CEEOL - Search Result

The Impact of Contingent Convertible Bond Issuance on Bank Credit Risk

Author(s): Oleg Deev,Vlad Morosan / Language(s): English / Publication Year: 0

Keywords: contingent convertible bonds; event study; CDS prices; bank credit risk;

Contingent convertible bonds are designed to provide additional capital to banks in times of distress and discourage the risk-taking incentives of the stockholders and, hence, decrease bank credit risk. In this paper, we study bank CDS spreads as a proxy of credit risk during the periods around the announcement of contingent convertible bond issuance. We analyze whether investors see these bonds as signs of possible bank distress or the stabilizing mechanism decreasing the probability of bank default. We use event study methodology where abnormal CDS spreads are identified based on constant mean return model and basic market model. Our data sample consists of 41 banks with 109 current unique issues taken from Bloomberg. Our results indicate that CDS spreads show a systemic reaction to the announcement of contingent convertible instruments and are economically significant for the bond holders that value the decreased default probability and reduced risk incentives of the issuing institution.

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Hedging Case Study in the Exchange Rate Commitment Regime Environment

Author(s): Jaroslava Dittrichová,Libuše Svobodová,Ivan Soukal / Language(s): English / Publication Year: 0

Keywords: Financial derivatives; forward; hedge; foreign exchange risk; monetary policy;

The paper deals with topic of hedging as an instrument of foreign exchange exposure treatment. This case study is focused on traditional export-oriented company PETROF, s. r. o. Analysis of scenarios is performed by the loss-profit comparison. The study dataset is consisted of internal financial statements gathered in period from 2010 to 2015 and provided the company representatives. Analyses are based on spot rates effective at studied periods and singed hedging contracts – forward derivatives. Analyses include data processing and proposals for consideration of macroeconomic factors that determine the company's business environment. Qualitative research is concluded with a discussion on proposed approaches and instruments. Despite the fact that in November 2013 Czech national bank entered foreign exchange interventions regime with exchange rate commitment of 27 CZK/EUR and so the companies knows the expected rate of the Czech currency, the topic is still current. The importance of the topic will be greater with the upcoming end of intervention regime in 2017 when we can expect increased volatility of the Czech crown again.

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Influences on Consumer Rationality

Author(s): Bohuslava Doláková,Jan Krajíček / Language(s): English / Publication Year: 0

Keywords: consumption; behaviour; consumer behaviour; rationality; irrationality;

The aim of this paper is to evaluate key components in consumer behaviour. Consumer behaviour is influenced by several factors; one with the greatest influence is genetic predisposition of each individual and also experience and knowledge acquired during the life of the society. The consumer is often irrational even in those cases in which we could expect rational behaviour (regarding to the prevailing economic opinion and rational choice theory). People are subjects to irrational influences. These influences come from their surroundings, feelings, emotions and other sources.

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Keynesian Model in Small and Medium Enterprises Development: Puzzling Case of Russian Regions

Author(s): Maria Ginzburg,Nadezhda Yashina,Elena Ivanova / Language(s): English / Publication Year: 0

Keywords: Keynesian model; small and medium enterprises; Russian regions; economic development; economic policy;

This study explores the potential effects of Keynesian demand stimulation for small and medium-size businesses in Russian regions. The authors tested the following hypotheses: (1) is there a connection between small and medium-size business development in any given region of Russia and regional output (Gross Regional Product – GRP); (2) the higher the share of electric power consumption in GRP of a given region, the more regional product is created in this region and the higher the share of this regional product can be redistributed by means of small businesses. To test these hypotheses, the authors developed three indices related to the development of small and medium-size enterprises and the GRP, produced in the provinces of the Russian Federation. One index (SMEDI) summarizes the level of development of small and medium-size businesses in a region; another (GRPI) – the level of Gross Regional Product, produced in a given region; and finally (EPCI) - the level of electric power consumption in the GRP of a corresponding region. Correlation analysis was used to analyze data for 83 federal subjects of the Russian Federation for 2010-2014. The results indicate a moderate relationship between SMEDI and GRPI, and no relationship between SMEDI and EPCI. We conclude that the level of development of SMEs in the regions of Russia in 2010-2014 depends on the level of GRP to a certain degree. The level of development of SMEs is directly proportional to increases in GRP. But Keynesian model of demand stimulation, if applied to the Russian economy, stumbles upon the problems of fiscal federalism and the excessive centralization of economic governance, and this fact does not create effective stimulus for economic growth and small business development in Russia.

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Pension-related Application of the Cohort Life Table

Author(s): Ján Gogola,Ondřej Slavíček / Language(s): English / Publication Year: 0

Keywords: longevity risk; annuity; stochastic mortality; life table; Lee-Carter model;

Longevity risk, the risk that people will live longer than expected, weighs heavily on those who run pension schemes and on insurers that provide annuities. Hence the prediction of future mortality rates is an issue of fundamental importance for the insurance and pensions industry. Our analysis focuses on mortality at higher ages (65-95), given our interest in pension-related applications where the risk associated with longer-term cash flow is primarily linked to uncertainty in future rates of mortality. The Lee-Carter model became one of the most applied models and it is used to forecast agespecific death rates. The main goal of this paper is to apply the Lee-Carter model to construct the so-called “cohort life tables” for calculation of a 30-year annuity to a person aged 65 in 2015. We use data on deaths and exposures for the Czech Republic from the Human Mortality Database (HMD). The HMD provides evidence that life expectancy is increasing. We have shown that if the today rate of increase will continue, it will at age 65 concluded (after calculation) to increase the present value of pension liabilities in defined-benefit schemes about 5 % if we use cohort life table instead of period life table. Probability statements derived from the use of a single model and parameter set should be treated with caution. Hence, there is a need for awareness of model risk when assessing longevity-related liabilities.

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Influence of selected environmental factors on the efficiency of commercial insurers

Author(s): Eva Grmanová,Peter Hošták / Language(s): English / Publication Year: 0

Keywords: environmental factors; efficiency; insurance companies;

Paper aims to analyze the specifics of the efficiency of Czech and Slovak commercial insurers arising from the impact of environmental factors. Models of data envelopment analysis (DEA) are used to analyze the efficiency of insurance companies. Efficiency is evaluated based on the efficiency score. DEA models allow for the evaluation of factors which in the short term are not under the influence of the analyzed entities. These are called environmental factors. Impact of environmental factors is studied based on an approach proposed by Charnes, Cooper and Rhodes (1981). This procedure divides the analyzed subjects into and in each subgroup efficiency scores are determined. Target values corresponding to the full efficiency are calculated for inefficient subjects. In the next step the efficiency score is expressed on the basis of above mentioned target values and a statistical hypothesis testing is used to determine the statistical significance of the difference between the efficiency scores in groups. This approach allows to compare differences in the efficiency of various groups of insurance companies.

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Holdings of Government Bonds by Commercial Banks during the Financial and Debt Crisis in Europe

Author(s): Vladimír Gvozdják,Božena Chovancová / Language(s): English / Publication Year: 0

Keywords: government bonds; commercial banks; debt crisis;

The government bonds of the EU countries were considered a safe investment amongst investors and asset managers. The main motive for their holding by commercial banks was to achieve additional revenue from investing spare funds and to store liquidity in them since they can be quickly sold on the secondary market or used as a collateral in refinancing operations. In this working paper we focus on the current issues related to government bond holdings by commercial banks. With the advent of financial and debt crisis some countries failed to meet their liabilities connected with bonds towards investors. This changed the global view of sovereign bonds as the safest form of investment. Based on the analysis of data provided by the Statistical Data Warehouse of the European Central Bank we focus on the evolution of government bond holdings by commercial banks during the debt crisis in Europe in 2010 – 2014 in selected EU countries. By using the panel data regression we will try to estimate the impact of some of the significant determinants which influenced the volume of the holdings – namely credit rating of the sovereign bonds and their interest rates. This regression suggests that there is a correlation between these independent variables and the holdings by commercial banks.

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Foreign Trade Finance: What is the Impact of the Global Financial Crisis of 2007-2009?

Author(s): Peter Haiss,Franz Binder,Kushtrim Hajzeri,Wadim Kalmykov / Language(s): English / Publication Year: 0

Keywords: trade finance; foreign trade; financial crisis; ECA;

We analyze the impact of the global financial crisis of 2007-2009 on international trade finance. Two different perspectives are covered: the demand side and the supply side of trade finance. Additionally, the implications for trade insurance and Export Credit Agencies are investigated. Furthermore, the role of the state is discussed as the link between trade, finance and GDP growth is of utmost importance for economic policy actors. Our research draws on survey and financial market data and gives a global overview. We find that on the demand side, both the volume of finance and its mix changed. On the supply side, volume and prices were affected as well. The role of the state has risen in course of the crisis in terms of insuring trade via Export Credit Agencies (ECAs). Ever since, the market moved back to normal, and will be more digital soon.

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The Influence of the Size of the Region on the Financial Situation of Hospitals

Author(s): Taťána Hajdíková / Language(s): English / Publication Year: 0

Keywords: public finance; hospitals; profitability; indebtedness; revenue;

The presented paper will focus on selected financial indicators. When selecting indicators, their application for the non-profit sector, particularly hospitals, will be taken into account. The study of literature suggests that there are opinions about the use of specific indicators in the healthcare system. In recent years, many European countries have undergone reforms in the management of the healthcare market to improve the quality of hospital services. Some of the taken measures resulted in the closure of hospitals, which were characterized by worse financial performance, particularly in rural areas. The literature also suggests that hospitals located in rural areas are more economically sensitive, especially to economies of scale. The aim of the research is to determine whether there are differences in the results of selected indicators of hospitals located in different areas. The assumption is that hospitals located in areas with smaller population are characterized by lower profitability, higher debt and by overall lower financial situation. In the paper data from public sources and from annual reports of hospitals for the year 2013 will be used. Hospitals will be chosen according to the division of the Institute of Health Information and Statistics of the Czech Republic.

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Analysis of Various Entrepreneurial Activities and their Development in the Czech Republic from 2008 to 2015

Author(s): Eva Hamplova,Jaroslav Kovarnik,Pavel Jedlička / Language(s): English / Publication Year: 0

Keywords: business; business environment; national economy;

This contribution analyses the number of newly established as well as closed down entrepreneurial units in the Czech Republic between 2008 and 2015 with regard to the legal form of business as well as the field of business activity. The aim is to use the non-public sources of Czech Statistical Office and assess the trend in the number of entrepreneurial units in the Czech Republic. The methods of comparative analysis and trend analysis were used to monitor individual types of business activities as for the number of established and closed entrepreneurial units. The types of economic activities with high entrepreneurial activity were determined by means of net balance and average annual growth rate. The contribution reacts to the conclusions of a European Commission study Flash Eurobarometer (2012), which assesses the Czech Republic as one of four EU countries where a growing number of people prefers self-employment to employment. The authors consider the differences among various entrepreneurial activities and among legal forms of business to be a starting point for a discussion about support to particular fields of business, about private investment and forms of financial flows on both national and international levels.

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Development and the Current Situation of the Mortgages for the Czech Households

Author(s): Martina Hedvičáková,Libuše Svobodová / Language(s): English / Publication Year: 0

Keywords: mortgage loan; interest rate; bank; households;

The paper is focused on the specialized financial product, esp. on mortgages that are the most often used products in the field of own housing financing in the Czech Republic. These products provide selected banks on the Czech market. The aim of the paper is to analyze the situation on the financial market focused on the mortgages. The organization of the paper is as follows: firstly a theoretical background with a review of the literature is provided, then research methodology is described, the key part brings results of development of mortgages according to the purpose of use since 2005, development of interest rates and the analysis of the current situation on the mortgage market. Interest rates on mortgage loans have on the Czech market downward trend. Statistical data suggest that people are not afraid to borrow money after the economic crisis and invest more in housing funds. Hypoteční banka was classified as the main player on the market closely followed by Česká spořitelna and Komerční banka. The article is based on primary and secondary sources. A detailed research together with the analysis and critical assessment of accessible materials will enable to identify the main objectives in the field of study. The analysis of the initial state will consequently enable to identify the key factors and knowledge.

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The Process of Harmonization of Accounting in the Czech Republic

Author(s): Irena Honková / Language(s): English / Publication Year: 0

Keywords: International Financial Reporting Standards (IFRS); Czech accounting standards (CAS); harmonization of accounting;

The article was written in response to the amendment to Decree No. 250/2015 Coll., which came into effect from January 1, 2016. This amendment shows the harmonization of the Czech accounting system with the International Financial Reporting Standards (IFRS), e.g. in reporting of extraordinary income and expenses, of formation expenses, or in valuation of inventory produced internally. Consequently, a survey has been conducted, in which 24 persons having experience with the accounting under the IAS/IFRS commented on how they coped with the differences between the Czech Accounting Standards (CAS) and the IAS/IFRS. It has been found that these companies normally keep the accounts simultaneously in both systems (CAS and IAS/IFRS). However, some companies decided to keep the accounts only in one accounting system, supplemented with the differences between the two systems. It is undisputed that the process of harmonization of accounting systems continues. However, the final unification of our national system with the European one has not happened so far. There is a need to harmonize accounting and tax regulations as well.

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High-Frequency Trading and Price Volatility in the Paris Euronext Stock Market

Author(s): Juraj Hruška,Oleg Deev / Language(s): English / Publication Year: 0

Keywords: volatility; high frequency trading; general method of moments; Markow switching model; GARCH;

Algorithmic trading has become the crucial part of security trading on world equity markets influencing many of its characteristics. In this paper, we consider the effects of high frequency trading on the short term volatility. The aim of the paper is to analyze the relationship between high frequency trading (HFT) and spot volatility in high frequency as well as low frequency data from the French stock market. We employ GMM, GARCH and Markov switching models to estimate the relationship between changes in stock returns and changes in the activities of high frequency traders. We propose our own methodology to proxy changes in the activity of algorithmic traders. We also address the problem of optimal sampling to avoid possible biases in our empirical findings, since high frequency data contain a disruptive volatility component (market microstructure noise), by incorporating Bundi-Russell (2008) test and test of Lagrangian multipliers. Most actively traded stocks listed on the Paris stock exchange are chosen for the empirical analysis. Sampling tests suggest that optimal frequency should be approximately 60 minutes. Results from models confirm the hypotheses of positive impact of high-frequency trading on market volatility.

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Face Nominal Effect on Capital Market Transactions. The Case of Poland

Author(s): Magdalena Jasiniak / Language(s): English / Publication Year: 0

Keywords: face nominal effect; behavioral finance;

Psychological features have an important role in evaluation processes. Studies indicate that investment decisions are strongly determined by behavioral factors. As a result investors behave irrationally. One of parameters that influence purchasing decision is price. Perceiving price as high generally discourage the purchase. As a consequence, goods at lower price are more attractive to bought what creates higher demand and influence companies’ revenues. Following paper analyze whether the face nominal effect observed at consumer market also occur in stock exchange market. The main aim of this article is to verify whether investors are influenced by face nominal values on stock market exchange. Author state that cheap assets characterized by nominally lower prices are more attractive to buy and bring higher profits (as a consequence of increased demand) in comparison to assets described as expensive. In order to verify the hypothesis, database of 13789 quotations from 1.07.1999 to 30.12.2013 was created. The sample was divided into three groups – cheap, average and expensive stocks. Finally the statistical analysis was conducted among 2924 records including only cheap and expensive units. Statistical analysis confirm that assets defined as “cheap” generate higher profits and lower losses.

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Compensation for Income Lost – Long-term Effects on the Victim's Personal Finance

Author(s): Anna Jędrzychowska,Ewa Poprawska / Language(s): English / Publication Year: 0

Keywords: personal injuries; annuities; MTPL insurance; technical provisions;

The purpose of the article is to estimate the consequences that can arise in the household of the injured person, when they discontinue to pay social security insurance contributions because disability caused by motor accident. If the accident causes inability to work arose from someone's guilt, the offender shall bear the cost to repair the damage. If the damage is long-term, this compensation should be based on the payment of annuity, where there can be used two concepts: lifetime annuity, the value of the first payment at the level of net salary of the injured person, term life annuity paid till retirement age, the value of the first payment at the level of the gross salary of the injured person (including contributions to retirement insurance) and indexed by eg. the rate of inflation. In the second case, it is assumed that the injured person receives greater amount and spend it on pension contributions. The authors will make a comparison, which of these two methods of compensation for lost income is more favourable for victims of different age categories from three European countries: Czech Republic, Germany, Poland.

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Crop Insurance as the Instrument for Risk Financing in Polish Farms

Author(s): Monika Kaczała / Language(s): English / Publication Year: 0

Keywords: agricultural insurance; crop insurance; state aid; risk management; financing of risk;

Risk management is one of the main priorities in the Common Agricultural Policy (CAP) for 2014-2020. Crop insurance belongs to the three CAP indicated types of instruments for financing risks, along with mutual funds and income stabilization tool. In Poland crop insurance is the only available instrument and despite its obligatoriness and subsidizing the market penetration amounts to 40%. The aim of this paper is to present development of agricultural insurance in quantitative terms and its main contributory factors. The answers were provided based on the qualitative and quantitative analysis. The data come mainly from the official statistics and information provided by The Ministry of Agriculture and Rural Development. The results show that apart from very high costs of crop insurance, resulting from a long-term loss ratio of more than 100% for , a very important determinant affecting crop insurance purchasing decisions is the subjective assessment of prosperity in agriculture as well as the scope and type of state aid (investment-related benefits are stimulating while revolving loans are inhibitive).

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The Influence of a Low Interest Rate on Life Insurance Companies

Author(s): Silvie Kafková,Dagmar Linnertová / Language(s): English / Publication Year: 0

Keywords: life insurance; low interest rates; guaranteed returns;

A protracted period of low interest rate threatens the stability of the life insurance industry, especially in the countries, where life insurance with comparatively high guaranteed returns disposed in the past represents a major portion of the total portfolio. The aim of this paper is to provide an introduction to evaluation of the effects of the actual low interest rate period on the balance sheet of a representative life insurance company. Firstly the balance sheet of insurance companies is introduced. We show the valuation of the assets and liabilities. Then the Solvency Capital Requirement and risk margin is defined. Finally the solvency situation of insurers is valuated.

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Impact of the REPO Rate on Commercial Rates in the Czech Republic

Author(s): František Kalouda / Language(s): English / Publication Year: 0

Keywords: banking system; cybernetics; REPO rate; commercial rate;

The paper is focused to further description and analysis the new aspects of behavior of Czech banking as a cybernetic system. The aim of the paper is analysis of the managing system relations (regulator – central bank) to managed system (controlled system – commercial banks) as relationships between operational indicator (REPO rate) and regulated indicator (commercial rates). Methodology of the paper is strategically focused to the time series methods (first of all correlation) and trends analysis. The usual analytic-synthetic methods, literary research, description and comparison are used here as well.The main expected result of the paper are working conclusions related to the fundamental linkages (still not explored) between REPO rate and the commercial rates.

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The Interaction between Venture Capital and Innovation in Europe

Author(s): Özcan Karahan / Language(s): English / Publication Year: 0

Keywords: venture capital; innovation; Europe;

Venture Capital (VC) has been a significant source of finance for technologybased investments. Thus VC has played a key role in fostering innovative entrepreneurship and technological progress in new economies. Accordingly, it is generally argued that there is a positive causal relationship from venture capital to innovation, which called “venture capital-first hypothesis”. However, some studies in literature indicates an opposite causality that innovation stimulates venture capital, which called “innovation-first hypothesis”. The aim of this paper is to test these hypothesis to determine direction of causality between Venture Capital and Innovation in European countries. We use dynamic panel data analysis in order to investigate the direction of causality between innovation and venture capital based on annual data set related to European patent applications and venture capital investment. Empirical results of our study provide a strong evidence in favour of “innovation-first hypothesis” that innovation induces venture capital investment in Europe. This result presents significant implications for innovative entrepreneurship capacity of Europe. It seems that, although policymakers aim to make more financial resources available for innovation, the absence of innovative ideas is the big issue rather than the lack of available fund for innovative entrepreneurships in Europe.

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Preventing Crises in the Banking Sector and the Role of Internal Audit in Corporate Governance

Author(s): Mária Klimiková,Martina Muchová / Language(s): English / Publication Year: 0

Keywords: corporate governance; internal audit; financial crisis; management; financial sector;

Analysis of the causes of the financial crisis led to define different views and to seek factors triggering the crisis. The financial crisis has revealed that there has been no effective system of governance of financial institutions in crisis, and that there are very few measures that should be adopted by banks in the event of a banking crisis. At the same time, the fall of a number of major financial institutions turned his attention to the Corporate Governance. The attention of the professional public has focused on revising of the Corporate Governance´s role and thereby increasing the role of Internal Audit in the Corporate Governance. This paper focuses on implementation of the Corporate Governance in financial institutions as well as on impact of the updated rules of Corporate Governance and the role of Internal Audit in Corporate Governance.

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