G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; GoodwillReturn

The paper investigates the relationship between the financial distress of European private companies identified by the Altman Z-score and real bankruptcy. We extend the traditional Z-score with the asymmetric effect of economic activity. Our results show higher forecasting performance of the Altman Z-score of large companies in a three-year projection. We argue that our results differ from Altman (1968) because of specific market conditions in Europe that enable prolongation of activity after financial distress is identified. We also emphasize the role of liquidity, size, performance and indebtedness in increasing financial distress forecasting performance. Finally, we extend our prediction model with selected indicators of quality and development of the institutional environment.

This paper provides a framework for conducting simulations and stress testing in the non-financial corporate sector. It relies on national accounting and uses a set of input-output tables to track the propagation of shocks between parts of the sector while staying entirely consistent with the big picture framed by the core forecasting model and the underlying scenario. The simulation framework allows standard macroeconomic developments to be captured, but one-off measures such as government wage and salary compensation and loan moratoria can also be easily implemented. The main output of the simulation is a set of industry-level performance and profitability variables. These variables can be used for various types of analysis, such as credit risk modelling and profitability and liquidity analysis. Some of them - such as forecasting portfolio default rates - are shown in the paper. The historical default rate estimates obtained are accurate and economically sensible for most industries and exhibit high reliability even under severe economic conditions. Given its national accounting framework and its level of detail, the model can be used to support decision-making processes and to evaluate the effects of existing or planned economic policies. Two different scenarios are considered to demonstrate the benefits of the proposed approach.

Differences in Capital Structure of Publicly Traded Companies in Europe and USA The paper aims at analysing the difference in capital structure and debt maturity choices of firms in Europe and in the USA. Employing logical and comparative study of theoretical knowledge in accordance with analysis of empirical data, the authors define the variations in leverage and long-term debt ratios. Specifically for comparability of studied markets, the analysis was based on financial data of companies that are members of STOXX600, which is considered the primary index for the European market, and S&P 500, which is considered one of the best representations of the US market. Based on the results, we can assume that there exist statistically significant differences. Companies in the USA tend to use more debt, especially long-term debt, than companies in Europe.

The paper extends existing research on the effects of ownership structures on company performance by including a dimension of transparency in the ownership structure. We analyse the effect of an unknown owner and pyramidal structure on company profitability, capital structure and investment. We conduct this research in accordance with existing theories on a panel of private companies within the cultural and political alliance of four Central European countries, called the Visegrad Group. The total population includes over 111,000 firm-level panel data observations between 2001 and 2015. Lack of transparency in the ownership structure leads to lower investment and profitability, both for the case of an anonymous owner and for companies in a corporate pyramid. The capital structure of the company is not influenced by the presence of an anonymous owner; however, the existence of the ownership pyramid leads, ceteris paribus, to a larger debt for the firm.

Foreign investment has been an important source of capital formation in transition countries but has caused the division of economies into foreign- and domestic-owned sectors. This paper explores the persistence of dual economy in the Czech Republic as well as the relationship between labour productivity and components used in the income approach to GDP calculation. Analysing the dataset of 20,900 firms operating in the Czech Republic in 2015, the paper presents evidence that higher levels of foreign investment are associated with significant labour productivity and wage differentials. Lower unit labour costs in foreign enterprises are consistent with higher level of investment of foreign-owned firms. Our model shows that differences in the degree of capital intensity are the driving force for the level of unit labour costs (i.e. factors are substitutes concerning the factor payments).

This article presents the outcome of research focused on financial characteristics of companies declaring a moratorium. The key purpose of the moratorium is to avoid threatening bankruptcy. The aim of the research is to identify the financial situation of the companies entering the moratorium process. The main objective was to find the answer to the core question whether there is any chance of avoiding bankruptcy using the moratorium, that is, whether the moratorium fulfils its basic function. The research is based on a quantitative analysis of selected financial ratios and synthetic indicators and their mutual relations. The analysis looks for an answer to what financial indicator levels were characteristic for the companies launching the moratorium mode of operation and what these levels indicated. The research results prove that the financial situation of the companies entering the moratorium process was unsatisfactory. It is even possible to conclude that the companies were in the last stage of their corporate crisis. This situation shows that the probability of avoiding bankruptcy was extremely low.

This paper examines payout characteristics of firms in a cultural and political alliance of four Central European nations, the Visegrad Group. The sample consists of more than 100,000 firm-year observations from 2001 to 2015. Our results indicate that smoothing behaviour diminishes among firms with majority ownership and that the total payout characteristics behave according to existing theories on passive ownership behaviour and agency costs.

Theory supposes that corporate income taxation encourages companies to issue debt as opposed to equity finance because interests are deductible while dividends are not. In addition, international differences in tax regimes incentivize multinational firms to shift debt to optimize their taxes. Since a high debt level can have adverse consequences, we decided to find out whether taxation is one of the causes of indebtedness of the non-financial corporate sector. We used a macroeconomic approach, i.e., all the variables were constructed at the country level, and employed data for 17 EU member states for the period 2006–2014. The model for short-term indebtedness suggests that there is a relationship between corporate debt and taxation, especially between the debt-shifting incentive and the thin capitalization rule. However, the model for total indebtedness does not provide any evidence that corporate taxation influences the non-financial corporate sector debt. The firms’ debt was affected rather by macroeconomic factors.

The paper deals with the optimal strategy for entering a derivative contract under existence of counterparty credit risk. Derivative contracts can be traded in three ways - bilaterally without any collateral agreement, bilaterally with collateral agreement or through a central counterparty. Our goal is to define rules for determining the most efficient way of trading. We take into account credit value adjustment, funding costs and capital costs related to regulatory requirements. In our empirical research, we focus on interest rate swaps with different maturities, specifically we analyse the impact of own and counterparty credit spreads on the overall costs. The results show higher efficiency of central clearing for investors with high creditworthiness. The costs of central clearing are very sensitive with respect to own credit spread and, therefore, the final decision depends on the actual relation with counterparty spread.

Bankruptcy prediction has long been regarded as a critical topic within the academic and banking community. To the best of our knowledge, no previous study in the Slovak Republic has attempted to develop a bankruptcy prediction model putting together statistical and artificial intelligence approaches performed on a such an amount of data. This paper seeks to fill this gap. Our aim is to develop a hybrid bankruptcy prediction model using a genetic algorithm in the process of training a neural network (GA-NN). The research data set comprises a balanced sample of both healthy and bankrupt firms operating in Slovakia in the period from 2014 to 2017. Financial information regarding a firm's financial situation are acquired from the Finstat database, which stores annual reports. For the purpose of comparing the classification accuracy of the proposed GA-NN model, two more models are constructed, namely BP-NN (back-propagation neural network model) as well as MDA (multiple discrimination model). The results gained by utilizing these models suggest the superiority of the developed GA-NN model to both BP-NN and MDA models in terms of prediction performance.

We provide systematic evidence of the effect of alphabetical sorting on corporate performance based on over a decade of data covering seventeen EU countries in three European language families. We also measure the effects of using English words in a corporate name in a non-English-speaking country, of a corporate name containing a 'national' (patriotic) word, and of simple linguistic properties highlighted in the brand-name marketing literature. Using multiple measures of corporate performance, we find companies sorted low in the alphabet to be less successful in several European countries, particularly in services. 'National' words are associated with substantially higher sales growth in, e.g., Poland, Norway, France and Spain, while the use of English words in company names curbs (fosters) sales growth in Romance- (Slavic-) language countries.

Corporate innovations are a central part of a country's economic activity. They foster and improve competitiveness, which ultimately leads to economic growth and progress. In this study, we focus on the post-communist European region, where corporations operate under uncertain conditions. Utilizing a sample with almost 100,000 firm level observations over the period from 2001 to 2013, we analyse effects of uncertainty steaming from corruption environment on innovation decisions of the Central European private firms. We find that domestic firms and firms with dispersed ownership innovate less when business and municipal uncertainty conditions increase. When firms are unsure whether they will be blocked by local bureaucrats from capitalizing on their innovation, they scale down their efforts. However, this result disappears for firms with foreign majority ownership. We hypothesize that foreign controlled firms have cleared all uncertainties before they entered the foreign market.

This study examines the diversion of funds in M&A deals, using over 7,500 deals from core European countries for the period from 1997 to 2013, sourced from the Zephyr database. Theoretical predictions suggest that in M&A deals acquiring companies may use the target's assets as collateral to raise funds which is then diverted within the internal capital markets. Our results do not indicate an increase in leverage burdens of target firms. While we do not find evidence that assets are used as collateral to raise financing, our results point to indirect clues that funds are diverted away from the target company after the acquisition.

We analyze how efficiency of firms in the Czech Republic is affected by their size, age, competition, capital structure, ownership types, and global financial crisis. We employ the stochastic frontier approach, use a large and detailed dataset, and cover time span 2001-2012. While effects of firm characteristics are small, the effects of ownership are economically substantial. We show that majority owners are most contributive with respect to firm's efficiency when compared to other categories we analyze. Minority owners with legally grounded power are able to impose significant efficiency improvement. The effect of the foreign ownership is strongest when foreign owners control firms with less than majority of voting power. Minority owners sharing the control do not seem to contribute to efficiency. The impact of crisis is not balanced but can be regarded as marginally positive in general. The firms' characteristics change only a little. In contrast, worsening impact of the crisis is evidenced for controlling ownership categories. Minority owners exhibit a limited disciplining effect to improve efficiency after the crisis, though.

Corporate Sector-Selected Aspects of Empirical Analysis of the EU Member States The paper attempts to shed light on selected problems of mainly non-fi nancial corporations of EU Member States in the period 1995-2013 (2014) using financial balance sheets (SNA, 2008). The relations between domestic sectors and non-residents have revealed that the Member States have been mainly debtors during the examined period. Having measured leverage (ratio of debt to GDP created in the sector of non-financial corporations) we have found out the increase of the ratio in the crisis period (2008-2013) in the sample of 17 member states. As concerns the ratio of debt to shares we have stressed the heterogeneity in the sample of 8 eurozone countries. The heterogeneity has been discovered also examining the role of trade credit as an alternative source of financing in the random effects model (panel analysis).

The paper deals with an impact of new Basel III liquidity regulation on bank's liquidity and solvency conditions. It analyzes a change from qualitative to quantitative based regulation and compares bank's liquidity approaches within an application of LCR regulatory measures. Strict defi nition of LCR causes a change in bank's liquidity allocation and funding which is less effective, more costly and restrictive for providing credits comparing with pure economic determinants. Empirical part shows a simulation of an impact of aggregate liquidity shock and credit risk shock on annual rate of capital return consistent with bank's solvency. It proves huge liquidity buffer of the Czech banking sector due to systematic liquidity surplus, its rising capital endowment and high capital profi tability. VAR estimation shows that links among bank's liquidity characteristics, sources of liquidity shocks, market illiquidity and central bank's liquidity facilities withdrawal are quite weak with non-persistent features

This article deals with business performance. The aim of this article is to identify performance factors, ie. factors that should have an impact on performance in long-term horizon, analyze these factors and their relationships, and based on this analysis to create a complex model of business performance. First sub-goal is to identify internal factors affecting the performance of companies in the new economy and next sub-goal is to verify the influence of the potential factors of performance on the business performance in terms of both market and financial performance in the manufacturing companies in the Czech Republic. It means to confirm or refute the findings on the impact of these factors on business performance of the companies in the Czech Republic. The article examines the importance of quality, human capital, customer capital and information technology on business performance through a questionnaire survey and the use of statistical methods.

This paper analyzes the technological efficiency of companies in the European Union (EU). Our extensive database covers more than 4 million firm/year observations from many EU countries including both manufacturing and service sectors in 2001-2007. Methodologically we apply a model of a stochastic production productivity frontier. We show that: the economic signifikance of company age is negligible, the higher the debt the greater the efficiency, bigger companies are less efficient, and a medium-level concentration of the market benefits companies. Majority ownership, in contrast, does not lead to higher efficiency, but a combination of majority and minority ownership has a positive disciplinary influence leading to higher efficiency. As to the origins of ownership, it does not seem that foreign-(co-)owned companies imply greater efficiency in old European countries, whereas foreign ownership is a significant driver of efficiency in new EU members through FDI.

Financial stress indexes provide a new tool for regulatory and public institutions, which participate in the supervision of financial markets and in the monitoring of the development of risk in financial markets. Our paper introduced a number of methods of building the financial stress index for the Czech Republic and Hungary. We have developed our indices based on the variables representing the level of financial stress by the movement of market prices of assets, which provides a higher frequency to the measurement of financial stress in the main sectors of financial system, ie. banking, money market, currency, fixed income and equity sectors. We have than evaluated our indices by the effectiveness to identify periods of increased financial stress based on the deviation by one standard deviation of the value of the index from the median value. Comparing periods identified with this method with historical periods of increased financial stress, we came to the conclusion that my financial stress index for each country successfully identifies the development and level of stress in financial system.

Operational risk management has becoming more important in the financial industry in the recent years mainly due to scandals in UBS in 2011 and Societé Générale in 2007. The reasons for this attention can be attributed to introduction of operational risk into the Basel II regulatory framework and to high losses stemming from operational risk events. Despite the fact that the new Basel III proposal does not give much attention to this risk, operational risk should not be underestimated. In this paper we present a theoretical background for the use of insurance in banks' operational management according to Basel II rules. Moreover, we provide empirical analysis of the role of insurance in operational risk management in an anonymous bank located in Central Europe. We compare the results of our case study with impact studies conducted for Basel II evaluation. Based on our analysis we reject a hypothesis that insurance serves as an effective mitigation tool of operational risk in case of the researched bank.

We employ a large panel data set and analyze efficiency in the Czech firms during 1998-2007. We investigate how their efficiency evolves over time and how it is affected by ownership structures. Methodologically we employ a panel version of a stochastic production frontier model. We distinguish several categories of the ownership concentration by domestic owners and through foreign direct investments (FDI). Our results show that concentrated and foreign ownership impact efficiency positively in general. This results confirm benefits of the foreign direct ownership on the microeconomic level. Further, we show cases when majority ownership does not necessarily constitute improvements in efficiency. We also analyze effect of ownership coalitions and bring detailed new evidence on how ownership structures and industry sectors affect firms' efficiency.

In this article we analyze medium- and long-term effects of firm break-up (and subsequent change in ownership) on its profitability and productivity. We use an extensive data-set of the Czech firms for the period 1996-2005. We employ the propensity score based matching methodology to account for potential endogeneity. Our results show that initial effects of the firm break-up are positive but they vanish in five to seven years after the break-up. Hence, the break-up of large and less efficient companies delivers a positive effect on corporate performance for a period of time. The effect is not permanent, though. Subsequent development in profitability and productivity is likely affected by ownership structure, corporate governance and other micro-level factors.

The Czech tax system is undergoing radical transformation. Among the many forthcoming changes, several features can be identified, which alter the structure of tax asymmetries. This paper uses an option-based model of direct taxation to examine a controversial new thin-capitalization rule, stipulating a mandatory benchmark for deductible unrelated-party loan expenses. We estimate the costs of debt under various risk-related scenarios, focusing on particular situations where the new regulation may result in distortions of business incentives and investment behaviour. We find that the measure can disproportionally increase the marginal cost of debt for companies with relatively risky business profiles. In particular, if the law were followed strictly, it could create effective barriers to further growth under perfectly realistic combinations of leverage and business risk. Another asymmetry arises due to a small-business exemption which can make new investment prohibitive when its cap is being reached. The model also suggests that non-deductibility of interest increases credit risk and could, in the longer term, contribute to a slack in SME lending.

This paper uses new firm-level data to examine the effects of breakups of the Czech firms and their subsequent privatization on corporate performance. Unlike the existing literature, which analyzes breakups almost exclusively in advanced economies, we control for accompanying ownership changes and the fact that spinoffs and ownership are endogenous variables. We find that breakups increase the firm's profitability but do not alter its scale of operations, while the effect of privatization depends on the resulting ownership structure - sometime improving performance and sometime bringing about decline. The effects of privatization are hence less clear-cut than suggested in earlier studies. Methodologically, our study provides evidence that it is important to control for changes in ownership when analyzing divestitures and control for endogeneity, selection and data attrition when analyzing the effects of breakups and privatization.

Focus is made on the historical circumstances of the arising of the Czech capital markets. Transformation from state-owned enterprises to private businesses and corporations, via coupon (or voucher) privatization, i.e. distribution of shares to a large number of small shareholders, required a tailor made capital markets. Two competitive project were launched: Prague Stock Exchange and RM-System. As investment funds collected investment vouchers and become important shareholders, large packages of shares were formed and new majority shareholders stepped into their rights and powers. The transfer of ownership finished, public markets lost their broad clientele and had to reduce number of titles traded substancially. Todays capital markets in the Czech Republic are mostly OTC markets, with some contribution of public markets (RMS and PSE), of which more important is the Prague Stock Exchange. The latter is still not fully functional - there has not been any important public offering so far.

The Czech economy has been characterized by a rapidly increasing external income balance deficit since 1998, which was caused by an increasing outflow of FDI earnings. The paper analyses factors, which determine the total amount of FDI earnings in a host economy and their subsequent division into reinvested earnings and repatriated profits. Three main factors are examined: total FDI stock in the economy and its structure, the FDI rate of return and the FDI financial life cycle. Growing total FDI stock, which reaches 51 % of Czech GDP, is the most influential factor because the FDI rate of return has been approximately stable exceeding 10 %. An outstanding amount of reinvested earnings in the Czech economy negatively influences the current account deficit, which exceeds the GDP 5 % benchmark rate, although reinvested earnings do not represent actual financial outflows.

The topic of this paper is concerned in a possibility of connection of the micro- economics theory and the business economics theory. The goal of the submitted paper is an implementation of an economic efficiency as a microeconomic component to the business economics with a regard for an economic practice of companies in the Czech Republic. I use an analogy of the microeconomics and the business economics concept of total revenues and total costs to this implementation. The main of the text is reserved to opportunity costs because it is fitting to total economic costs from a point of view of business economics theory and practice is complicated. On basis of accepted analogies I generalize conclusions about an economic efficiency and I think of a product possi- bility frontier in a company too.

The Czech economy was characterized by a high nominal and real appreciation which was caused by great foreign direct investment inflow in 2002. The paper analyzes the effect of the Czech currency appreciation on industrial branches and the industry as a whole using a simple model based on a corporate accounting. The outcome of the model is then compared with actual y-o-y data of non-financial corporations in 2002. There is significant difference between industrial branches in sensitivity to appreciation. Foreign owned branches are able to limit the negative impact of appreciation, whereas the worst situation is in branches owed only by residents and public. The property structure and in addition the labor intensity of production have had a great effect on corporate finance after the rapid crown appreciation.