Aleksin Glib, Postgraduate, Institute for Economics and Forecasting, NAS Ukraine, Kyiv, Ukraine

ORCID ID: 0000-0003-2586-5986
e-mail: gleb.aleksin@gmail.com

Company Financial Strategys Essence and Its Components

Abstract. Introduction. Current conditions of economic activity create a number of challenges for companies, i.e. macroeconomic shocks, external environment`s increasing uncertainty, global competitive environment intensification, other factors of endogenous and exogenous environment. All above mentioned requires business leaders to strengthen strategic management system in all aspects of doing business in order to compete for limited resources in more effective ways. Company`s effective strategic management system, including strategic management of company`s finance, should serve the ultimate goal for a company, namely added value creation for stakeholders. In light of this, there is an urgent need for an in-depth understanding of financial strategy`s essence and its components.

Purpose. Paper`s objective is to generalize theoretical foundations of “company`s financial strategy” concept and substantiate proposals for improving “company`s financial strategy” definition and identify components of company`s financial strategy.

Results. The article considers company`s financial strategy essence and its components. Author proposed to define “company`s financial strategy” in a broad and narrow sense. In a narrow sense, it is proposed to consider financial strategy as a set of managerial decisions aimed at capital structure optimizing and minimizing WACC in order to create value added for stakeholders. In a broad sense, it is proposed to consider financial strategy as a set of managerial decisions within strategic financial management framework of funding policy, investment policy and dividend policy, contributing to sustainable competitive advantages` maintenance, optimizing capital structure, market capitalization growth and value added creation for stakeholders. Paper considers an array of works of Ukrainian and foreign researchers in the field of financial strategy and strategic financial management in order to identify areas for improvement of “financial strategy of the enterprise” definition. Author proposed to consider financial strategy as a cross-disciplinary concept that lies between corporate finance theory and strategic management theory. Author proposed to further consider financial strategy through its signaling function. Paper considers financial strategy in the context of financial management decisions` value-chain, namely decisions on funding, investment and dividends distribution. Author emphasizes a need to consider financial strategy in the context of a company`s strategic goals, which is expressed in both financial and non-financial purposes. It is proposed to consider financial strategy as a mediator between corporate strategy, functional strategies, company`s contour of financial communication to external and internal stakeholders. The complex of financial strategy within the stakeholders` value-chain is outlined.

Conclusions. Financial strategy aims to achieve both general market and specific financial goals. Being a cross-disciplinary concept (i.e., corporate finance theory – strategic management theory), a balanced financial strategy should take into account interests of all external and internal stakeholders, namely: employees, company`s management, government, creditors, suppliers, local community, consumers, and others. Creating value for shareholders and other stakeholders is possible as a result of financial decisions` implementation in the following areas: 1. determining an optimal capital structure and raising funds at the lowest possible cost; 2. sound investment policy and efficient allocation of internal resources; 3. dividend policy and Investor Relations. Such a set of objectives entails a need for financial strategy – at its formation and implementation stages – to consider not only company`s financial perspective, but also the overall company`s interaction with both internal and internal environment. Accordingly, development of financial managerial decisions requires considering potential consequences for stakeholder groups (entailing behaviorism aspects, rational and irrational motivations). Thus, an effective and efficient financial strategy is a complex multi-level cross-disciplinary concept that takes into account both narrow tasks (capital structure optimization) and broad tasks (strengthening company`s long-term market position, creating added value for stakeholders), which should be based not only on the analysis of retrospective financial and management accounting data, but also consider scientific and practical developments, which, as a result, forms an effective and balanced financial and corporate strategy for a company.

Keywords: financial strategy; capital structure; value added; stakeholder; funding policy; investment policy; dividend policy.

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