Bucharest Stock Exchange Research Articles

Research regarding creditworthiness estimation for bond issuers listed on Bucharest Stock Exchange

Abstract The purpose of this research is to test the resilience of issuers to the financial pressure generated by the commitments made in connection with the issuance of debt instruments (bonds) and to identify issuers whose financial position and performance present the susceptibility of a major default risk. The research actions involved determining the indicators specific to the fundamental analysis, applying the classic insolvency risk assessment models (Altman and Conan Holder) and assessing the future evolution of the key financial indicators on the basis of the forecasts. The results obtained confirm or disprove the existence of significant uncertainties regarding the ability to repay the bond loans.

Fiscal policy and stock market efficiency: An ARDL Bounds Testing approach

The aim of this paper is to investigate the semi-strong market efficiency hypothesis with respect to fiscal policy information, in the context of the Bucharest Stock Exchange. Taking into account that macroeconomic data series of emerging countries usually have a limited size and may be plagued by inconsistencies and structural breaks, this paper proposes an ARDL Bounds testing approach for studying the relationship between stock returns and lagged macroeconomic variables. Moreover, this approach allows us to examine both the long and short-term relationship between fiscal policy and stock returns. The results indicate that, in the long run, stock prices fully and efficiently reflect information on past fiscal policy. However, in the short run, the Romanian stock market reacts efficiently only to unexpected fiscal policy news, while anticipated fiscal policy information displays a significant lagged relationship with current stock returns. In addition, the results also showed that monetary policy information is not incorporated efficiently into stock prices, both in the short and the long run, and its impact on stock returns is larger than the one exerted by fiscal policy.

УХВАЛЕННЯ НАДІЙНИХ ПРИНЦИПІВ КОРПОРАТИВНОГО УПРАВЛІННЯ – ПЕРСПЕКТИВНИЙ ПІДХІД ДО ВПЛИВУ НА ЦІНИ АКЦІЙ РУМУНСЬКИХ ЛІСТИНГОВИХ КОМПАНІЙ

Sound economic developments and successful businesses are conditioned by embracing proper corporate governance principles furthered by their proper implementation. There is a strong body of research that encompasses finance and accounting tools to establish valid links between qualitative corporate governance fundamentals and stock market performance of listed companies, that stem from accountability, operational integrity, transparency, management and board efficiency improvements, risk mitigation and overall better decision-making endeavours. The aim of the present research is to assess the impact of adopting sound corporate governance principles on the stock price of companies traded on the Bucharest Stock Exchange. Following our empirical efforts, the results of our regression study reveal the clear connection between price to book ratio and to our corporate governance assessment index and to a lesser extent the connection between share price and our corporate governance assessment index.

Adoption of Non-Financial Reporting Practice of the Companies Listed on Bucharest Stock Exchange

Adoption of Non-Financial Reporting Practice of the Companies Listed on Bucharest Stock Exchange

USING POSSIBILISTIC MOMENTS AND BI-OBJECTIVE OPTIMIZATION METAHEURISTICS TO COMPUTE PESSIMISTIC AND OPTIMISTIC EFFICIENT PORTFOLIOS / FRONTIERS FOR FUZZY-VALUED RETURNS OF RISKY ASSETS

Most of existing portfolio selection models are based on a probabilistic approach combined with optimization techniques. The uncertainty is equated with randomness. However, there are many non-probabilistic factors that affect the financial markets and a recent literature has increasingly been interested in modeling the fuzziness of portfolios returns. In this paper we consider the mean-variance portfolio optimization problem for LR-shaped fuzzy-valued returns of risky assets. Our approach is based upon Puri and Lalescu concept of fuzzy random variables and a suitable -metric on the Hilbert space of fuzzy variables whose outcomes have square-integrable support functions. The latter are defined with respect to the left and right spreads of the LR-shaped fuzzy-valued returns and can be used to obtain pessimistic and optimistic estimates of the expected returns and their corresponding covariance matrices, both with possibilistic interpretation. This allows formulating and solving three possibilistic bi-objective portfolio optimization problems, which result in pessimistic, optimistic and combined efficient possibilistic portfolios and their corresponding efficient possibilistic frontiers. A fourth problem, the classical Markowitz’s mean–variance one (defined with respect to crisp returns) is also considered as a benchmark. We employ a multi-objective metaheuristic (namely, ANSGAIII) to solve these four portfolio optimization problems for a universe of assets listed at Bucharest Stock Exchange

Adoption of Non-Financial Reporting Practice of the Companies Listed on Bucharest Stock Exchange

Adoption of Non-Financial Reporting Practice of the Companies Listed on Bucharest Stock Exchange

‘Big 4’ influence on audit market

Abstract The main purpose of this paper is to determine the impact that Big 4 companies have had after the adoption of International Financial Reporting Standards (IFRS) became mandatory on the audit market. Thus, after thorough research of the specialised studies, the impact of the financial reporting based on IFRS is analysed, while considering that Big 4 companies have created a strong monopoly that led to several changes on the audit market. All the companies listed on the Bucharest Stock Exchange that traded premium shares from 2011 to 2019 were analysed. With the use of ANOVA analysis, this paper verifies if the profitability, shareholders’ funds, firm size and the size of the business group influence the choice of the audit firm. Our results confirm that the choice of an audit firm is influenced by the shareholders’ funds, number of employees and the size of the business group. Besides, this paper presents an analysis of the changes that have occurred from 2011–2019 on the audit market of Romania.

The Impact of Dividend Events on Stock Returns: Findings on Companies Listed on the Bucharest Stock Exchange

This study investigates market reactions to different dividend events by analyzing abnormal returns. Based on a database of 45 companies listed on Bucharest Stock Exchange, for the period of 2011-2016, we found that the Declaration Date, Ex-Dividend Date and Record Date could have significant influence on stock returns in Romania. Using an event window of 41 days around the dividend announcement, we find evidence that shareholders react as a response to new information regarding dividend policy. However, further research should be performed in order to see the exact market reaction when the company decides to increase, decrease or keep the same level of dividends. Using the event study methodology, we find evidence that dividend events influence significantly the returns after the event, and only for some cases, they affect the returns before the event.

Analysis of the Relationships Between Sustainable Management Control and Performance Appraisal System

This study investigates management control from the perspective of intention of companies to engage into sustainable development. The authors mainly focused on analysing the relations between sustainable management control and the system of performance appraisal utilising resource-based theory. The theory behind these relations has been studied by reviewing the literature in the field, and the empirical investigation used questionnaire-based data, presenting the responses of top management, and the data available in the Annual Reports on the main segment of Bucharest Stock Exchange. The study proves that financial performance has a significant influence on management control therefore the authors recommend the return on capital employed as one of the most recommended indicators. The sustainable nature of management control is the result of the spread and development of the institutional theory, the provisions of Directive 2014/95/EU and the Guide of Global Management Accounting Principles (2015) using stewardship. Consequently, profits could no longer be the main element in the assessment of company’s financial „health”. Therefore, sustainable balanced scorecard is one of solid measures for managing financial and non-financial performance in the process of achieving sustainable success.

The Impact of Government Emergency Ordinance No. 114/2018 on the Profitability of Companies Acting in Energy Domain, Listed on Bucharest Stock Exchange

Abstract On December 29, 2018, the Government Emergency Ordinance no. 114/2018 has been published. This Ordinance, among others, established a multitude of measures, both economic and fiscal that aimed companies acting in the energy field. The monetary contribution, received from the license holders in the field of energy, was set at the level of 2 %, which means an increase of 20 times of this duty. These companies also have the obligation to sell the natural gas quantities, resulting from the current domestic production activity, at the price of 68 lei / MWh to eligible suppliers and final customers. All these measures have had a direct impact on companies acting in the energy field, affecting their profitability and simultaneously their ability to carry out investment projects. This paper analyzes the way the e companies listed on Bucharest Stock Exchange, acting in energy field, were affected by Government Emergency Ordinance no. 114/2018 measures.

Investigations Regarding the Influence of Corporate Governance on Financial Performance. Empirical Study on Banks Listed on the Romanian Capital Market

Abstract The role of corporate governance in achieving the financial performance in a sustainable development context is recognized. A fundamental premise in defining and applying good corporate governance is the area of the elements that describe the structure of the capital, elements that influence the guidelines and policies of the Board of Directors regarding the obtaining of the financial performance. On the equation “share capital - financial performance” we find the imprint of the compliance rate of the management statements with the requirements of the Corporate Governance Code applicable on the capital market on which the entity trades its shares. In this context, considering the compliance of the management statements published in the set of annual reports with the Corporate Governance Code, our researches investigate the relationship between the capital structure and the financial performance of the banks listed on the Bucharest Stock Exchange.

Modelling the Financial Failure of Romanian Stock Companies

Abstract The aim of the present article is to model and predict the financial failure of non-financial companies listed on the Bucharest Stock Exchange. The prediction models are based on the companies’ financial reports. The paper emphasizes the importance of processing outlier data and the significance of categorical independent variables. The paper contributes to bankruptcy and corporate financial failure research by presenting a Romanian situation. Results show that the model that uses 3-year financial data prior to the failure has a better accuracy. Several models have been compared, and it was found that using categorical independent variables as explanatory variables increased the accuracy of the models against those that used numerical regressors.

An Intrinsic Entropy Model for Exchange-Traded Securities

This paper introduces an intrinsic entropy model which can be employed as an indicator for gauging investors’ interest in a given exchange-traded security, along with the state of the overall market corroborated by individual security trading data. Although the syntagma of intrinsic entropy might sound somehow pleonastic, since entropy itself characterizes the fundamentals of a system, we would like to make a clear distinction between entropy models based on the values that a random variable may take, and the model that we propose, which employs actual stock exchange trading data. The model that we propose for the intrinsic entropy does not include any exogenous factor that could influence the level of entropy. The intrinsic entropy signals if the market is either inclined to buy the security or rather to sell it. We further explore the usage of the intrinsic entropy model for algorithmic trading, in order to demonstrate the value of our model in assisting investors’ intraday stock portfolio selection, along with timely generated signals for supporting the buy/sell decision-making process. The test results provide empirical evidence that the proposed intrinsic entropy model can be used as an indicator for evaluating the direction and the intensity of intraday trading activity of an exchange-traded security. The data employed for testing consisted of historical intraday transactions executed on The Bucharest Stock Exchange (BVB).

Assessment of the Insolvency Risk in Companies Listed on the Bucharest Stock Exchange

Abstract The present study presents, from the theoretical and pragmatic point of view, 6 of the established score models regarding the assessment of the insolvency risk, belonging to the Anglo-Saxon, Continental and Romanian schools. The research sample is made up of 26 companies belonging to the hotel industry and restaurants, listed on the Bucharest Stock Exchange. The research was carried out over a period of 11 years (2007-2017). Following the application of the score models, it was found that during the period covered by the research, a number of 14 companies had a relatively high insolvency risk and 12 of them had a relatively low insolvency risk.

The Influence of Audit Opinion on the Degree of Real Earnings Management. The Case of Romanian Listed Companies

The quality of financial information is a decisive landmark in the decision-making process of all users. This is why meeting the quality criteria should be a desideratum for all the stakeholders involved in the development and verifying of financial reports. In this context, this paper aims to analyze the influence exercised by the audit opinion on the quality of the financial information reported by Romanian companies listed on the regulated market of the Bucharest Stock Exchange. Quality is assessed in terms of the degree of manipulation of operational activities (intervention in the conduct of commercial transactions and controlling the cost of the goods sold via overproduction, respectively). The analyzed data cover a time frame of 6 financial years (2012-2017), and the dependency relations are also tested by introducing control variables such as: company size, indebtedness, profitability and reputation of the auditor. The results obtained highlight the contribution of the audit opinion to boosting the quality of financial information, measured based on the degree of manipulation of sales (under the aspect of value and the time when the transactions were made). In case of manipulation via overproduction, the audit opinion does not exercise significant influences, reflecting possible limitations of the audit endeavor in terms of its capacity to identify corrupt activities associated with production. The auditor’s reputation does not have a significant impact on the manipulation of sales, only in overproduction case this characteristic having a positive role.

Deep architectures for long-term stock price prediction with a heuristic-based strategy for trading simulations.

Stock price prediction is a popular yet challenging task and deep learning provides the means to conduct the mining for the different patterns that trigger its dynamic movement. In this paper, the task is to predict the close price for 25 companies enlisted at the Bucharest Stock Exchange, from a novel data set introduced herein. Towards this scope, two traditional deep learning architectures are designed in comparison: a long short-memory network and a temporal convolutional neural model. Based on their predictions, a trading strategy, whose decision to buy or sell depends on two different thresholds, is proposed. A hill climbing approach selects the optimal values for these parameters. The prediction of the two deep learning representatives used in the subsequent trading strategy leads to distinct facets of gain.

Big 4 and audit fees in the context of adopting International Financial Reporting Standards

Abstract The main purpose of this article is to determine the impact that Big 4 companies have had after the adoption of IFRS became mandatory and if the level of the fees related to the audit services registered a significant increase. Thus, after a thorough research of the specialized studies, we analyzed the impact of financial reporting according to the International Financial Reporting Standards, determining how the audit fees were influenced and which was the impact of the largest companies targeted in this study. In order to determine the number of companies audited by Big 4, we analyzed all the companies listed on Bucharest Stock Exchange, during the period 2010-2018, which trade premium shares. It is obvious that the financial reporting according to the International Financial Reporting Standards increases the number of companies audited by Big 4, although there has audit fees with higher values. In the following, we will analyze the changes that have occurred in the audit market of Romania.

Environmental Information Transparency—Evidence from Romanian Companies

The purpose of this paper is to analyse disclosure of environmental information (DEI) for a set of 100 companies listed at the Bucharest Stock Exchange (BSE) and identify possible correlations between this and the evolution of some relevant economic and financial measures of companies’ activities. For these purposes we have calculated an index of environmental information disclosure and we employed a system dynamic panel data estimation model and panel corrected standard errors for sampled companies for the 2013–2017 period. The results we have obtained show that sampled companies have a low degree of environmental information disclosure, as the highest registered score was of 15 out of a maximum of 29 points, with an average of merely 6.37 points. Regarding the possible correlations, the tests performed have shown that entity size, expressed by the number of employees, is the factor which positively influences environmental information’s disclosure. Results also evidence that performance determines the quantity of information the firm provides to external users, as opposed to maturity/age. Our study is the first approaching companies from Bucharest Stock Exchange with data for 5 years using a mixed approach (DEI–index and regressions) and we think the results obtained are useful for managers, general public and investors, considering that size and performance greatly influence companies’ environmental awareness.

FACTORS INFLUENCING THE QUALITY OF FINANCIAL AUDIT

Investors’ decisions are based on financial and non-financial information. To be useful, the information provided by the financial reports must be accurate, which is also ensured by the opinion expressed by the auditors. The purpose of the paper is to show the importance of the quality of audit services both for investors and for professional accountants and auditors. Audit quality factors can be structured according to several criteria and were represented by the size of the auditor, rotation, duration of the contract, types of services provided. In order to support this hypothesis, the correlation between the variables was tested on the basis of a sample of seven companies listed at Bucharest Stock Exchange in the energy field and utilities included in index BET, for period 2013 - 2018. The data was collected from the annual financial statements and reports issued by financial auditors. The results show that there is a correlation between variables, but of different intensities depending on the indicators chosen. Increasing the quality of financial reporting and the quality of audit leads to increased investor confidence in professional accountants.

THE INFORMATION CONTENT OF AUDIT OPINION FOR USERS OF FINANCIAL STATEMENTS

In a market economy with frequent changes, audit is an area that can provide some stability at the economic and social lever, even if the economic and financial crises have questioned the audit work and led to a decrease in the trust of the intended users in the auditors work, leading to a distortion of the primary purpose of the financial audit. The article presents the relevant aspects of the evolution of audit reporting, especially on the underlying issues that expressing qualified opinions or disclaimer of opinion. The content of paper includes a review literature, national and international, and a case study that identified and analyzed the qualified opinions expressed in the auditor’s independent reports, after analysis the financial statements of companies listed on the Bucharest Stock Exchange for the period 2015, 2016 and 2017. The entities were grouped on 9 sectors of activity and researched for each industry if the auditors expressed an unqualified opinion or a modified opinion and if the auditor is part of a Big4 company or belongs to another auditor category. The reasons behind the modified opinions were analyzed and grouped according to the frequency of their appearance in the audit reports. The most important conclusion of the case study was that in all cases, the reasons that led to express modified opinions, was detailed in the auditor’s report, this being considered as a reference guide for the future auditor’s missions, as well as, a recommendation for improving the highlighted aspects.