University of Twente Student Theses
The application of artificial intelligence in corporate finance
Kropmans, Quinten J. (2024) The application of artificial intelligence in corporate finance.
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| Abstract: | Despite several researches conducted about Large Language Models (LLM) and their applications in practice, there were no empirical researches conducted about the applications of LLMs in corporate finance Mergers & Acquisitions (M&A). Research has been conducted about the application of AI in M&A, but on different aspects of the process like the mandatory Due Diligence process in M&A. This research was conducted at the corporate finance company Taurus. In the process of M&A, an Information Memorandum (IM) is written to inform potential buyers about every important company topic. This IM includes an internal and external analysis of the company. The internal analysis contains the key characteristics of the company itself. The external analysis is an analysis of the company's market and contains important information that is of interest to a potential buyer. These analyses require a lot of valuable time from M&A consultants. Therefore, this research aims to find out how LLMs can make the writing of internal and external analyses more efficient. The research was conducted by interviewing three corporate finance experts and an AI expert and assessing LLM-generated documents according to the evaluative analysis method. The interviews were conducted to gain a broader understanding of the IM's structure and identify important assessment variables using the Gioia method. The assessments were executed by using an Assessment Format, that was formulated using evaluative analysis and the coding scheme. To assess whether LLMs can be used in M&A, we recreated IMs using Gemini and ChatGPT 4o. The IMs that were recreated are original IMs that Taurus experts wrote for actual M&A processes. This was done for 5 different IMs. Gemini scores higher on every aspect, compared to ChatGPT. When looking at the overall assessments of the LLM-generated texts, Gemini receives a score of 66 compared to a score of 46 for ChatGPT. This is a major difference of 20 points out of a total score of 100. LLMs are very useful for internal and external analysis of companies and can make this process more efficient. However, the output always needs to be reviewed and adjusted when necessary. If Taurus decides to adopt my suggestions, employees at Taurus will need to learn how to work with LLMs and gain experience, and eventually, the writing process at Taurus will change substantially, as writing texts can largely be taken over by LLMs. The scope for this research opens up 3 future research directions to focus on. One important direction for future research is a more broad research design, where more assessments will be taken into account to create a more substantiated study. |
| Item Type: | Essay (Master) |
| Faculty: | BMS: Behavioural, Management and Social Sciences |
| Subject: | 85 business administration, organizational science |
| Programme: | Business Administration MSc (60644) |
| Link to this item: | https://purl.utwente.nl/essays/104731 |
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