Application of the transaction costs theory in the consolidation processes management

The article considers the activity of consolidated groups, defined as a parent and at least one subsidiary company, as well as the specifics of consolidation processes, which lead to the creation of groups of companies. Numerous studies show a high share of inefficient consolidation processes, which lead to the value destruction. Therefore, the aim of this article is to find a possible explanation for the reasons of inefficient consolidation of companies and draw conclusions about the dynamics of group existence. The research is based on a systematic approach and the theory of transaction costs. Transaction costs are defined as the costs of functioning of the consolidated group structure. The consolidated group is considered as a system of business units and intra-group relations between them. Based on the conducted analysis major management institutes required for the group functioning, as well as transaction costs associated with their creation and maintenance are identified. The further analysis has showed that the implementation of consolidation processes simultaneously reduces the external and increases the intra-group transaction costs. The author comes to a theoretical conclusion that consolidation processes should be realized only when the marginal synergy effect of consolidation exceeds the marginal transaction costs arising from a new business unit introduction. The empirical research on the dynamics of the OJSC MMK Group over a ten-year time period proves these conclusions.