Financial Environment and Business Development

Table of Contents

1. Frontmatter

2. Banking and Finance

   1. Frontmatter

   2. Estimation of Efficiency Change in the Czech Banking Sector Employing the Window Malmquist Approach

      Iveta Palečková

      Abstract

      The aim of this chapter is to examine efficiency change in the Czech banking sector using the Window Malmquist approach within the period 2004–2013. We use the Window Malmquist model to estimate efficiency change of commercial banks in the Czech Republic. The Window Malmquist index is determined in order to investigate the levels of and the changes in the efficiency of the Czech commercial banks over the analysed period. By this approach, the technical efficiency is examined sequentially with a certain window width (i.e. the number of years in a window) using a panel data of the Czech commercial banks. The Window Malmquist index is based on Data Envelopment Analysis (DEA) models. We found that the average Window Malmquist index reaches the annual average growth of 5 % in CCR and 3 % in BCC models. This positive efficiency change was caused by average annual growth of technological change. In the period 2010–2013, the positive value of Window Malmquist index was as a result of positive value of efficiency change (catch-up effect).

   3. An Assessment of the Paper Industry Firms Listed in Borsa Istanbul Using Entropy-Based MAUT Method

      Mehmet Apan, Ahmet Oztel, Mehmet Islamoglu

      Abstract

      The aim of this study is to measure the market and financial performance of the paper industry firms listed in Borsa Istanbul by adopting multiple attribute utility theory (MAUT) which is one of the most widely used multi-criterion decision-making (MCDM) methods. The performance of the firms is assessed for the period between 2011 and 2013. The weights of evaluation criteria are determined by applying entropy, which is an objective weighting method. In the analysis, the firms are ranked by integrating entropy-based MAUT method. According to the analysis results, Kartonsan has the highest performance rate for all the years, whereas Viking has shown the poorest performance except for the year 2011. During the period, Mondi and Olmuksan, which are acquired by foreign investors, have shown relatively stable performance; however, the performance rate of Kaplamin is unstable. The only firm that has a rising performance trend during the period is Alkim. On the other hand, the sample is also analyzed by using equal weighted MAUT.

   4. Impact of Integrated Communication on Entrepreneurial Companies’ Financial Performance: A Developing Economy

      Tamara Jovanov Marjanova, Elenica Sofijanova, Ljupco Davcev, Riste Temjanovski

      Abstract

      Entrepreneurial companies as the basis for economic growth should be aware of the factors of influence on their financial success, so they can achieve proper allocation of scarce resources. This chapter presents the state of the art in the communication processes of entrepreneurial companies within an emerging economy and the impact of integrated communications on profitability. The research is a part of a project “Strengthening the business capacity of women entrepreneurs in Republic of Macedonia, as a developing country.” This chapter argues that usage of integrated communication leads to increased profitability. The method of quantitative and qualitative research is used through questionnaires and personal interviews with managers in the food industry. The data are processed with IBM SPSS19. Conclusions are based on descriptive and deductive statistics. The results show that the companies, regardless of the size, give priority to economic propaganda and sales promotion; they mostly use nonpersonal, mass media, mainly television; combination of several elements of the promotional mix, i.e., integrated communications affect profitability; and combination of media for promotion has impact on profitability. The conclusion suggests that implementation of integrated communication results in positive effect on the financial performance and increases the chances of investment in further development.

   5. Cross-Border Contagion Risk Transmission Through Stock Markets Channel: The Case of the Baltic Countries

      Vilma Deltuvaitė

      Abstract

      International investors have seen emerging stock markets as the most exciting and promising area for investment, especially because they are expected to generate high returns and to offer good portfolio diversification opportunities. However, the recent global shocks in the major financial centers raise the question about portfolio diversification opportunities during financial turmoil. The objective of this study is to identify the episodes of cross-border contagion risk transmission through stock markets channel in the Baltic countries. Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH) model and Favero and Giavazzi outlier test are used. The results of this empirical study allow to identify some episodes of the cross-border contagion risk transmission through stock markets channel in the Baltic countries, for example, the announcement of the Lehman Brothers bank collapse on 15 September, 2008, etc. The empirical results of this study suggest that despite the low degree of the Baltic stock markets global and regional integration, system-wide shocks in the global financial centers affect the Baltic stock markets. The most significant effect of the cross-border contagion risk transmission was identified in Estonian and Lithuanian stock markets, while the reaction of investors in Latvian stock market was more conservative.

   6. The Issue of Convertible Bonds on the Polish Bond Market Catalyst in the Years 2009–2013

      Bożena Kołosowska, Agnieszka Huterska

      Abstract

      The purpose of this study is to determine the significance of convertible bonds as an instrument of raising capital by companies on the Polish capital market. This study contains an analysis of some examples of convertible bonds issued on the Polish Catalyst market that operates on the transaction platforms of the Warsaw Stock Exchange and of BondSpot. The data come from reports published by companies on the Catalyst. As research method applied is a case study. The analyses performed allow the indication of increasing utilization of convertible bonds by economic operators to raise capital. The applied solutions concern varied situations in which companies found themselves. In extreme cases it concerned companies that were unable to pay off their liabilities generated by issued bonds.

      Including bonds convertible into shares into financing strategy of a company allows to obtain borrowed capital cheaply in comparison with traditional bonds or a bank loan, in exchange for the possibility of their conversion into shares. The level of the development of Poland’s capital market indicates opportunities for further growth in using convertible bonds by companies as an instrument for collecting funds and in the case of investors for investing capital.

   7. Government Strategies Based on Sukuk Issues

      Piotrowski Dariusz

      Abstract

      Sukuk are innovative instruments of Islamic finance. The primary issuers of certificates are governments and public institutions from countries in Southeast Asia and the Persian Gulf region. In recent years, the group of issuers was joined by Turkey, Great Britain, Luxembourg, the Republic of South Africa, and Hong Kong. The paper aims at indicating the motives for carrying out sukuk issues by governments of selected countries. The work presents actions supporting the development of the Islamic finance sector, detailed conditions of government sukuk issues, as well as the significance of these instruments in public debt management strategies and the development of the financial markets of individual countries. Research was conducted by way of applying critical analysis to the literature of the subject and on the basis of government documents. The research resulted in determining the materiality of nonfinancial factors decisive for carrying out sukuk issues. It was stated that sukuk issues are often treated by governments as part of the development strategies of the Islamic financial market.

   8. Business Valuation: Premiums and Discounts in International Professional Practice

      Olga Ferraro

      Abstract

      The valuation of a (nontotalitarian) shareholding in the capital stock is characterized by some critical conditions, which are mainly related to the fact that the transfer or acquisition of the same may determine the transfer of control from one subject to another. It follows that the value of the shareholding may not simply be equal to the pro rata value of the business capital, but rather its valuation has to take into consideration the features, peculiarities, and effects, which are inherent to the typology of the shareholding to be transferred. Discounts and premiums do not just affect the value of a company; they play a crucial role in influencing a host of other factors and conditions that can make or break a deal. When it comes to business valuations, it is the business appraiser’s responsibility to be intimately knowledgeable with every aspect of discounts and premiums: the different types, the situations when they may or may not apply, and how to quantify them. The paper aims to examine if the Italian professional practice adopts premiums and discounts, when to value the company, and how to quantify them.

   9. The Role and Implications of Internal Audit in Corporate Governance

      Lucan (Cioban) Alexandra Narcisa, Hlaciuc Elena

      Abstract

      This article aims to address audit role in corporate governance in the light of scientific literature. The foundation of this study is achieved by synthesizing current state of knowledge through quantitative and qualitative research. So we extracted the main lines of topics: conceptual levels on internal audit, corporate governance developments at national and international levels, internal audit in corporate governance of public and private entities from Romania and other corporate governance issues. As a research method, we used survey and data were processed using a statistical program. The novelty that we caught in the present paper is the analysis of the role of internal audit in the governance in public and private entities through two pillars: promoting ethics and values within the organization and ensuring effective organizational performance management/governance.

   10. Financial Liquidity and Profitability Management in Practice of Polish Business

       Katarzyna Goldmann

       Abstract

       From the point of view of companies’ survival strategies, in the short term, financial liquidity plays a more important role than profitability does. In the case when the company is not profitable in the short term but is characterized by good financial liquidity, it has the potential for further development and for improving its performance. However, in a long-term perspective, profitability is more important because its lack in the long term will result in lacking financial liquidity. Therefore, an important element of company management is making a systematic analysis of financial liquidity and profitability, both on the basis of financial statements and on data derived from its accounts. The objective of the article is to present Polish companies’ approach to managing financial liquidity and profitability. The article presents the results of a survey made on the issue. Based on the survey, the extent of the use in making management decisions of the following was determined: liquidity ratios, working capital and the demand for working capital, analysis of the cash flow statement, and indicators of profitability. The researched entities indicated the extent of usefulness of managing receivables, liabilities, inventory, and cash in financial liquidity and profitability management.

   11. The Business Audit as an Alternative to Discriminant Analysis in Assessing Risks of Going Concern

       Marlena Ciechan-Kujawa

       Abstract

       The ability of a business entity to develop and at least to survive is crucial for all stakeholders. Nowadays, mostly statistical methods are applied in its assessment. Efficiency of these methods is restrained by multiple and changing factors influencing the risk of disruption of continuation as a going concern, which raises the necessity of seeking an alternative solution. A new solution should be aimed at the analysis of the ability and not only the assessment of threats to continuing operation. The objective of the work is to present the research findings which justify the necessity of a multidimensional evaluation of an entity to define its ability to keep operating under the conditions of sustainable development. The article presents the findings of the expert research and surveys conducted in the years 2013–2015. As an alternative to discriminant analysis models, the author presents the concept of a multidimensional assessment of an entity, its scope, and the interpretation of its results. The presented model allows the assessment of the maturity level of an organization in the implementation of a sustainable development strategy, the assessment of an entity’s ability to continue as a going concern, and its potential to create value for stakeholders.