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Bankruptcy Prediction Model for Private Limited Companies of Lithuania
Get PDFThe paper is mainly devoted to the bankruptcy prediction models and their ability to assess a bankruptcy probability for Lithuanian companies. The study showed that the most common type of companies in Lithuania is a private limited company, therefore, the main objective was to analyse such companies’ financial information and by using these results, create a new bankruptcy prediction model, which would allow to predict the bankruptcy probability as accurately as possible. 145 companies (73 already bankrupt and 72 still operating) were chosen as a primary sample and by using multivariate discriminant analysis stepwise method a linear function ZGS has been created. To achieve that, 156 different financial ratios were selected as a primary input data by using correlation calculation between bankruptcy and still operating companies and Mann – Whitney U test techniques. The results showed that 89% of companies were classified correctly, which states that the model is strong enough to predict bankruptcy probability for private limited companies operating in Lithuania in a sufficient accuracy
Tax Behaviour: Assessment of Tax Compliance in European Union Countries
Get PDFThe aim of this paper is to assess the impact of the selected tax behaviour determinants for the overall tax (non) compliance in European Union countries for a period from 2003 to 2014. Firstly, the literature on tax behaviour is analysed through the viewpoint of behavioural economics and the systemisation of the main determinants is provided. Secondly, selected tax behaviour determinants for the analysis are presented, hypotheses raised and models formed. Research suggests that tax morale, socio-cultural determinants and the relationship between tax authority and taxpayers have an overall significant impact on tax behaviour in European Union countries. Nevertheless, the effect from different determinants varies greatly across regions and countries
The Benchmarking Practices of the Economically Freest Countries in Europe and the World
Get PDFIn our increasingly globalised economy, global competitiveness of countries and the means to measure it gain increasing significance. One of the ways to measure global competitiveness is by comparing an extent of the economic freedom that a country has, which also can, as surveys show, largely explain differences in living standards across the world. Seeing as how European economy is similar to most of the Western world capitalist economies in the sense that it has, for a number of reasons, very different economic policy traditions than many countries in other parts of the world, we may approach this topic from a European perspective; consequently, we can see that the main hypothesis of the work can be confirmed, and it is possible, for reasons based in economic or national image nature, to discern which is the freest of world economies by adopting the benchmarking practices of the continent. Nevertheless, the other hypothesis of the work does not fulfill itself, meaning that by adopting taxing policies of some of the wealthiest European Union economies it is not possible anymore to reach the result of the freest economy, both in the world and particularly Europe. Looking at the components and scores of the Index of Economic Freedom, it becomes apparent that the inclusion of government share components in its methodology is very controversial, similarly as the labour freedom component and even monetary freedom, albeit in lesser extent
Determinants of Trade Credit in European Construction Firms: a Preliminary Study
Get PDFThe aim of this paper is to present a comparative study of trade credit indicators and the possible determinants of trade credit for firms acting in the construction sector, using a sample of 958 medium and large firms for the period 2004-2013. The objective of the study is to identify and examine selected variables that may determine trade credit used and provided by selected firms. The sample is derived from the Amadeus database. The examined firms were ones that have sold and bought on credit. The data was organised as panel-data and quantitative analyses were performed. This study demonstrates results that firms with higher trade receivables are less profitable; a positive correlation was found between trade receivables and liquidity, whereas a negative correlation was detected between trade receivables and gearing; larger firms provide and obtain more trade credit than medium firms; more profitable firms use less gearing; firms with higher profit margin are more liquid and more liquid firms use less gearing; based on an average and overall terms, there is not such a clear distinction between Western and Eastern European countries from viewpoint of net trade credit and net trade period
The Significance of Country-specific and Common Risk Factors for CEE Government Bond Spreads Changes
Get PDFThis paper provides an empirical assessment of the relationship between common European Union and country-specific risk factors of sovereign bond spreads for Central and Eastern European countries over the period of 2004-2014. The model, estimated using Pooled Mean Group techniques, that accounts for both common long-run determinants and cross-country heterogeneities in sovereign bond spreads, tends to suggest that country-specific and common factors are important in the long-run, but common European Union factors are the main determinants of bond spreads in the short-run, i.e., market volatility index series converges with changes of sovereign bond spreads and turns out to be the predominant factor in the short-run. Furthermore, countries with stronger fundamentals have a tendency for lower responsiveness to changes in global risk aversion.The decomposition of changes in spreads for the purpose to compare actual and estimated spreads specifies that during risk-on periods (when the increase of misalignment falls down) there is consistency for increasing of creditworthiness undervaluation
Constructing an Optimal Investment Portfolio for the Bank of Lithuania
Get PDFThe main goal of this article is to illustrate the strategy, devised to improve the effectiveness of utilizing the financial assets, or in this case, the official international reserves, belonging to the Bank of Lithuania. In Lithuania, the value of financial assets as a percentage of total state assets has doubled in the span of 10 years. Moreover, a strong correlation between the real GDP growth and the Bank of Lithuania’s financial assets/profitability implies that the effectiveness of financial assets management has a nationally wide impact. Unfortunately, the Bank’s profit/invested value indicator has reached a record low in 2012–2013, which resulted in the whole bank’s profit being absorbed into the state’s budget (as opposed to 70 % of it). Such signs meant that the previous investment strategy has become ineffective and needed changes.To highlight the necessary changes, the authors conduct a practical research and construct the optimal investment portfolio, according to the goals and variables given by the guidelines, proposed by Bank of Lithuania. The size of the portfolio is 4,14 bn euros, and the maximum loss per year (VaR) allowed is -100 M euro/year, as stated by the Bank of Lithuania’s risk budget limit. The authors also focus on the issue of increased currency risk after investing in volatile share indices and whether hedging against it with Forex spot transactions is beneficial.The result of the research is an optimal portfolio, consisting of 9,85 percent of risk-free assets and 90,15 percent of risky assets. Hedging against currency risk in this case is an ultimately beneficial course of action, yielding an increase of annual returns by 0,3 percent, which translates to +12,3 mln euros. Finally, the portfolio is flexible and simple to reshape into a less risky variant, if the institution predicts the dangers of possible future economic downfalls.This research was further used in a broader paper whose goal was to analyse and assess the effectiveness of currently employed assets’ management strategies in Lithuania
Effects of Minimum Wage Increases on Employment in Lithuania
Get PDFFrom the advent of minimum wage it was subject to controversy: economists did not agree on its effects on the state of the economy, the welfare of both firms and workers. Empirical academic literature usually investigates employment reaction to the minimum wage fluctuations. Regrettably, such papers do not exist for Lithuania, so the literature of similar scope and topic of the US and UK (along with several other countries) is explored in this paper.The effect of the Lithuanian real minimum wage on aggregate employment is estimated by using time series models. Dependant on the specification, the real minimum wage elasticity is estimated to be –0.03–0.03 yet statically insignificant in all of the models. The result is in line with the reviewed literature; more precisely most of papers published in mid-1990s and beyond do not register any significant minimum wage effects on employment. The phenomenon is attributed to the fact that firms can exploit other channels (raising prices, hiring more productive employees, etc.) to make adjustments to new, higher wages. The paper does not explore what channels were used by the firms; however, a possible channel of productivity is investigated. Moreover, the temperate minimum wage policy is one of the factors that could have led to the insignificance of minimum wage to employment conclusion: the nominal minimum wage was only raised during the period of economic growth, and during economic downturns and recoveries it was frozen. The claim is further supported by the share of minimum wage earners in respect to total employed and the minimum wage to average wage ratio: the variables were relatively constant from 2005 onwards
Economic Implications of Energy Security in the Short Run
Get PDFEnergy security is one of the primary goals of the European Union energy policy as the region relies mostly on imports to meet its energy resources demand. In 2013, the share of the net imported energy resources was as high as 54.5% of total energy consumption in the 28 member states of the European Union. Research on energy security involves a detailed analysis of economic, technological, and socio-political factors. The main objective of this study is to find out the economic consequences in the short run due to changes in the level of the security of energy resources supply. In order to acquire quantitative measures of the research object, the energy security index calculation methodology proposed by Jansen et al. (2004) is applied. To explore what effects, if any, energy security has on the economy of the EU, five economic indicators, with which the probable short-term impact of energy security is the most likely, are distinguished: real GDP, inflation, current account balance, foreign direct investment, and employment. Granger causality tests of the panel VAR model reveal that in the short run employment may be negatively affected by energy security. The effect itself is relatively small and short-lived. No short term causality is observed running from energy security towards the remaining macroeconomic variables of the panel VAR model. Such conclusions would suggest making the European Union energy policy decisions without prioritizing possible swings of the energy security level in the short run
The Causal Model for the Multivariant Analysis and Forecast of Economic Development
Get PDFA long-term causal simulation model (macro from micro) for the multivariant analysis and forecast of economic development was developed. The adequacy of the model increased by modelling not only the final products but also intermediate consumption. Shadow economy was included. The model intentionally omits all the hypotheses (monetarists’, Keynesian, theory of equilibrium) which strictly predetermine economy behaviour. The model makes it possible to analyze the influence of prices, under- or overproduction, bank loans on each product, the rates of taxes etc. on the development of all economy and of each manufacturer. Furthermore, this model can help in developing recommendations for the National Bank, government, each manufacturer, importer and exporter. This model has been developed for the Ukrainian economy whose peculiarities were duly accounted for. However, the model can be easily adjusted to study any other country’s economy
Fiscal Sustainability and its Impact on Financial Stability in Lithuania and other New Member States of the European Union
Get PDFFinancial stability is related to both the real economic sector and public finance stability, and this cohesion is complex, ambiguous, especially complicated, includes many factors acting in different directions. Fiscal sustainability is one of the most significant factors of financial stability, and recently its significance has unfolded in the context of increasing fiscal imbalances and the government debt crisis. The growing interdependence between the public and the financial sectors leads to strengthening the two-direction connection between fiscal sustainability and financial stability. This article analyses one direction of this connection, i. e. implications of fiscal sustainability for financial stability. The complex research presented in this article involves the analysis of scientific literature, of statistical data, multi-criteria evaluation, the interstate comparative analysis, and panel estimation. The results of the research show that some fiscal variables may have a role to play in explaining changes of the financial stability index