May 2020

Zagreb International Review of Economics and Business
Volume XXIII, Number 1 (May 2020)

 

ABSTRACTS

Does Working Capital Management Affect Profitability of Ghanaian Manufacturing Firms?

Kwadwo Boateng Prempeh
Godfred Peprah-Amankona

Abstract: This paper analyses the link between working capital management and profitability of firms in the context of developing economies. A balanced panel consisting of eleven (11) manufacturing firms listed on the Ghana Stock Exchange covering the period of 2011-2017 was used. The link between working capital management and profitability was examined using dynamic panel regression (Arellano-Bond Estimation) technique. The study revealed that there is a significant positive linear relationship between working capital management and firms’ profitability. The findings also reveal the existence of a concave quadratic relationship between working capital management and firms’ profitability. There is an optimal level at which working capital management maximises firm’s profitability, therefore, managers need to ensure that they operate within the limits of the optimal level by implementing an effective and efficient working capital management policy. The study concludes that, the practice of an aggressive working capital management policy maximizes a firm’s profitability.

JEL Classification: 

Keywords: working capital management, cash conversion cycle, dynamic panel regression, manufacturing firms, profitability

Weather-Induced Moods and Stock-Return Autocorrelation
Anya Khanthavit

Abstract: TMoods affect investors’ attention, memory, and capacity to process information. Inattentive investors delay the price adjustment process, thus leading to a positive autocorrelation of asset returns. In this study, I investigate the relationship between weather-induced moods and stock-return autocorrelation in the Stock Exchange of Thailand from January 2, 1991, to December 29, 2017. Only good moods contribute significantly to return autocorrelation.

JEL Classification: G40, G41

Keywords: iinformation processing, moods, limited attention, return autocorrelation, weather effects

Assessment of Women’s Early-stage Entrepreneurial Activity in 2018
Iuliia S. Pinkovetskaia
Tatiana V. Gromova
Irina N. Nikitina
 
Abstract: The analysis of the regularities characterizing the existing rate of female early-stage entrepreneurial activity, as well as the identification of reserves for female entrepreneurship growth is relevant nowadays. The purpose of the work is to assess the rates of entrepreneurial activity of women, their motivational preferences, and comparative analysis of female and male early-stage entrepreneurial activities. The study is based on the economic analysis of the data on 48 countries, presented in the Global Entrepreneurship Monitor report for 2018. Normal distribution density functions are used in the modeling process. The research reveals features of female entrepreneurship and the barriers to its development. The paper defines countries with high and low values of the considered indicators. The study estimates the existing rates of opportunity and necessity motivation of female entrepreneurs, presents the analysis of the ratio of female to male participation in early- stage entrepreneurial activity, and proves the hypothesis on substantial differentiation of these indicators across countries. The obtained knowledge can be used in future scientific research, in the educational process of bachelors and masters training. The scientific novelty lies in the study of the distribution of indicators characterizing female entrepreneurs’ motivation and the existing gender gap in early-stage entrepreneurship. The study proposes new methods and tools for the analysis and presents a comparative analysis of the development of female and male early-stage entrepreneurship.
 
JEL Classification: L26, O13, O25, P25
 
Keywords: early-stage entrepreneurial activity, female entrepreneurship, motivation, necessity-driven entrepreneurs, opportunity-driven entrepreneurs

The Optimal Capital Structure under the Conditions of Employment: An Application of Theory X and Theory Y
Chamil W. Senarathne
Abstract: The traditional theories governing the capital structure decisions completely ignore the human side of the enterprise (e.g. attitude to work). The objective of this paper is to identify the optimal mix of Theory X and Theory Y type employees to be employed by an organization in order to maintain (i.e. unaffected by the type of employees at work) the optimal level of capital structure. The classification of an employee into Theory X and Theory of Y is made based on the organizational contribution conditional on motivation rather than merely considering the attitude to work. Internal motivation of an employee (i.e. inherently likes or dislikes) alone cannot be identified as the criterion of recognizing employees under Theory X and Theory of Y. Level of attainment of needs within the organization, psychological state of mind and cultural dimension (i.e. individualism-collectivism) of the individual attached to the organization are the main behavioural criteria that distinguish between Theory X-type and Theory Y-type employees. This paper shows that the optimal capital structure is unaffected by the employment mix at the optimal level of Theory X and Theory Y type employees employed by an organization. The firms’ managers must therefore consider the behavioral aspects of employees (e.g. attitude to risk) when making organizational decisions such as financial decisions. For example, mismatches in the capital structure can be explained by a careful analysis of behavioral aspects of employees. By making necessary adjustments to the current employment mix, the firm could eliminate the mismatches in the firm’s capital structure.
 
JEL Classification: M00, M12, M14, M21, G32, G33
 
Keywords: theory X and theory Y, motivation, comfort zone, hierarchy of needs theory, capital structure, and risk-return tradeoff

Interrelation of Capital Markets in the Context of Increased Audit Oversight in the European Union – Evidence on Third-Country Auditors
Mihaela Mocanu
Octavian Iancu Ionescu

Abstract: We identified a notable lack of academic literature on the issue of third-country auditors and the main contribution of our article is to address this gap. This research builds on adjacent audit oversight and capital markets literature and we extend this literature by providing evidence on third-country auditors. Specifically, we test the relationship between market capitalization and number of foreign IPOs of listed companies in representative EU countries (on one hand) and the existence of third-country auditors in those respective countries (on the other hand). Our research was performed in the second half of 2018 and is based on the latest data available. We have found that there are about 200 third-country auditors present in the public registers of audit oversight bodies in 11 EU countries. According to our network analysis, only European countries with a developed capital market have attracted third-country auditors. Most of the relationships of these developed EU capital markets are nurtured with non-EU capital markets that are at the same level of development (e.g. USA, Switzerland, Canada, Israel, and Australia). Our research hypotheses were validated: (1) the higher the market capitalization of a EU country, the higher the likelihood for the registration of third-country auditors; (2) the higher the number of foreign IPOs relative to the total IPOs on the stock exchange market, the higher the likelihood for the registration of third-country auditors.
 
JEL Classification: M40, M41, M42, M48
 
Keywords: capital markets, audit oversight, third-country auditors, European Union

Factors Influencing Purchases of Organic Food
Michaela Jánská
Patrícia Kollar
Čeněk Celer

Abstract: The goal of the article is to describe factors influencing purchases of organic food by consumers in a selected area of the Czech Republic. We have researched and analysed reference books and studies focused on the topic to fulfil the goals of the article. Data acquired during a questionnaire survey with selected consumers was used as primary data. The impact of different factors on the purchase of organic food was researched based on an effect of demographic indicators. Hypotheses were stated to study relations among variables, and we examined the statistical importance and correlation of particular hypotheses. We used another statistical method – a decision tree – to seek connections between the variables. The results show that purchases of organic food are influenced by the price, the taste, the sense of health and the content. The connection between the researched factors and demographic indicators is usually low and statistically insignificant.

JEL Classification: M30, M31

Keywords: Organic food, purchase, environmentally friendly agriculture, factors impacting purchases, taste of organic food

A Dynamic Network Comparison Analysis of Crude Oil Trade: Evidence from Eastern Europe and Eurasia
Masoud Shirazi
Abdolrasoul Ghasemi
Teymour Mohammadi 
Jurica Šimurina
Ali Faridzad
Atefeh Taklif
 
Abstract: This article characterizes a dynamic crude oil trade network of Eastern Europe and Eurasia using the network connectedness measure of Diebold and Yilmaz (2014, 2015) and asymmetric reaction of crude oil bilateral trade flow in response to the positive and negative changes of its key determinants using the nonlinear panel ARDL model. Results indicate the existence of large and time-varying spillovers with a considerable explanatory power among the crude oil trade flow volatility of Iran, Russia, US and Saudi Arabia in Eastern Europe and Eurasia crude oil trade network. The findings also show that crude oil trade flow of Eastern Europe and Eurasia experiences net volatility transmission to Iran, Russia and US respectively, whereas it is a net volatility receiver from Saudi Arabia. Also based on gravity models, the analysis confirms the existence of impact, reaction and adjustment asymmetry through different magnitude among network participants.
 
JEL Classification: C22, F13, Q370, Q43, Q47, Q370, C320

Keywords: Crude Oil Trade, Dynamic Network Connectedness Measure, Gravity Model, Nonlinear Panel ARDL Model

The Nexus between Economic Sentiment Indicator and Gross Domestic Product; a Panel Cointegration Analysis
Daniel Tomić
Jurica Šimurina
Luka Jovanov
 
Abstract: Economic Sentiment Indicator (ESI) became the most popular composite indicator within the EU with the purpose of monitoring and/or forecasting business cycles in one country or for a region as a whole. Since it is calculated regularly, on a monthly base, and is based on five distinct confidence indicators, the main concern is whether the ESI can be explained and/or can explain the current, past or future values of relevant macroeconomic variables. This implies its relevance in predicting both short- and long-term economic outcomes of, for example, variation in income, unemployment fluctuations, consumption change, inflation modifications, sectoral alterations and etc. The question that arises often in academic, as well as within the EU decision-making circles is whether the ESI be used as an explanatory variable with valuable information for modelling the national output developments. Therefore, the aim of this paper is to reveal the true strength and significance in the ESI-GDP nexus for the EU. Empirical research is based on panel cointegration analysis that utilizes data on the ESI and GDP over the period 2000-2018 for the EU28 countries. The causal relationship between the variables appears to be consistent in the short- and long-run across the panel, suggesting that ESI movements do explain movements in national output, hence can help both private and public sector decision-makers to evaluate their goals and plan their actions.

JEL Classification: C33, E24, F02

Keywords: Economic sentiment indicator, GDP, business cycles, panel cointegration analysis, European Union

Financial Liberalization and Current Account Developments in New EU Member States
Zdenka Obuljen Zoričić
Boris Cota
Nataša Erjavec
 
Abstract: Due to negotiations on accession to the EU, the new EU member states from Central and Eastern Europe went through the financial opening. In the pre-crisis period followed by high liquidity in global markets, most of the EU new member states experienced rapid credit growth, which conditioned the appreciation of the exchange rate. External imbalances and vulnerabilities built up. Countries experienced deterioration in their current accounts. This paper investigates the link between financial openness, real effective exchange rate, financial crisis and current account balance within the Panel Auto-Regressive Distributed Lag (ARDL) framework for 11 new European Union members during the period from 1999 to 2016. The results obtained by the use of pooled mean group estimator (PMG) show that in the long run, financial openness has a significant negative impact on the current account balance. In the short run, crisis significantly influences the current account balance having a positive sign.

JEL Classification: C33, F32, F41

Keywords: European Union, current account balance, financial openness, real effective exchange rate, pooled mean group estimator