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The Impact of Behavioral Finance on the Financial Performance of an Enterprise

Author(s): Peter Krištofík,Michaela Novotná / Language(s): English Publication Year: 0

Behavioral finance is an increasingly accepted approach to explaining human behavior in the market. Traditional financial theories treat financial markets and their participants as rational subjects. This paper focuses on behavioral finance and its impact on Slovak medium and large enterprises. It points to different perceptions of rationality in classical economics and behavioral economics. The aim is to create a linear regression model and to investigate the impact of deviations from the rationality on the company's financial performance, measured through ROA and ROE. The paper employs a primary data source: a questionnaire survey, completed by 33 corporate managers. It tests six linear regression models. These show that deviations from rationality, and age affect the financial performance of enterprises.

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Using of Non-financial Data in Predictive Models

Author(s): Zuzana Kubaščíková,Miloš Tumpach,Zuzana Juhászová / Language(s): English Publication Year: 0

Forecasting the company's future economic situation arose in the early 20th century. First of all, a multidimensional discriminatory analysis was used to construct prediction models, later replaced by logistic regression. The new challenge in predicting financial development is neural networks representing a more reliable financial forecast compared to mathematical and statistical methods. The neural network, by mimicking the capabilities of human brain neurons, is capable of modeling the course of dependencies between individual indicators and results. A disadvantage of the original prediction models is also the low range of empirical accounting data and the fact that they are focused only on financial data. The introduction of the financial statements registers led to the possibility of free access to full data from the financial statements, which opens the door to new possibilities in scientific research. For the purpose of this paper an annual report of 20 selected companies were tested. The aim of this paper is to accept or reject the claims that non-financial „narrative” data could be also used for the assessment of the financial position and financial performance of the companies. The results of our sentiment analysis supported the hypothesis that financially distressed companies use a different tone of language in their annual reports compared to financially stable companies. These findings confirmed the relationship between the tone which managers use in constructing annual report narratives, and the financial performance of the company. Therefore, it is advisable to incorporate non-financial data into the forecasting models.

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The Role of Apparent Signs of Financial Distress in Test Samples and Verification Samples of Bankrupt Models

Author(s): Michal Kuběnka,Renáta Myšková,Josef Novotny,Vít Jedlička / Language(s): English Publication Year: 0

Financial bankrupt models are characterized as quite accurate and above all very fast tools for quantitative evaluation of financial health of company. The creators report the accuracy of the predicted bankruptcy usually in the range of 70 to 90%. But the problem of bankruptcy models is the test sample on which the models were created. The sample affects the predictive power of these models. Usually indicated accuracy rate differs from the real predictive power of these models. The financial distress of certain businesses may be obvious even without the use of bankruptcy models. Apparent signs of financial distress may be insolvency, negative equity, VAT unreliability, negative economic result for several years in a row. Survey conducted by more than 270 companies has shown that more businesses with apparent signs of financial distress in the sample increase the reported accuracy of the bankruptcy model. The research carried out also has determined the real accuracy of selected bankruptcy models on the standard sample of Czech firms and also on a sample of companies where companies with obvious signs of financial distress were eliminated. Due to the modification of the test sample subsequently the accuracy of the selected models changed radically.

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Monetary Policy Normalization of the European Central Bank

Author(s): Aleksandra Nocoń / Language(s): English Publication Year: 0

Monetary policy normalization of modern central banks is the process of ending non-standard monetary policy initiatives and its return to the pre-global financial crisis framework. On the other hand, it may mean a transformation of monetary policy towards a new quality, a new monetary architecture, hitherto unknown to central banks - referred as “new normal”. The lack of previous experience of central banks in implementation of normalizing activities is undoubtedly a factor hindering their realization. Literature studies indicate a small number of scientific studies and publications in this research area. Therefore, appropriate definition and implementation of the exit strategies’ assumptions is extremely difficult in the lack of theoretical framework. In turn, normalization without clearly formulated assumptions, implemented ad hoc, may destabilize banking sector, and finally the whole financial system. Detailed guidelines are also crucial for the effectiveness of the process. Appropriate identification of the normalization process, undertaken early enough - even during unconventional policy, will avoid the negative effects of the "exit" and support positive results, generated during the implementation of non-standard monetary policy. The main aim of the study is identification of possibilities of monetary policy normalization of the European Central Bank. The central bank of the Eurozone still implements extraordinary instruments (enter strategy) - in the form of quantitative easing and zero interest rate policy, while the major central banks of the global economy have developed detailed exit strategies assumptions. Thus, the article attempts to specify detailed guidelines of the ECB normalization process, paying particular attention to balance sheet normalization.

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Internet shopping in the Czech Republic with the focus on the types of bought goods and services by consumers

Author(s): Gabriela Oškrdalová / Language(s): English Publication Year: 0

The internet shopping has been developing not only all over the world but in the Czech Republic too in the last years and it is possible to expect a future expansion. The aim of this paper is to describe the development of the internet shopping in the Czech Republic, introduce and interpret results of a part of own quantitative research in the field of knowledge, skills and behaviour in the internet shopping of consumers with the focus on the types of bought goods and services and compare these results of own research with the results of the Czech Statistical Office’s research for the Czech Republic in the internet shopping field with the focus on the chosen types of bought goods and services by consumers. The paper’s aim is reached by using of general science methods, primarily description, analysis, comparison, synthesis and deduction, and by using statistics methods (methods of descriptive statistics). On the basis of data gained by the own questionnaire research we can state, 99,4 % respondents have bought goods or services on the internet in the last year. The most respondents have bought clothes, shoes and dress accessories on the internet in the last year. If we focus on services, the most respondents have bought tickets on cultural events.

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Long-term Stock Returns of Companies Implementing Diverse Dividend Policy: Evidence from Poland

Author(s): Aleksandra Pieloch-Babiarz / Language(s): English Publication Year: 0

The aim of this article is to examine whether there is a statistically significant relationship between the type of dividend policy and the long-term stock returns. Considering the diverse dividend policy of companies, I am particularly interested in the role of constant dividend per share policy, constant payout ratio policy, extreme dividend policy, residual dividend policy and hybrid dividend policy in shaping the market share price of companies listed on the main market of the Warsaw Stock Exchange in the years 2001-2016. I conduct the research employing the buy-and-hold abnormal return, Fisher’s LSD test and OLS regression model. The main results of my empirical study indicate that the buy-and-hold returns for the companies implementing a specified dividend policy are higher than the buy-and-hold returns for the WIG index. Moreover, regardless of the type of dividend policy, abnormal stock returns increase along with an increase in the number of years of the regular dividend payouts. The main conclusion from my analysis is that conducting the specified dividend policy has a significant impact on the long-term market share price behavior. I observe that the diversity of dividend policy is accompanied by the diverse stock returns achieved by the stock market investor. The scientific research presented in this paper seems to be valuable due to the lack of academic studies on the impact of implementing the different types of dividend policy on achieving the long-term abnormal stock returns.

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Comparison of Analysis Deviation Methods for the Multiplicative Operations

Author(s): Barbora Ptáčková,Dagmar Richtarová / Language(s): English Publication Year: 0

This paper is dedicated to comparison of analysis deviation methods for the multiplicative operations. Evaluation of financial performance belongs to key activities of each company. The importance of the performance concept is widely recognized, it is one of the tools, knowing which helps to manage a company efficiently. Decomposition analysis is also very important. Decomposition analysis helps to analyze the factors affecting selected key measures and quantify their impact on the key measures. In this paper five basic methods of analysis of deviations will be compare – gradual change method, decomposition method with a residue, logarithmic method, functional method and integral method. The aim of this paper is to compare analysis deviation methods for the multiplicative operations used for quantification of the influence of the component indicators to base indicator and verify if using of these five methods leads to the same results. Methods of analysis of deviations will be applied to return on equity (ROE) indicator of manufacturing industry of the Czech Republic and according these five methods main factors will be find and influence of these factors will be quantified. Annual data will be taken from Ministry of industry of the Czech Republic.

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Beliefs in Cryptocurrency: Exploring the Relationship between Sentiment and Bitcoin

Author(s): Zuzana Rakovská / Language(s): English Publication Year: 0

The rise of the Internet changed the way how financial markets work. Due to user generated content, quite everybody might contribute to the large set of information and the exchange of news happens faster than ever. An important variable in such new era is sentiment, which causes market participants to act on noisy signals from Internet as they were valid inputs. Importantly, sentiment is considered the crucial ingredient in price formation of now increasingly attractive digital currencies. Investors' beliefs affect exchange rates of those currencies considerably simply because of lack of fundamentals and regulation. In this paper we will examine the relationship between sentiment and price of the most popular cryptocurrency, Bitcoin. We will employ three measures of sentiment constructed by Sentix survey with aim to explore the effect of both institutional and individual investor's sentiment as well as overall sentiment of the community.

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The Current Problems of the Eurozone and the Future Transformation of the European Union

Author(s): Oldřich Rejnuš / Language(s): English Publication Year: 0

The paper deals with the problems of contemporary management of the European Union, with focus on economic development of countries, associated in the European Economic and Monetary Union, using common currency. Its goal is to evaluate the ways of fiscal management of the European Union and monetary regulation, carried out by the European Central Bank, with focus on their efficiency and achievements. As there are, apart from economic problems, a number of other problem zones, directly or indirectly connected with analyzed economic problems, they are briefly specified in the paper, too. In conclusion, the influence of current way of management of the European Union on the development of individual states, with special focus on European Economic and Monetary Union states, so called “Eurozone” is evaluated. We are not going to evaluate only economic situation of individual countries; we want to assess a number of other factors, interconnected with economic development and significantly influencing compactness of European Union countries.

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The Influence of Accounting for Goodwill on the Bottom Line of Business Corporations

Author(s): Jaroslav Sedláček,Filip Hampl,Elena Láncošová / Language(s): English Publication Year: 0

The paper is dedicated to methods of accounting for goodwill and their relationship to the bottom line of business corporations. Methodically it is based on the comparison of Czech and international accounting rules. Empirical research is conducted on business companies operating in the Czech Republic in the period from 2007 to 2016. Differences and connections between intangible assets including goodwill and performance indicator represented by earnings before interests and taxes (EBIT) reported in accordance with the Czech Accounting Standards (CAS) and the International Financial Reporting Standards (IFRS) are examined. Particularly, Spearman’s correlation coefficient and F-test are used for hypothesis testing. It was identified a lagged relationship between EBIT and the index indicator of acquired intangible/tangible assets and concluded that approach of CAS and IFRS regarding revaluation of goodwill is not comparable in terms of variability and predictability.

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Backtesting Expected Shortfall – Is There a Method Suitable for Middle-sized Banks?

Author(s): Eugenia Schmitt / Language(s): English Publication Year: 0

The financial crisis 2008 revealed weaknesses in the valuation and capital backing for market risks. The new regulatory requirements, the Fundamental Review of the Trading Book (FRTB), is a reaction of the Basel Committee on Banking Supervision and should create transparency based on a unification of market risk criteria to be met by all banks. One of the novelties is the move from Value at Risk (VaR) to Expected Shortfall (ES) as the standard for measuring risk and calculating capital. It is motivated by better theoretical properties of ES as a risk measure. Especially, VaR doesn’t account for “tail risk”. ES in contrast captures high-value low-probability events and has other advantages too. At the same time, ES has been criticized for unavailability of simple tools for its validation, for possibilities of backtesting. Because backtesting is one of the key quantitative tools used to assess the conservativeness of the risk measurement methodology, estimation techniques are being constantly improved. This article shows the current, new methods for backtesting ES reviewed in literature and discuss which methods are appropriate to implement in middle-sized banks. ES will be necessary for internal validation and for regulatory control. Hence, practical methods for backtesting the ES are of particular interest.

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Profitability of Sector Mutual Funds and ETFs during Market Development

Author(s): Martin Širůček,Jan Vystoupil,Petr Strejček / Language(s): English Publication Year: 0

Paper is focused on the profitability of investment into IT, finance, healthcare and consumer goods oriented active and passive mutual funds and ETFs and its profit/loss on growing, stagnant and decreasing market. Attention is also focused on purpose to set a recommendation for investors what instrument bring higher return/lower loss on growing or decreasing market and if investor can expect different results according to the sector orientation, like what sector is more sensitive on bullish or bearish trend. Our result show that ETF nor passive mutual funds wasn´t able to beat the market, where sector index brings in all situations better results than these investments. On bearish trend all sector ETFs and passive mutual funds bring same results as sector index, better results bring only active managed mutual funds. The lowest loss during this period brings healthcare active managed mutual funds. On bullish/stagnant market was pretty the situation the same, but on the growing market passive funds and ETF are more profitable than active mutual funds.

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The Financialization and Operating Performance of Non-financial Companies Listed on the Warsaw Stock Exchange

Author(s): Błażej Socha,Dariusz Urban / Language(s): English Publication Year: 0

This paper deals with the issue of financialization of companies. The financialization reflects the growing asymmetry between production and exchange processes, in particular regarding the financial component of the exchange process. This asymmetry was revealed along with gradual changes in the financial behavior of nonfinancial enterprises, banks and households. The indication of this transformation process has been increasing the profit generated through financial transactions instead of operating activities. The main goal of this article was to answer the question about the coefficient between the level of financialization and the operating performance of companies from Poland. The research sample consists of the listed non-financial companies and the research period covers 2011-2017. The authors used calculated on their own synthetic indicators of company financialization reflecting their financial as well as investment performance and financial indicators measuring operating activity performance. In order to achieve the research goal, a standard statistical analysis of results was performed and correlation coefficients were used to measure the strength and the direction of association that exists between the level of financialization and the operating performance of companies. The empirical findings suggest the existence of differences in terms of operating activity performance (e.g. EBITDA Margin, EBITDA/Total Assets, Assets Turnover, Revenue/Working Capital) among companies with different level of financialization. It also suggests that financialization reflecting investment performance interact with operating activity performance differently to financialization reflecting financial performance.

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The Effect of the Accounting Hocus–Pocus on the Management Earnings Forecast Precision in the IPO

Author(s): Tomasz Sosnowski,Anna Wawryszuk–Misztal / Language(s): English Publication Year: 0

Issuers of initial public offerings can make a voluntary decision to post the earnings forecast in the prospectus. This paper explores whether managers of IPO firms take intentional action in the form of earnings management to reduce the forecast error and thereby improve the quality of such forward looking financial information revealed in the going public process. Using a sample of 87 IPOs from Warsaw Stock Exchange between 2006 and 2015 we find that, generally, managers of the new listed companies use discretionary accruals and abnormal cash flows from operations in the periods around the IPO to improve the accuracy of the earnings forecast disclosed in the IPO prospectus. Real earnings management is likely to take place in the year preceding IPO and accruals-based earnings management is used in the IPO and following year.

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The Role of Nonfinancial Indicators in the Process of Credit Risk Assessment

Author(s): Martina Sponerová,Miroslav Svoboda,Miroslav Sponer / Language(s): English Publication Year: 0

Credit risk management is closely related to the bankruptcy prediction and even it was intensively investigated by the banking industry it is still at the forefront of researchers. There is a pressure on financial institutions to still improve their credit risk management system to eliminate credit risk which is one of the most significant financial risks in the banking industry. Many research studies, scientific articles and publications are still trying to find the best method to predict bankruptcy through different bankruptcy models. The reviews from the last years show that using only financial data is not sufficient to predict bankruptcy precisely and some of the researchers also include nonfinancial indicators to their models. The aim of this article is to find which of the nonfinancial indicators have the most significant prediction power to predict failure of Czech small and middle enterprises (SMEs) based on the exclusive nonfinancial data from a bank. We have investigated around 1000 companies from the SMEs segment, of which 100 failed during the period 2010 – 2016. The most important nonfinancial indicators from the credit risk point of view were found by using logistic regression.

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Qualitative Indicators (Soft-facts) in Internal Rating Systems

Author(s): Martin Svítil / Language(s): English Publication Year: 0

The article builds on last year's work, which compared internal rating systems of three banks from the German-speaking region. This year's paper deals in detail with the analysis of qualitative indicators (soft - facts), which is one of the two main components of rating systems of banking clients. The qualitative indicators (soft - facts) have different wage in the considered rating systems, although in all of them the wage is lower than 50% and / or the ability of soft-facts to change the overall rating score is limited. On the other hand, in all cases the importance of qualitative factors is significant enough to pay attention to them. The research is focused on the rating of business entities, more precisely the corporate, (especially limited liability companies or joint-stock companies). It does not deal with the rating of natural persons or non-profit organizations, municipalities etc. The procedure of collecting empirical data as well as data from relevant literature, their assessment according to the criteria of verifiability and relevance and the application of the induction method was used and a generalization of conclusions was subsequently made. The result of the research shows that two categories of qualitative indicators (soft - facts) are present in all considered rating systems: (i) quality of company’s management and / or strategy and (ii) market, where the evaluated company is present. Another regularly present qualitative indicator is (iii) accounting or related indicators like information system or audit quality. On the other hand, the use of the factor (iv) relationship with the bank (or similar) is quite different across the surveyed rating systems. The roles of members of staff in making of the rating are also mentioned.

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Debt Capacity and Capital Structure of the Companies Managed by Overconfident CEO

Author(s): Elżbieta Wrońska-Bukalska / Language(s): English Publication Year: 0

Overconfidence is one of the psychological biases that have impact on financial decisions. Still, as for financing decisions there is no consensus on the direction of the impact, and in assessing this - some research show using excessive debt while others debtconservatism. We, in turn, assume that inconsistency on the capital structure decisions of overconfident managers might be explained by debt capacity of the their companies. We think that companies managed by overconfident managers have lower debt capacity and, at the same time, they use a higher debt ratio than their debt capacity allows. We collected a unique sample composed of 145 non-listed companies and their financial data for the 2010-2015 period. We then divided the sample into two subsamples depending on managerial overconfidence. We found that debt capacity is lower for companies managed by overconfident managers. There are also differences in sources of debt capacity: for companies managed by overconfident managers the main source is size and tangibility. Moreover, companies managed by overconfident managers have lower debt ratio. This might indicate safe financing strategy, but using a low debt ratio means that companies managed by overconfident managers are constrained to use equity because they exhaust their debt capacity.

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Application of Selected Machine Learning Methods to Companies’ Insolvency Prediction

Author(s): Joanna Wyrobek / Language(s): English Publication Year: 0

The purpose of the paper was to test the efficiency of various modern machine learning methods on the representative sample of Polish companies for the time period 2008 – 2017. The novelty factor in the paper is that it uses a representative sample of companies, which seems to improve the efficiency of the models and that the training sample and the validation sample include data from different time periods and different companies (the training sample data covered the period of 2008 – 2013 and the validation sample covered the period 2014 – 217). The hypothesis verified in the paper is [H1] that: the most efficient algorithms in bankruptcy prediction are: Gradient Boosting Decision Trees and Random Decision Forest.

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Methodical Approaches to Assessing the Budget Potential of the Region Taking into Account the Innovative Development of Hightech Industries

Author(s): Sergey N. Yashin,Nadezhda Yashina,Natalia N. PRONCHATOVA-RUBTSOVA,Oksana Kashina / Language(s): English Publication Year: 0

The basis for successful social and economic regional development is a stable and flexible financial system. It is required to conduct state financial policy, taking into account the innovative character of changes in all spheres of life. It is necessary to find a balance between the effective functioning of the budget system in the conditions of economic volatility, limited financial resources, fierce competition and often unavailability of borrowed funds and the inevitable transition to the model of innovative development in the knowledge economy. The study aims at developing a methodology for assessing the region’s budget potential, taking into account the innovative development of high-tech industries to increase the population’s well-being. The authors developed a methodology for assessing the region’s budget potential, taking into account the innovative development of high-tech industries based on a number of principles and a specially developed system of indicators. Indicators should comprehensively characterize the region's budget potential from the standpoint of financial sustainability and the region's economic development through high-tech industries. It is proposed to form two blocks of indicators: "Revenues, Economy, Innovations" and "Expenses, Socio-Economic Indicators". The methods of economic, system analysis and mathematical statistics were used. Approbation of the methodology was carried out on the official open data of the Federal State Statistics Service and the Federal Treasury of Russia for 2016. Practical implementation of the methodology makes it possible to rank the regions on the basis of a consolidated standardized indicator of the region’s budget potential including the innovative development of high-tech industries. Monitoring the rank and analysis of the numerical value of the region's consolidated indicator allow: to establish that the problems of the region's budget potential development are related to the lack of a developed innovation environment and a unified productive system for managing budget resources; to develop effective managerial decisions considering innovative character’s transformations to increase the population’s well-being.

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The Impact of the Ways of Agricultural Activity Reporting on Financial Statements under IFRS and Czech Accounting Legislation

Author(s): Hana Bohušová,Patrik Svoboda / Language(s): English Publication Year: 0

The specific nature of agricultural activity compared to other business activities undertaken for profit requires different methodological approaches for their recognition, measurement, recording and reporting. The contribution deals with the impact of International Financial Reporting Standards (IFRS) reporting in agricultural activities on financial analysis ratios. The aim of the research is the evaluation of the impact of the treatments for individual kinds of biological assets (such as consumable plants and bearer plants) and their changes in value during their life reporting. The comparison of traditional accounting approaches, cost models and fair value models is the starting point of evaluation. The data of the Institute of Agricultural Economics and Information are used as a source of the information on the market values of agricultural produce and cost of individual agricultural activities. According to the authors´ research the way of biological assets reporting could affect the financial position and performance of business entities involved agricultural sector significantly.

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