Paper summaries 6/2010

Full-text archive of the journal Zbornik Ekonomskog fakulteta u Zagrebu is available at the portal of scientific journals of Croatia „Hrčak“:
http://hrcak.srce.hr/zbornik-efz


Ilko Vrankic
Mario Udzenija

HOMOTHETICITY OF ISOQUANTS AND SEPARABILITY OF COSTS

ABSTRACT: This article delivers the relationship between the proportional variation of factors of production and economic efficiency. Constant returns to scale and positive monotonic transforms that preserve the appearance of isoquant map enable simple derivation of multiplicatively separable cost function. The duality between cost and production functions reverses the stream of thoughts and multiplicative separability describes homotheticity in production.

KEY WORDS: homothetic production function, multiplicatively separable cost function, returns to scale, economic efficiency, duality between cost and production function.
JEL: D01, D11



Ilko Vrankic
Mira Oraic


SUBSTITUTION AND DISTANCE EFFECT

ABSTRACT: The Slutsky Equation summarizes the modern Law of Demand in by decomposing the total effect of price change into the substitution and income effect. At the same time Shepard's lemma describes the real income change through the expenditures change. In dual space the Shepard-Hanoch lemma describes the distance change. The original argumentation of Shepard's lemma and Shepard-Hanoch lemma supplements the duality between expenditure and distance function. This duality delivers a new measure of welfare change in numeric analysis of inverse demand functions. Intuitive analyses are summarized by the dual Slutsky equation which describes the dual law of demand.

KEY WORDS:
Shepard's lemma, Shepard-Hanoch lemma, price expansion curve, welfare change, dual law of demand.
JEL: D11, D6,


Danko Kuric
RESEARCHING CHARACTERISTICS OF CONTROLLING FUNCTION IN STATE-OWNED FORESTRY COMPANIES

ABSTRACT: Growing social awareness of the problems of environmental protection, change in business concepts geared towards sustainable development and the imperative of ecological stability on a global level force forestry companies to alter their business methods and develop new potentials for success through using new instruments and methods of business policy. In this paper the author investigates the characteristics of the controlling function in state-owned forestry enterprises in Europe and presents some of the most important results. In conclusion, the research suggests that forestry enterprises’ controlling is management-oriented and that the orientation of controlling in forestry companies in developed market economies is predominantly strategic, whereas in transitional economies it is predominantly operative. By its activities on the normative, strategic and operative levels controlling offers support to management of forestry enterprises in management and streamlining their business activities towards achieving the goal of sustainable business and forest management. The author proposes a controlling model for the Croatian forestry company in accordance with the research results in this paper based on the best solutions for implementing the controlling function in state-owned forestry companies in Europe.

KEY WORDS: Controlling, Forestry companies

JEL: Q23


Katarina Doric

CONSEQUENCES OF BASEL CAPITAL ACCORD (BASEL II) ON BUSINESS OF FIRMS IN CROATIA


ABSTRACT: The Basel Capital Accord (Basel II) is in its essence an agreement that refers to banking primarily, but this is only a narrow view of the purpose of its existence and achievements. The changes that appear in the banking sector are bound to provoke changes firms’ sector. The use of the Basel document complicates taking loans from financial institutions and makes it unpredictable, which directly affects the firms’ business policy and efficiency. Similarly, Basel II contains certain implicit answers and guidelines on how firms can prepare and adjust to the changes in the banking market, i.e. influence the improvement of its internal rating in order to achieve more favorable position in the business relation with the bank. For this paper, the author carried out the first empirical study of the knowledge of Basel II and of its application in Croatian firms. The results of the research have indicated that, even though more than half of the examined firms are familiar with the content of the Basel Capital Accord, most of them have not started nor are they planning to prepare for the implementation of Basel II.

KEY WORDS: Basel Capital Accord (Basel II), rating, risk management process
JEL:G32



Darko Tipuric
Najla Podrug

THEORETICAL CONCEPTUALIZATION AND EMPIRICAL VALIDATION OF STEWARDSHIP THEORY

ABSTRACT: The stewardship theory and agency theory, both valid theories in the area of corporate governance, examine various phenomena and situations in potential relationships between managers and owners. The source of the stewardship theory lies in the socio-psychological model of human behavior which implies the pro-organizational and collectivistic behavior of the manager whereby the manager derives more satisfaction by serving the group (organization) than by satisfying his or her personal goals. From the perspective of corporate governance, any successful overcoming of the agency problem between management and owners (if possible) significantly reduces the potential and validity of the agency theory in dealing with relationships between governing structures, which opens up a whole new area in which the application of the basic postulates of the stewardship theory is possible. In addition to theoretical conceptualization, the paper presents the results of empirical research on managerial stewardship behavior in Croatian companies. Given the fact that the stewardship theory is still in its embryonic stage, it can be characterized as a pioneer verification of the stewardship theory. The conclusions contest the agency theory whose proponents consider the stewardship phenomenon to be unrealistic.

KEY WORDS: stewardship theory, manager-steward, the socio-psychological model of human behavior, agency theory
JEL:G34




Vlatka Bilas
Sanja Franc
Adela Sadikovic


COMPARATIVE ANALYSIS OF ENTREPRENEURIAL ACTIVITIES IN CROATIA AND CHOSEN COUNTRIES


ABSTRACT: Concerning the connection between entrepreneurial activities and economic growth, already proven in economic theory, numerous policies, programs and incentives are created with the aim of developing entrepreneurial economy. The paper analyzes the results of the referent research concerning the role of entrepreneurship in the economic development of a certain country as well as the connection between the level of economic freedom with entrepreneurial activities and economic prosperity. Also, the analysis of the levels of entrepreneurial activities in Croatia and the chosen countries of the region has been conducted. The results have shown that Slovenia and Croatia have the highest levels of entrepreneurial activities among the countries analyzed. Finally, the paper analyses the connection between the level of economic freedoms and entrepreneurial activities, and the level of economic prosperity.

KEYWORDS: entrepreneurship, entrepreneurial activity, economic freedom, entrepreneurial potential

JEL: L26




Nidzara Osmanagic Bedenik

CRISIS MANAGEMENT: THEORY AND PRACTICE


ABSTRACT: Business crisis is most often defined as an unplanned and unwanted process marked by limited duration and possibility of influence, harmful to primary business objectives, with ambivalent outcomes. Business crises are periods in business when goals of the organization are threatened: liquidity (liquidity crisis), profit (success crisis), and business potentials (strategic crisis). The crisis management process embraces: anticipative crisis management, crisis identification, and reactive crisis management. Controlling is a professional support to management which makes the business more transparent. The study aims to represent the application of controlling instruments, tasks and information flow by which business crises can be avoided or at least recognized in a timely manner. The basic hypothesis of our paper is that Croatian companies do not use the instruments of preventive crisis management and are, thus, uable to accurately recognize the development of the crises in a satisfactory manner. Due to the domination of operative tasks and instruments, companies in Croatia are only prepared for operative and critical business crises, while potential, latent and strategic crises and their symptoms are completely neglected. This clearly shows that Croatian companies are not well prepared for all crises.

KEYWORDS: business crisis, crisis management process, controlling, business crisis symptoms/syndromes

JEL: M21, M38



Tomislav Coric
Dajana Cvrlje



MEASURING CENTRAL BANK INDEPENDENCE

ABSTRACT: The trend towards an increasing role of the central bank's independence is present in most of the developing economies over the past twenty years. It is believed that an independent central bank is more credible, which enables better decision making process and implementation of monetary policy. Furthermore, an independent central bank is less exposed to the inflationary pressures, and is aware of the costs of inflation caused by a too-expansive monetary policy. In order to achieve the main objective, price stability, it is very important that the central bank is connected with the government as little as possible. Despite the proclaimed independence of most central banks, their actual independence is much lower, because the state (government) generally has certain influence on the activity of central banks.
Empirical research on the relationship between central bank independence and economic variables suggests a negative relationship between the independence of the central bank and inflation. Conclusive evidence on the impact of the central bank's independence on other macroeconomic variables has not been found.
The analysis of the independence of Croatian National Bank in this paper was conducted using 4 different methods; 1) estimates based on the turnover rate of central bank governors (TOR), 2) Thorarinna G. Petursson criterion, and two measures of legal independence of central banks, indexes 3) LVAW and 4) QVAW. The obtained results confirm a high degree of independence of the central bank in Croatia.


KEY WORDS: monetary policy, central bank's independence, inflation

JEL: E52




Zeljko Bogdan

SURVEY OF RESEARCH ON RELATIONSHIP BETWEEN DEVELOPMENT OF FINANCIAL SYSTEM AND ECONOMIC GROWTH



ABSTRACT: The relationship between the development of the financial sector and economic growth has been researched by many economists. Empirical research and theoretical papers explaining this relationship are presented in this paper. Although it seems logical that the development of the financial sector has a positive influence on economic growth, the final answer to this question has not yet been given. With respect to the research into the relationship between financial development and growth, the special issue is the problem of causality, i.e. the direction of the finance-growth relationship. In the case of transition economies, empirical papers generally do not confirm that financial development stimulates economic growth.

KEYWORDS : financial system, economic growth, transition countries

JEL classification: E44




Tajana Barbic

TESTING WEEK FORM OF EFFICIENT MARKET HYPOTHESIS IN CROATIA'S EQUITY MARKET

ABSTRACT: This paper examines the weak form of efficiency in Croatia’s equity market. The possibility of generating above average returns based on the knowledge of past prices is tested. The results for the tests of serial correlation are in broad agreement; conclusively rejecting the presence of random walks in daily, weekly and monthly returns. Similarly, the unit root tests conclude that unit roots, as necessary conditions for a random walk, are absent from all of the return series. Additionally, simple autoregressive modeling of returns reveal serial dependence. Nevertheless, there is a great possibility that market participants are not in the position to use market inefficiencies profitably due to high transaction cost, trading and reporting delays, higher cost of new information as well as pronounced uncertainty that are usually inherent to emerging equity markets. Therefore, the results of the study are consistent with the findings in relevant literature which support the idea of return predictability but fail in attempt to shape any profitable trading rule.

KEY WORDS: Efficient Market Hypothesis, Random Walk Hypothesis, Equity markets, Emerging markets
JEL: G14


Iva Condic-Jurkic

ANALYSIS OF SECTORAL CHANGES IN CROATIAN
ECONOMY BETWEEN 2000-2007.

ABSTRACT: The main aim of this paper is to explore sectoral changes of Croatia's economy in the period 2000 – 2007. It seeks to analyze the patterns of structural convergence between the economy of the Republic of Croatia and the EU. In order to determine the level of structural convergence of Croatia's economy, with respect to the EU as a whole, as well as the direction of sectoral changes, measures of relative specialization (Krugman specialization index and Balassa indices) were employed. The results show rather weak evidence of structural convergence of its broader economic structure towards the EU structure, while the analysis on a more disaggregated data points to diverging trends. In addition, a higher degree of specialization in Croatia's manufacturing industry compared to the EU average as well as increased specialisation levels with the low-technology intensive activities, emphasise the diverging character of Croatia's economic structure.

KEYWORDS: sectoral structure, specialization, Krugman specialization index, Balassa indices

JEL:F14




Vesna Andrijevic – Matovac
Hrvoje Josic

FOREIGN DEBT SUSTAINABILITY IN REPUBLIC OF CROATIA


ABSTRACT: The paper assesses foreign debt sustainability in the Republic of Croatia. The analysis of macroeconomic indicators explains the causes of the rapid growth of external indebtedness of Croatia after 2001. Foreign debt indicators are calculated and explained. Scenario analysis of foreign debt sustainability gives growth projections of nominal GDP, nominal foreign debt and nominal interest rates in the long run. Foreign debt is unsustainable in the long run and the crucial years are calculated.

KEY WORDS: Foreign debt sustainability, Republic of Croatia, debt indicators, scenario analysis
JEL:F34


Tomislav Gelo

LEVEL OF ECONOMIC DEVELOPMENT AND ENERGY INDICATORS

ABSTRACT: In the first part of this paper, the theoretical aspects of energy indicators and the importance of energy efficiency are analyzed. An overview of aggregated indicators is given on the macro level and its disaggregation on micro level. The importance of energy efficiency is shown per sectors and determinants, which influence the energy consumption of each sector. In the second part of the paper, the international comparative analysis of aggregated energy indicators is shown. The major world regions and the position of Croatia in relation to them, are analysed in the first part, while the second part revolves around the analysis of the relation among the most developed countries in the world, OECD countries, and the position of Croatia in relation to them is done.
The problem of measuring GDP is also analyzed; it was calculated on the USD currency value in 2000, by using purchasing power parity (PPP) and GDP based on constant prices by using real exchange rate. Croatia, as shown by energy indicators, is positioned on the average level of OECD countries when measured by purchasing power parity. However, when its GDP is measured in constant prices by real exchange rate Croatia is twice as inefficient in using energy per GDP unit.

KEY WORDS: efficiency, intensity, indicators, energy consumption, GDP
JEL: L9, Q4



Ana Aleksic
Marina Rudman

ORGANISATIONAL SOCIALIZATION: KEY PERSPECTIVES AND APPROACHES


ABSTRACT: Organizational socialization is defined as a process of individual accession to the organization, where the individual passing through a process of organizational socialization learns about the culture of the organization, its responsibilities and job requirements as well as about social connections and relationships within the existing organization.
Given the complexity of the process and its importance for individuals and the organization itself, it is necessary to understand the key perspectives and approaches to organizational socialization. Therefore, the paper defines the basic concepts and the role of organizational socialization process, tactics and areas of organizational socialization. In addition, empirical evidence of the outcomes of organizational socialization is given, as well as guidance for future research and approaches to organizational socialization.

KEY WORDS: organization, organizational socialization, socialization tactics, organizational socialization process

JEL:M1


Mislav Josic

Book review: „INTERNATIONAL ECONOMICS“

Authors: MATO GRGIC, VLATKA BILAS



Sanda Renko

Book review: „GREENTAILING AND OTHER REVOLUTIONS IN RETAIL: HOT IDEAS THAT ARE GRABBING CUSTOMERS' ATTENTION AND RAISING PROFITS“
Authors: NEIL Z. STERN, WILLARD N. ANDER