate the synergy effect as a system of interrelated indicators demonstrating the synergy between companies.
Methods The system of synergy indicators can be graphically represented and mathematically described using the cognitive modeling method, where the peaks will be individual indicators selected by decomposition and subsequent synthesis of the synergy effect, and the arcs – relationships between them. The resulting indicator in the proposed system is a change in cash flows after consolidation.
Results The result of the study is the constructed system of indicators and interrelations between them, fixed in the form of a cognitive map of the synergy effect. Based on the developed cognitive map, two relative performance indicators were proposed for managing consolidation processes and evaluating the synergistic effect, i.e. the consolidation process profitability and the synergy effect profitability. These indicators will enable to decide on expediency of consolidation, compare the effectiveness of several consolidation projects, assess the efficiency of consolidation as a deal with previous company owners.
Conclusions The offered approach decomposition and subsequent synthesis of synergistic effect and the cognitive map of synergy factors can be used to support management decisions related to consolidation processes in groups of companies.

Keywords: consolidation process, synergy effect, cognitive modeling, cognitive maps, group of companies

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