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 Issue 29 (September 2017)


Milan Deskar-Škrbić
Erste & Steiermarkische bank Croatia

Hrvoje Šimović
Faculty of Economics and Business, University of Zagreb

Antonija Buljan
Faculty of Economics and Business, University of Zagreb

In this paper we use the panel VAR model with exogenous variables to analyse the effectsof various structural characteristics of the economies on the effectiveness of governmentconsumption in the Central Eastern and Southeastern European region (CESEE). Moreprecisely, we analyse the effects of government consumption on economic growth in thisregion, controlling for the effects of the size of the economy, level of public debt, level of taxburden, openness of the economy, rigidity of the labour market, monetary regime and thephase of the business cycle. Our results indicate that these characteristics have a significantimpact on the effectiveness of fiscal policy (in terms of the size of the fiscal multiplier).Also, these effects are in line with the theoretical assumptions as the recessionary phaseof the cycle, size of the economy, rigidity of the labour market and the fixed exchange rate regime increase the average size of fiscal multipliers while tax burden, indebtedness and openness of the economies reduce the size of the fiscal multiplier, when compared to the base model.

Keywords: fiscal multipliers, CESEE region, panel VAR
JEL Codes: E60, E62, C23

Maria Romanowska
Collegium of Management and Finance, Warsaw School of Economics

The article presents the conceptualisation of one of the aspects of the strategic dimension of innovation: the choice of the method (strategy) of innovation activities carried out by enterprises. Two types of strategic decisions are discussed: the strategy of developing
innovation and the decision of an already innovative enterprise choosing the way of further development of innovation activities. Original proposals of strategy models are presented against the background of innovation strategy models described in literature, and the method of their identification is illustrated using case studies of five Polish innovation enterprises.

Keywords: innovation strategies, innovation models, innovation management
JEL Codes: M10, M11, O3

Jacek Miroński, Rafał Dembowski
Collegium of World Economy, Warsaw School of Economics

Despite the vast amount of academic research on particular aspects of executive compensation, few studies have undertaken the subject comprehensively, combining the perspective of a firm and a manager in the international context. This study is a review of contemporary executive compensation schemes including its structure and links to company performance. Based on the literature of the topic, the latest market studies and industry expert interviews, this paper determines the role and effectiveness of particular components of compensation packages, taking into consideration executives’ perception, motivation, and the existing behavioral biases. Additionally, the study analyses the major differences in executive compensation policies of the listed companies in the US, the UK, Australia, Poland, and Norway. The research conclusions prove that executive compensation maximizing benefits for a firm should not only address the principal-agent problem through properly designed incentives, but also reduce a manager’s propensity to excessive risk-taking. Finally, it provides practical recommendations for compensation committees how to effectively design remuneration policies.

Keywords: executive compensation, motivation, firm performance, international comparison
JEL Codes: M12, M16, M52

Krzysztof Borowski
Collegium of Management and Finance, Warsaw School of Economics

The problem of efficiency of financial markets, especially the weekend effect, has always fascinated scientists. The issue is significant from the point of view of assessing the portfolio management effectiveness and behavioral finance. This paper tests the hypothesis of the unfortunate dates effect upon52 equity indices in relation to the following four approaches: close – close, overnight, open-open, open-close calculated for the sessions falling on the 13th and 4th day of the month, Friday the 13th, Tuesday the 13th. In the following part of the paper, the statistical equality of one-session average rates of return (close-close) for sessions falling on Friday 13th and sessions falling on other Friday sessions will be compared, as well as for sessions falling on Tuesday the 13th and sessions falling on other Tuesdays. The last part of the paper consists of the analysis of the correlation coefficients of Friday the 13th (close-close) rates of return calculated for the analyzed equity indices’ pairs.

Keywords: market efficiency, calendar anomalies, Friday the 13th, Tuesday the 13th, unfortunate dates effect
JEL Codes: G14, G15, C12

Dorota Podedworna-Tarnowska
Collegium of Business Administration, Warsaw School of Economics

The key characteristic of private equity finance is that investors hold their investments only for a limited period of time. The key goal of VC funds is to grow the company to a point where it can be sold at a price that far exceeds the amount of capital invested. This process is called an exit or divestment. There are three basic types of exits: going public, being acquired by a larger corporation, a sale to a third-party investor. It is a widely believed and accepted proposition in private equity literature that the initial public offering of a private equity portfolio company is the most successful and profitable exit opportunity. However, according to the few sources of literature, public offerings are not the preferred divestment type for venture capital firms. Going public is one of the most critical decisions in the lifecycle of a firm. This is not easy, as the process is very comprehensive and complex. Hence, a lot of considerations should be taken into account. Because every investee firm is different, a development plan to achieve a successful exit takes into consideration a number of macroeconomic and microeconomic factors. Moreover, several advantages and disadvantages of exit through an IPO could be indicated. The objective of this paper is to show the success and profitability of going public by VC funds. The VC’s exit type as a way of cashing out on its investment in a portfolio company is a consequence of the exit strategy, which means the plan for generating profits for owners and investors of a company. While an IPO is the most spectacular and visible form of exit, it is not the most common one, as historically in the US it was, but still in Europe it has not been yet. There will be both literature and statistical data coming from different studies and reports used in this research.

Keywords: Venture Capital, corporate finance and governance, financial markets, financial instruments, value of firms, capital and ownership structure
JEL Codes: G24 G34 D53 G23 G32

Jacek Grzywacz
Collegium of Business Administration, Warsaw School of Economics

Ewa Jagodzińska-Komar
Powszechna Kasa Oszczędności Bank Polski SA

The aim of the article is to analyse the position of the Polish private equity sector as a leading player in the CEE region and to assess the impact of these funds on economic development. It has been pointed out that the fund sector is operating in an increasingly unpredictable environment (which could be seen during the financial crisis) and operates based on demanding regulations and growing risk. The paper presents the role of private equity funds in the CEE region, which by 2004 had seen a noticeably faster growth than in Western Europe, due to the transition to a market economy. The Polish private equity market in the CEE region was further analysed, which as the largest economy in the CEE region is a very attractive place for investors. The conclusions and directions of the role of private equity funds were presented, and it was emphasised that Poland and the whole CEE region are at an early stage of their market development, but their distance to Western Europe decreases from year to year. Currently, the CEE private equity market in the most developed countries offers great opportunities to its investors thanks to high competition, high growth potential and comprehensive solutions.

Keywords: private equity, CEE region, European Investment Fund, European Private Equity and Venture Capital Association (EVCA)
JEL Codes: F30, G15, G24

Piotr Komorowski, Dariusz Filip
Department of Finance, Institute of Sociology, Faculty of History and Social Sciences Cardinal Stefan Wyszyński University in Warsaw

Financial system stability is considered a public good. The main role of the financial safety network is to stabilise the system. Information and statistical activities of institutions which belong to the safety network are the tools which may improve the stability. We need to stress that most decisions are based on information, in particular decisions on investment or speculation, hence by providing information and statistical data these institutions indirectly enhance the overall stability of the system. An overview and analysis of selected studies addressing financial system stability helped the authors draw theoretical and practical conclusions as to the stability itself and the impact of information and statistics upon its improvement.

Keywords: financial system stability, safety network, economic crisis, financial crisis
JEL Code: G100

Waldemar Rogowski
Collegium of Business Administration, Warsaw School of Economics

The paper discusses the problem of payment delays in commercial B2B transactions and payment backlogs resulting from them. It also aims at identifying linkages among deferred payments, late payments, and payment backlogs taking account of the scale of these phenomena in Poland, as well as in other countries. Besides, it presents the results of studies on payment delays published in three most important international reports of the following companies: Bisnode D&B, Atradius, Intrum Justitia. The analysis confirmed that a payment delay as such is neutral but it may become negative as a result of the stance taken by an entrepreneur-creditor, who experiences a late payment. Payment delay becomes a negative phenomenon only when the creditor does not approve of such a situation. However, it remains neutral to an entrepreneur who accepts payment delays. Thus, a payment delay is a feature rather than a functional defect of the trade credit market. Since the problem of payment delays and payment backlogs is a pertinent one, it needs to be discussed in specialist literature. The paper provides recommendations as to what should be done to reduce the scale of these negative phenomena.

Keywords: trade credit, deferred payment, late payment, payment delay, payment backlog, counteracting payment delays and backlogs
JEL Codes: G 32 G 33, and G 35

Joanna Dominowska
Collegium of Management and Finance, Warsaw School of Economics

The construction of supervision and control of foundations and their economic activity in Poland is fairly well developed. The main goal of this research was to ascertain whether the procedure of supervision works effectively. It was also to highlight those supervision elements and stages that do not perform their role accurately and to indicate the reasons thereof. It is important to intensify the discussion on the change of the model of foundation supervision into a more effective system on the one hand, and less troublesome for entrepreneurs on the other. The research of this type has never been conducted through the cross-impact analysis. Every ministry presents only the analysis in relation to the foundations subordinated to them. There is no pooled analysis of the supervision state on economic activity of foundations in Poland, and in this respect, this study is a novel scientific contribution. The conclusion drawn from it points to a necessity for simplification, standardisation (a uniform foundation activity report form is not sufficient) and the introduction of instruments to affect the current foundations’ activity.

Keywords: state supervision, economic activity of foundation, starosts/ministry supervision, annual report, control
JEL Codes: K230, K400, H3

Tobias Hagemann
Europa University Viadrina / Mazars, Frankfurt (Oder) / Berlin, Germany

The attribution of profits to Permanent Establishments (PE) is one of the most discussed topics in international tax literature, the reason being that the attribution determines the amount of taxation in a PE state. Particular problems arise if such profits are derived before or after the existence of a PE. The article discusses the attribution of such profits under tax treaty law provided for by the OECD Model Tax Convention. In doing so, it is found that profits derived before or after the existence of a PE should be attributed to the PE because not only the wording but also the context and purpose of the OECD Model support this view. In further analysis, however, it is shown that slight changes in the attribution may be expected under the new “Authorized OECD Approach”.

Keywords: OECD Model, Permanent Establishment, profit attribution, Authorized OECD