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Does foreign direct investment cause financial sector development – evidence from an emerging economy

Abstract

The aim of this exploratory research is to examine the foreign direct investment (FDI) – financial development (FD) nexus and to analyse the strength of relationships among FDI measures. The study employed structural equation modelling (SEM) on selected data from the World Development Indicators (WDI) from 1979 to 2016 to achieve the modest goal of this paper. The study established that FDI inflows are precursors of a vibrant and well-developed financial institution in emerging economies. We also found positive and negative correlations amongst the FDI measures, which suggest they move pari passu in stimulating the FD of an economy. A notable feature of this study is in the employment of SEM empirical strategy to shed light on the FDI-FI nexus. The study concluded that emerging economies must focus on the creation of a congenial investment climate to attract FDI inflows, which pivots robust financial institutions because of their cascading effects on the overall economy.

Open access
Early warning indicators for macrofinancial activity in romania

Abstract

Overheating of economic and financial activities leads to macrofinancial imbalances that may disrupt financial stability, and can be detected by studying relevant indcators. In this study we developed an aggregate early warning index of macrofinancial activity for Romania over the 1998q1-2020q4 period, employing data from six categories: (i) macroeconomic risks, (ii) bank risks, (iii) activity of corporations and households, (iv) monetary and financial conditions, (v) risk appetite and (vi) external shocks. We determine the utility of these variables from two perspectives: (i) whether these indicators are able to detect overheating of macrofinancial activity in Romania in two periods characterized by systemic crises and (ii) whether these variables successfully minimize various statistical errors involved in forecasting future events. Comparing the evolution of our index with a series of indicators that measure investors’ perception of macrofinancial stability or the probability of default of Romanian economy, we note the positive correlation between these two, but our index exhibits a more pronounced early warning component, making it extremely useful in anticipating future systemic crises.

Open access
An extended technology acceptance model for marketing strategies in social media

Abstract

Social media is currently an evolving “wave” in online business marketing. Marketers are beginning to drive the use of social media as a component in their marketing strategy and campaigns to reach out to customers and fans. Within the subdisciplines of marketing that may use social media include promotions, marketing intelligence, sentiments research, public relations, marketing communications and product and customer management. This paper will try to find a conceptual model to examine people’s behavior, model based on the the Theory of Reason Action (TRA) and the Technology Acceptance Model (TAM).

Open access
Macroprudential Policies and Economic Growth

Abstract

In this paper we assess the effectiveness of macroprudential policies in ensuring a sustainable contribution of the financial sector to economic growth. Our results sustain that macroprudential policies have beneficial effects on economic growth, expressed by the GDP per capita growth rate. Macroprudential policies, adopted to strengthen the resilience of the financial system and decrease the buildup of systemic risks, contribute to the economic growth by assuring a stable financial system, and, therefore, a healthier financial-macro relationship. Macroprudential policies that target financial institutions have greater impact on real economy compared with borrower-related macroprudential policies.

Open access
Mechanics of Investment Drivers in Chinese Economy

Abstract

We examine the predictors of investment in the Chinese economy for the period 1973-2018. Our study adopts the Mark Nerlove (1962) partial adjustment hypothesis combined with instrumental econometric techniques based on the condition of the data used. Our results provide strong evidence that supports savings, export earnings, and final consumption expenditure as correlates of predictors of investment in China. Based on empirical results, we strongly recommend the integration of the unbaked population to a formal financial service to further stimulate more investment in the Chinese economy.

Open access
Monte Carlo Simulation Approach to Calculate Value at Risk: Application to WIG20 and MWIG40

Abstract

This paper reports our estimates of the Value at Risk using Monte Carlo simulations for which we developed a computer program. Our approach involves obtaining Monte Carlo parameters by fitting real historical data of different periods to probability distributions. We applied the algorithm to the WIG20 and mWIG40 stock indices, and performed simulations for the Value at Risk at 95% and 99% confidence intervals over six estimation periods ranging from 1 trading day to 250 trading days. This approach was evaluated using the percentage failures and the Kupiec Proportion of Failures test. Our results indicate that this method is highly influenced by the choice of past historical and estimation period lengths considered. Overall, we observed that the Monte Carlo computational scheme is a reliable method for quantifying VaR when parametrized well.

Open access
Performance Changes Around Banks Mergers and Acquisitions: Evidence from Poland

Abstract

This study investigates the influence of M&A on the performance of banks operating in Poland. We use a sample of 14 transactions that occurred in the Polish banking sector from 2001 to 2015. Our data set includes pre and post-merger accounting information covering a period of two years before and after the merger. We follow Pilloff’s [1996] approach to determine the average performance changes measured with ROAA and ROAE. According to the research results, M&As transactions seem to affect profitability as both ROAA and ROAE means change. However, these changes do not follow the same trend. The correlations between the acquirer’s pre-merger weighted performance measured with ROAA and ROAE and merger-related changes in performance are significant and negative. The same situation is observed as regards the target pre-merger weighted performance measured with ROAE and merger-related changes in performance. The results also suggest that large acquirers are associated with less successful M&A.

Open access
R&D Expenditure and the Role of Scientists

Abstract

An effective knowledge-based economy requires regular cooperation between science and business. This is possible thanks to enterprises that create and implement innovations The paper focuses on the recognition of R&D expenditure. This aims to verify if firms with a scientist on their board are more likely to invest in the R&D. We conduct a tobit panel analysis of over 18,000 Polish private firms combined with data on patents and scientists employed at universities. The findings show that firms with scientists on the supervisory board are likely to invest more in R&D. However, these investment in R&D of firms with a scientist on the board are financial constraint. Their growth depends on access to finance. Therefore, institutions in Poland should support and promote cooperation between science and business, aiming for the realization of the implementation research. This approach requires updated regulations in the accounting area relating to the recognition of R&D inputs and outcomes.

Open access
Systemically Important Banks in Europe: Risk, Complexity and Cross-Jurisdictional Activities

Abstract

This paper aims to investigate the effects of the assets and liabilities structure of financial institutions considered for regulatory purposes on their probability of default, across a sample of European banks that are designated as Global Systemically Important Banks (G-SIBs). Our analysis spans from 1995 to 2018. The empirical findings of a Fixed Effects panel model indicate that characteristics like size, complexity and cross-jurisdictional activities have a considerable impact on banks’ distance to default. This study also finds that financial institutions with greater Capital Tier1 ratios are more likely to have a lower probability of default, a result that highlights the importance of implementing the BASEL III Capital Accord specifications.

Open access
Theory and Practice of Innovation Development in the Banking Sector

Abstract

The aim of this article is to systematise the approach to innovation in the economic theory and to define the indicators used to measure the innovativeness of world economies. The considerations are focused on innovation in the banking sector as it is one of the most innovative sectors worldwide. The identification of the stages of innovation development in this branch is worth emphasising, along with the description of its economic and legal determinants.

Open access