Problems and environment of small businesses in the Czech Republic

The impressive and spontaneous build-up of the private small and medium-sized enterprises (SMEs) in the Czech Republic in 1990–93 coincided with the similarly dramatic changes in the public administration and in the whole environment for decision-making. The resulting problems of SMEs in the Czech Republic seem to be common to all economies in transition. A lot of the problems are caused by the macroeconomic policy for which this sector is not the most important part of the national economy. The paper shows some conflicts between macroeconomic anti-inflationary (monetary and fiscal) policies, and interests of small businesses. The authors stress the importance of SMEs during the period of transition. Informal aspects of the functioning of small firms are discussed, especially their relation with banks and public administration. The paper offers some empirical evidence and available statistics on SMEs developments during 1990–94 focusing particularly on manufacturing.     

How do investment patterns of independent and captive private equity funds differ? Evidence from Germany

Empirical literature emphasizes a positive contribution of private equity investors, which results from their combined provision of capital, monitoring, and management support. The aim of this study is to show that these previous results, which are based mostly on the analysis of US independent closed-end private equity funds, cannot be generalized since the private equity industry should not be treated as homogenous. We argue that it is necessary to distinguish between different types of private equity providers because their differing governance structures, strategic goals and experiences have a decisive influence on their value adding activities. The results of this study—which uses a data set of 179 German private equity-backed companies—are consistent with the conjecture that independent and corporate private equity providers tend to have a more pronounced role in corporate governance and monitoring of the companies they finance, than bank-dependent and governmental funds which often serve only as bridge investors.      

Automatic balancing mechanisms for notional defined contribution accounts in the presence of uncertainty

The notional defined contribution model combines pay-as-you-go financing and a defined contribution pension formula. This paper aims to demonstrate the extent to which liquidity and solvency indicators are affected by fluctuations in economic and demographic conditions and to explore the introduction of an automatic balancing mechanism (ABM) into the pension scheme. We demonstrate that the introduction of an ABM reduces the volatility of the buffer fund and that, in most cases, the automatic mechanism that re-establishes solvency produces the highest value of the risk-adjusted notional factor.     

The effects on investment incentives of an allowance for corporate equity tax system: the Belgian case as an example

The Modigliani–Miller theorem serves as the standard finance paradigm on corporate capital structure and managerial decision making. Implicitly, it is assumed that the market possesses full information about the firm. However, if firm managers have insider information, they may attempt to ‘signal’ changes in the firm’s financial structure and, in competitive equilibrium, shareholders will draw deductions from such signals. Empirical work shows that the value of underlying firms rises with leverage because investors expect such firms to implement positive NPV projects. We empirically examine this view using a sample of debt issue announcements by publicly traded firms listed on the London Stock Exchange. We argue that the timing of debt issues is fundamental in determining the relationship between leverage and risk-adjusted returns. We show that an announcing firm’s intrinsic value may not rise depending on when management publicly ‘signals’ changes in their firm’s capital structure. Specifically, we show that risk-adjusted returns rise positively for firms that make debt announcements during normal economic conditions while they tend to decline for firms making debt announcements during recessionary periods. During recessionary periods, market risk and loss aversion rise and investors focus less on the potential growth of debt announcing firms and focus more on potential losses instead. We conclude that the timing of new debt is of paramount importance and managers’ inability to prudently time such announcements can lead to exacerbated levels of systematic risk coupled with a significant erosion in shareholder wealth.     

Board of Directors and CSR in Banking: The Moderating Role of Bank Regulation and Investor Protection Strength

This paper brings together research on boards of directors as the backbone of corporate governance and corporate social responsibility (CSR) practices in the banking industry. The underlying idea is that some characteristics of bank boards, in particular independence and gender diversity, may impact the CSR commitments of banks. By making use of a sample of 159 banks in nine countries during the period 2004–2010, our empirical evidence suggests that banks with more independent directors and more female members on their boards incline toward socially responsible behaviour. Our results also suggest that institutional factors play a significant role in these effects. They show that in greater regulatory and stronger investor protection environments, board independence and gender diversity have more influence on the social behaviour of banks.     

Debt contracts in the presence of performance manipulation

Empirical evidence suggests that firms often manipulate reported numbers to avoid debt covenant violations. We study how a firm’s ability to manipulate reports affects the terms of its debt contracts and the resulting investment and manipulation decisions that the firm implements. Our model generates novel empirical predictions regarding the use and the level of debt covenant, the interest rate, the efficiency of investment decisions, and the likelihood of covenant violations. For example, the model predicts that the optimal debt contract for firms with relatively strong (weak) corporate governance (i.e., cost of manipulation) induces overinvestment (underinvestment). Moreover, for firms with strong (weak) corporate governance, an increase in corporate governance quality leads to tighter (looser) covenant, more (less) frequent covenant violations and lower (higher) interest rate. Our model highlights that the interest rate, which is a common proxy for the cost of debt, neither accounts for the distortion of investment efficiency nor the expected manipulation costs arising under debt financing. We propose a measure of cost of debt capital that accounts for these effects.     

The raw material basis of global value chains: allocating environmental responsibility based on value generation

A new approach to allocate environmental responsibility, the ‘value added-based responsibility’ allocation, is presented in this article. This metric allocates total environmental pressures occurring along an international supply chain to the participating sectors and countries according to the share of value added they generate within that specific supply chain. We show that – due to their position in global value chains – certain sectors (e.g. services) and countries (e.g. Germany) receive significantly greater responsibility compared to other allocation approaches. This adds a new perspective to the discussions concerning a fair distribution of mitigation costs among nations, companies and consumers.     

Carbon taxes and the double dividend hypothesis in a recursive-dynamic CGE model for Spain

A carbon tax is potentially a policy that can reduce CO₂ emissions and mitigate climate risks, at lowest economy-wide costs. We develop a dynamic CGE model for Spain to assess the economic and environmental effects of a carbon tax, and test the double dividend (DD) hypothesis. We simulate the impact of three carbon taxes: €10, €20 and €30 per ton of CO₂. For each tax, four ‘revenue recycling’ scenarios are examined: a reduction of taxes on capital, on labor, on value-added tax, and a scenario in which revenues are not recycled. We find a DD for taxes of €10/ton and lower, within five to seven years of implementation. We estimate an annual CO₂ emissions reduction of around 10% with this tax. Under some circumstances, the DD can be achieved for a tax of €20/ton. In any case, recycling revenues to cut pre-existing taxes reduces costs of imposing carbon taxes.     

Creation of models for calculation of coefficients of terrain passability

Quality & Quantity - The content of this article is a paper about a complex mathematical model of terrain passability which respects geographical and meteorological conditions in terrain and...     

Visual displays: analytical study and applications to graphs and real data

Principal axis methods such as principal component analysis (PCA) and correspondence analysis (CA) are useful for identifying structures in data through interesting planar graphic displays. However, some kinds of data sets can be dealt alternatively with PCA or CA. This paper focuses on methods, such as PCA and CA, and on visual displays. Our aim is to illustrate the implications for a potential user of selecting either method, and its advantages and disadvantages, from an applied point of view. This is a matter covered broadly in textbooks and elsewhere considering theoretical arguments. Our purpose is to contribute to the comparison between these methods, over the same data set, in order to illustrate them for the practitioner. In the first part of this paper we present a novel analytical study of a binary matrix associated with a non-oriented axis-symmetric graph and show that CA outperforms standardized PCA for the reconstitution and visualization of such kind of graphs. In the second part we present a case using real data dealing with the distribution of employees in different economic sectors for the countries of the European Union, analyzed by means of standardized PCA and two-way CA, in order to see the differences between the two methods in practice.