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

Sovereign wealth funds (SWFs) have a significant influence on global financial markets, with assets exceeding USD 11.2 trillion and accounting for 40% of the world's largest 100 asset owners' total assets. Understanding the drivers behind SWFs' investment decisions is crucial. This study examines the impact of the COVID-19 pandemic related to corporate social responsibility (CSR) and irresponsibility (CSI) compared to financial data on SWFs' investment decisions, analysing 72% of their total public equity holdings from 2019 to 2023. Findings reveal that SWFs prioritize company self-reported environmental, social and governance (ESG) metrics over public CSI information when making investment decisions. Furthermore, public equity holding CSI data have a more pronounced influence on the investment decision of SWFs in countries with higher transparency of sustainability. The study underscores the necessity for greater ESG integration into SWFs' investment strategies to demonstrate a commitment to sustainable investing practices. This research illuminates the path towards a more responsible and sustainable approach for SWFs on global financial markets.
Implications for Central European audience: Our conclusions could help encourage greater ESG integration into investment strategies and promote sustainable investing practices more broadly, not limited to liquid assets, to showcase a sustainable “walk the talk”. A special focus should be put on CSI's development of target investments. Future research might also consider whether the investment behaviour of SWFs is equivalent to that of other major investors, such as insurance companies and public pension schemes.

This paper aims to explore the effects of chief executive officer (CEO) characteristics on managerial risk-taking behaviour and the moderating impact of audit committee (AC) ownership and ethnicity in this relationship. The underlining theory employed in this study is the upper echelons theory (UET). Data were hand-collected from annual reports of the top 100 Malaysian PLCs over 2015-2020 and were analysed through multiple regression analysis and Hayes’ process moderation analysis. The findings suggest that CEO age negatively affects risk-taking. The results, however, do not support the use of CEO tenure and gender as proxies for managerial risk-taking behaviour. AC ownership has a significant positive moderating effect on the relationship between CEO age, tenure, gender and risk-taking. Contrarily, AC ethnicity only significantly moderates the association between CEO gender and risk-taking. This study further adds to the existing literature considering these independent variables.
Implications for Central European audience: This study serves as a good yardstick for exploring the effects of CEOs’ characteristics. While this study is within the Malaysian context, it is undoubtedly useful in the Central European context. Risk-taking behaviour can be dispersed over all sectors, especially as this study employs the UET theory. The findings would set a comparison for corporations in Central European countries.

The appearance of coronavirus in the spring of 2020 has significantly revalued risk exposures in the business environment, which required new approaches in the measurement of financial risks. This paper defines and explains a new approach to the measurement of liquidity risk in companies in a time of an economic crisis. This approach is more responsive to stressful circumstances in the business environment and measures the time in an economic crisis when a company can still pay maturing liabilities out of its own inventory of liquid assets, where sales of a company on the market are limited or completely prohibited, as this was the case for some industries during the first wave of Covid -19 in spring 2020. The objective of this paper was to define a new metric for the measurement of corporate liquidity, which is sensitive to this environment and shows the propensity of a company to the risk of illiquidity if an economic crisis appears. This paper, in the next step, leverages the newly defined metric of corporate liquidity and calculates the average liquidity of all companies, as well as the average liquidity by business sectors in the Serbian economy, to discuss corporate liquidity in a crisis. The results show that the average liquidity of the Serbian economy in crisis at the end of 3Q 2020 was 78,02 days, i.e., the average company in the Serbian economy was able to survive 78,02 days in stress by the end of 3Q 2020 if its sales on the market were prohibited.
Implications for Central European audience: The model in this paper is in the interest of every company and bank to measure the liquidity risk of business partners in times of an economic crisis and to predict which business partners may have liquidity problems in crisis and may therefore not be able to pay their open liabilities. The contribution of this paper to liquidity risk measurement in companies in times of stress is high as the currently available literature does not offer an alternative approach.

Tax avoidance became a frequently observed practice in a global business environment. Multinational enterprises (MNEs) employ differences between statutory tax rates of their home countries and countries of their subsidiaries, aiming to achieve the effective tax rate being lower than the statutory one. MNEs enable tax avoidance practices via multiple channels, transfer pricing and debt shifting being among the most popular among them. The goal of this article is to evaluate if MNEs operating in Lithuania, a small open economy of Central and Eastern Europe (CEE), are engaging in tax avoidance practices, and if yes, what channel debt shifting profit shifting or both are employed. Our research is built on the data for the years 2010–2018 and analyses 3,563 MNEs and local companies operating in Lithuania. Results of the conducted regression analysis rejected the impact of differences in tax rates between MNEs and their subsidiaries in Lithuania on their leverage. Therefore debt shifting across the sample companies was not evident. On the contrary, analysis of profit shifting evidence among sample companies proved the significant influence of transfer mispricing practices on earnings of Lithuanian subsidiaries of MNEs’. Such results may imply that in Lithuania, corporate tax avoidance of MNEs occurs via the channel of profit shifting rather than debt shifting. We suggest that this is related to the specifics of small economies commonly characterised by lower tax rates, underdeveloped financial markets and lower tax avoidance costs.
Implications for Central European audience: Previous tax avoidance and profit shifting research mainly analysed the United Kingdom, Germany and other large countries in Europe, leaving a gap in research on small economies, especially those in CEE. Lithuania, similar to the other CEE open economies, is competing for attracting foreign investment, which makes it relevant to understand if and how the country’s tax system is exploited in the corporate governance practices of MNEs.

This article aims to find out which business risks determine the perception of the business environment of small and medium-sized enterprises (SME) in the future. 454 SMEs from the Czech Republic participated in the case study by filling in an online questionnaire. Linear regression models were used to verify statistically significant causal relationships between selected indicators of business risks and respondents' perception of the future of business. The results show that selected indicators of the market, financial, personnel, legal and operational risk determine the perceived future of business. Strategic risk indicators do not significantly affect the perceived future of business. The most important indicators: market risk — adequacy of sales of products and services; financial risk — an indicator of the company's financial performance; personnel risk — an indicator of employees' initiative to increase performance; legal risk — an indicator of respondents' ability to understand the basic legal aspects and operational risk — an indicator of the use of company capacities. All the indicators from above have a positive effect on the future perception of the company.
Implications for Central European audience: The attitudes of small and medium-sized enterprises represent a certain degree of subjectivity (human factor), which does not always reflect the real position of the enterprise. However, it is the main representatives of SMEs (owners and top managers) who try to manage business risks to have a more positive perception of their future in the business environment in the Czech Republic. The results based on the business environment of the Czech Republic are important not only for the owners of SMEs, but also for state and non-profit institutions dealing with various forms of SME support.

A company’s capital structure is a significant factor in valuing its business. The relative levels of equity and debt affect risk and cash flow and, therefore, the amount an investor would be willing to pay for the company or an interest in it. Capital structure matters because it influences the cost of capital. Therefore, this paper aims to quantify the effect of the capital structure on the cost of capital of Slovak enterprises and to suggest an effective way of financial decision-making. The data used in the study was gained from the Bratislava Stock Exchange because publicly available information on enterprises issuing their shares on the stock exchange was needed to calculate the cost of capital. Due to the underdeveloped capital market of Slovakia, we chose 17 stock companies (except for commercial banks) operating on the Slovak market having all the data required. The financial data of companies were obtained from their financial statements spanning 2013 to 2017. The impact of the capital structure on the cost of capital was investigated by the Pearson correlation coefficient, regression analysis and Mann-Whitney U-test. The study found that there is an indirect relationship between the capital structure, the cost of capital and the size of the company. We also conclude that the growing volume of debt may result in a decline in the corporate costs of capital. These findings concerning Slovak enterprises incline to the respected compromise theory.

The goal of the study is to verify whether there is a relation between a company's declared innovation strategy and declared problems with access to capital. The research is based on a survey that covers more than 400 companies operating in Poland. Beside the self-assessment approach to evaluation of financial constraints and level of innovativeness of the company, an analysis of financial data was employed in the study. Chi-squared, Welch's t-test, ANOVA and the ordered logit model were used to test the hypotheses. It was proved that there is relation between innovation strategy and financial constraints. The firms that are moderate innovators are financially constrained more than strong innovators, which can be linked with their better financial condition. Research confirms also that SMEs are still in a worse position compared to large enterprises in the area of access to different sources of capital. Secondly, innovative companies are exposed to additional difficulties in raising funds successfully, which confirms the validity of the used dedicated tools as a subsidy by authorities.

As a regulatory answer to the crisis, financial instruments are increasingly forced to be cleared centrally even in the OTC markets; therefore, risk management of central clearinghouses has become a central issue. A key term of the regulation is a stress event; however, it is not specified in the legislation what should be meant under stress in the case of a clearinghouse. To find an objective stress indicator, we built up a micro-simulation model of a hypothetical clearinghouse operating on the US equity market between 2007 and 2015. Based on this, we developed a logit regression model to specify an appropriate stress indicator and we showed that our "tailor-made" stress index calibrated to the position of the clearinghouse performs significantly better than the usual market proxies for financial stress.

Relying on three questionnaire-based surveys from 2004, 2009 and 2013, each covering around 300 top financial managers of different Hungarian manufacturing and service companies, this article analyzes how the perception and measurement of intellectual capital (IC) elements has changed. Instead of focusing on stock exchange prices or case studies of individual firms, this research is unique for using a database on the opinion of top managers over a decade. After the managers, IC has slightly gained importance giving 48-51 percent of the firm value during the years analyzed, still, most companies give little attention to measuring these items correctly. This is dangerous, as by just focusing on traditional accounting measures or relying on outdated methods, top managers are less likely to take shareholder value maximizing decisions. Encouragingly, those who measure do it better: book value has lost popularity while more appropriate market value based estimates have gained importance.

The present study aims to investigate the economic processes taking place in the Hungarian automotive industry primarily by means of descriptive and multivariate statistical models. The purpose of the analysis is to present the performance of the sector via the ratios describing the operation. First the database and the applied methods - which are the factor and cluster analysis - will be described. Statement of the results begins with a descriptive statistical analysis of the financial ratios, where besides market share we get a whole picture of the operation of the determinative companies of the branch and the factors influencing the last six years. The capital structure ratios are examined in a separate chapter, where the changes of the last 10 years can be followed. The multivariate statistical models try to present a complex picture of the characteristics of the economic field and the underlying boundaries by means of the different ratios. On the basis of these findings, the study concludes that the automotive industry, which is named as a driving force of the economy, maintains its unbroken momentum predominantly due to the foreign-owned segment. Despite the given circumstances, the role of the liabilities is not of great importance.