Zagreb International Review of Economics and Business
Volume XVII, Number 1 (May 2014)
ABSTRACTS
SUN Cube: A New Stakeholder Management System for the Post-Merger Integration Process
Emil G. Martirosyan
Teimuraz T. Vashakmadze
Abstract: Statistically more than 50% of all mergers do not achieve synergies. In majority of cases
the reason is the failure in post-merger integration (PMI). This paper develops further how
the Sun Cube framework can be used in capturing synergies during PMI. The SUN Cube
is a new stakeholder management system that can be used in M&A and can be defined
from four perspectives. One of the main achievements is the quantitative methodology
suggesting top management and shareholders how assess readiness and possible effects
on synergies in specific figures. The Sun Cube framework helps to focus on KPI of specific
stakeholders.
Key words: stakeholders, M&A, post-merger integration, stakeholder management system
JEL Classification: G34
Macroeconomic Covariates of Default Risk: Case of Pakistani Non-Financial Firms
Ali Raza Elahi
Bilal Mehmood
Muhammad Mubashir Hussain Awan
Abstract: Empirical estimation of default probability through structural approach in the context of
macroeconomic dynamics turn out be an emerging idea. However, various aspects of these
studies are still needs to be explored to make these models more reliable. This study explored
the structural model of default risk (Moody’s KMV) application with macroeconomic
dynamics in Pakistani non-financial firm’s context and confirm whether Moody’s
KMV model of default prediction could be applicable in Pakistan where the markets are
highly speculative and stock markets are highly volatile. The study approximate about
the expected default frequency (hereafter EDF) of 307 Pakistani non-financial firms, categorized
in 12 industries for a span of 8 years from 2004 to 2011. It further check the
macroeconomic variables effects on EDF with the use of generalized method of moments
(hereafter GMM). Empirical results compared with the real life scenarios over the said
years and on the basis of results we infer that Moody’s KMV model can predict default
probability in a much better way than traditional ratio based approach.
JEL Classification: C23, C58, E44
Key words: Expected Default Frequency, KMV Model, GMM, Industry Analysis
Determinants and Sustainability of International Reserves Accumulation in Nigeria
Mohammed Isa Shuaibu
Taofik Ibrahim Mohammed
Abstract: This paper examines the determinants and sustainability of international reserves accumulation
in Nigeria. An assessment of the short- and long-run relationship between international
reserves and its driving factors between 1970 and 2010 is carried out with a view
of determining its sustainability, given the need to save against future exigencies. It makes
use of error correction mechanism and the bounds testing approach to co integration within
an autoregressive distributed lag framework proposed by Pesaran et al. (2001). The
empirical estimates reveal that variability of export earnings, and the one period lagged
value of international reserves positively affect reserve holding in Nigeria while oil price
negatively affect it in the long-run. The economic (GDP per capita) and environmental
(CO2 emission) measures of sustainable development also affect international reserves
accumulation in the long-run. The striking result from this study is that oil price negatively
affects reserve holding in the long-run but is positive in the short-run. The findings suggest
the need to diversify Nigeria’s sources of external reserves accumulation towards more
environmentally and economically sustainable activities such that the negative effects of
volatile oil export earnings as well as crude oil extraction are minimized.
JEL Classification: F31, Q56
Key words: International reserves, Nigeria, Bounds test, Sustainable, Oil price, Export
Skill Mismatches and Anticipation of the Future Labour Market Need: Case of Croatia
Predrag Bejaković
Željko Mrnjavac
Abstract: Skills are the key elements contributing to the prosperity of nations and to better lives
for individuals. That is why countries have invested heavily in skills over past decades.
For workers, skills mean employability and social mobility. For society, skills represent
a major component of its productivity, competitiveness and innovation. An important dimension
of labour market disequilibria is the mismatch of supply and demand of different
skills at the sectoral, regional and occupational levels. This is due to slow adjustment of
skill structures in periods of rapid structural change that characterizes the post-transition
economy. Skill mismatches may be caused by ineffective signalling of labour market demands
to education and training providers and to individuals, but they are very often a
consequence of a lack of responsiveness on the part of education and training providers to
information about skills demand. Croatia is not unique in having a relatively high interest
for adjusting (matching) educational output with dynamic trends on the labour market.
Croatia does not have a system of labour market information on occupational trends. Thus,
it is impossible to specify which kinds of future requirements and unmet demands are
commonly perceived. Taking into account the process of globalization process Croatia is
undergoing, economic restructuring and the pressures of competition, demographic factors,
there is an obvious need for more effective planning and management of the education
system particularly to put more attention to long-term forecasting of labour market needs.
Thus, it will be necessary to monitor systematically the labour market and occupational
trends to insure better labour market information on occupational trends. Furthermore, it
is important to provide and/or improve transparent information on employment status of
graduates from various education programmes, and to insure more flexible adjustments of
enrolment quotas in education and training programmes.
JEL Classification: J21, J24
Keywords: Skill mismatches, Future labour market needs, Educational output, Management of the education system, Croatia
Long-Term Unemployment in the Varieties of Capitalism
Alberto Chilosi
Abstract: This paper considers how the different varieties of capitalism affect the rate of long-term
unemployment. The liberal market variety, where employment protection is the lowest,
presents lower rates of long-term unemployment than the continental European, or the
Mediterranean varieties. In the latter both employment protection and long-term unemployment
are the highest and labour market participation the lowest. But the social-democratic
Scandinavian variety gets the best of both worlds: low rates of long-term unemployment,
high rates of labour participation, lower degree of inequality, together with relatively
high levels of employment protection. Low rates of long-term unemployment and high
levels of labour participation are also produced by the far-Eastern Asian variety, but at the
cost of a markedly dualistic labour market structure.
JEL Classification: J64, P1
Keywords: Varieties of Capitalism, Long-term unemployment, Employment protection
Local Government Cost Function: Case Study Analysis for Slovenian Municipalities
Primož Pevcin
Abstract: The appropriate creation and size of local jurisdictions are important for achieving
efficiency gains in local government goods and services provision. In general, the size of
local government units should effi ciently combine scale and congestion effects in order
to minimise local authority costs. The theory predicts four different potential effects of
local government size on its costs: linear negative effect, linear positive effect, non-linear
U-shaped effect and non-linear inverted U-shaped effect. In the first case, the bigger local
government means lower costs, whereas in the second case, the bigger local government
means larger costs. In the third case, costs of local government units fall at the beginning,
however they start to rise after certain size of local government is achieved, which implies
some “optimal” size of local jurisdictions. The last case shows that costs of medium-sized
local units are the largest, as they have not experienced the economies of scale yet, but
they still experience congestion effects. Consequently, the main purpose of the paper is to
investigate the relationship between local government size and costs, empirical analysis
being based on the data for Slovenian municipalities for the year 2011. The results reveal
that the average costs function for Slovenian municipalities is U-shaped, and the estimated
least-cost size of the municipality implies that the current number of municipalities is not
optimal. Besides, the average cost efficiency of Slovenian municipalities is approximately
25% above estimated best-practice frontier.
JEL Classification: H11, H21
Keywords: Local public finance, Optimal size of local authorities, Cost efficiency, Municipalities, Slovenia
Modelling Economic Consequences of Climate Change Impacts on Ground Transportation in Atlantic Canada
Yuri Yevdokimov
Abstract: Transportation is one of the most important sectors of Atlantic Canada’s economy. In a
sense it is a backbone of the regional economy since it provides means for moving people
and freight throughout the region and eventually stimulates regional economic growth and
development through national and international trade. However, according to numerous
studies, the region is vulnerable to climate change impacts which among other things will
affect transportation infrastructure and operations. In this study, climate change impacts
are analyzed with respect to the New Brunswick/Nova Scotia Transport Corridor (NB/NS
TC) located in Atlantic Canada – the main trade gateway in the region that connects seaports
with the North American continent. First, major climate change impacts in the area
are identifi ed. Second, the best economic model to evaluate consequences of the climate
change impacts is chosen. Third, using the existing literature and studies that describe
future climate changes in the region, various scenarios of future challenges for the NB/NS
TC are specified. Finally, economic consequences of the regional climate change impacts
on the NB/NS TC are evaluated. The above specified consequences are imposed on a dynamic
economic model and their cumulative impacts are traced over time.
JEL Classification: Q51, Q54, D58
Keywords: Transportation, climate change impacts, general equilibrium model, econometric estimation, computer simulation
Fiscal Instability in Slovenia during the Economic Crisis
Stanka Setnikar Cankar
Veronika Petkovšek
Abstract: The changed macroeconomic conditions brought about by the global financial and economic
crisis are posing an increasing challenge to economic policymakers to achieve the
objectives of the planned consolidation. The fiscal situation in Slovenia, as in other EU
Member States, remains tight; the current priority is therefore to ensure the sustainability
of public finances and to create conditions for stable economic growth. Slovenia faces the
challenge of reducing the public fi nance defi cit below 3% of GDP in 2013. If it does so,
it will fulfil its commitment to bring its excessive deficit under control and re-establish
opportunities for financing on international markets. Long-term sustainability of public
finances and stable economic growth will be ensured by economic policy measures, structural
measures and institutional adjustments. If the economy is to function successfully, appropriate
management frameworks are required in which the government plays a key role.
Long-term economic success can be achieved with high-quality government institutions.
The objective of this paper is to show the current state of public finances and to outline the
features of the austerity measures being conducted in Slovenia. The need to balance public
finances in order to ensure a stable and sustainable macroeconomic environment and meet
the requirements of the EU, has led to amendments to legislation in Slovenia that are radically
affecting the size and structure of public expenditure. On the other hand, Slovenia is
also adopting measures to promote economic activity.
JEL Classification: Economic crisis, Fiscal instability, Austerity measures, Public finance defi cit, Economic growth
Keywords: Transportation, climate change impacts, general equilibrium model, econometric estimation, computer simulation