Decline In Profitability Research Articles

Blockchain application and outlook in the banking industry

Blockchain technology is a core, underlying technology with promising application prospects in the banking industry. On one hand, the banking industry in China is facing the impact of interest rate liberalization and profit decline caused by the narrowing interest-rate spread. On the other hand, it is also affected by economic transformation, Internet development, and financial innovations. Hence, the banking industry requires urgent transformation and is seeking new growth avenues. As such, blockchains could revolutionize the underlying technology of the payment clearing and credit information systems in banks, thus upgrading and transforming them. Blockchain applications also promote the formation of “multi-center, weakly intermediated” scenarios, which will enhance the efficiency of the banking industry. However, despite the permissionless and self-governing nature of blockchains, the regulation and actual implementation of a decentralized system are problems that remain to be resolved. Therefore, we propose the urgent establishment of a “regulatory sandbox” and the development of industry standards.

Investment Appeal and Development Strategies of Small Businesses

В статье представлены результаты исследования инвестиционной привлекательности субъектов малого и среднего предпринимательства в период c 2013-го по III квартал 2016 года. Выявлено изменение настроений представителей бизнеса в период 2015-2016 годов в связи с влиянием рецессии и снижения покупательной способности и высокой зависимости субъектов предпринимательства от частного потребления. Данные эмпирического исследования свидетельствуют о сокращении доходности бизнеса и об ухудшении качества управления расходами, обусловленного влиянием таких факторов, как обвал рубля в декабре 2014 года («черный вторник») и последовавшее за этим сжатие ликвидности. Результаты исследования по итогам 2014 года свидетельствуют об одинаковой степени инвестиционной привлекательности малого бизнеса Москвы, Санкт-Петербурга и других регионов России. Однако значения стоимости бизнеса, которые отражают его полезность для собственников, в регионах существенно ниже. Это объясняется более скромными ожиданиями отдачи на вложенный капитал, чем в мегаполисах России. Рассмотрен механизм коллективных инвестиций (краудинвестинг) в частный бизнес, отмечены его достоинства и недостатки. Данный механизм может стимулировать приток частных инвестиций и расширение внутреннего рынка капитала. По оценке Центрального банка, объем рынка краудинвестинговых заимствований в РФ по итогам 2015 года составил всего 52,5 млн руб., тогда как согласно отчету компании Massolution оцениваемый объем инвестиций в мире составил 34 млрд долл., что является еще одним подтверждением зачаточного состояния данного механизма в России. Для эффективного использования механизма необходимо формирование нормативно-правовой базы, позволяющей защитить интересы частных инвесторов, установить регулирование рынка p2b-заимствований и обеспечить широкий доступ физических лиц.

Profits, dividends and industry restructuring: the Swedish paper and pulp industry between 1945 and 1977

ABSTRACTThis paper explores the role of profit distribution in the restructuring of the Swedish paper and pulp (P&P) industry between 1945 and 1977. In addressing this issue, we will draw on the life-cycle theory and market imperfection arguments to examine whether the less profitable firms shared more of their profits as dividends, or remained on the market longer by reinvesting the majority of the profits. Our study shows that an increasing share of the profits was distributed to owners over time, and thus less profit was reinvested in industrial renewal. We find that the observed general upward trend in dividends can be attributed to the decline in profit and firm legacy, as firms in the Swedish P&P industry kept dividends up while reducing reinvestment as their profit margins decreased over time. Our study shows that the market imperfections related to capital taxation and investment funds increased rather than decreased dividends.

A Spark from the Public Sector: Co-Lending by Government-Owned and Private-Sector Lenders

Co-lending by private-sector and government-owned lenders accounts for nearly one-tenth of all syndicated-loan funding to corporate borrowers over the three decades spanning 1980 to 2010. I find evidence that private-sector institutions co-lend with government-owned lenders to benefit from better legal protection and implicit debt guarantees. This leads to loans with lower spreads, longer maturities, larger syndicates, less collateral, and a greater participation of foreign lenders, particularly for borrowers headquartered in countries with weak property rights. Yet, firms that receive loans from a mixed syndicate comprised of both private and government-owned lenders show a decline in profitability and valuation in subsequent years, which suggests that governmentowned lenders fail to efficiently allocate funding.

Is green tea still ‘green’?

The contemporary tea industry in China is associated with high tea production and high nitrous oxide (N2O) emissions, due to the application of large quantities of nitrogen (N) fertilisers, and the intrinsic characteristics of tea field soils. In total, the Chinese tea plantations may have emitted 40.9 Gg N year–1 of N2O for 2013, accounting for 85% of emissions from global tea plantations. Such emissions are significant, unneglectable and need to be incorporated into the national greenhouse gas inventory. The current average N2O emission rate and emission intensity of tea plantations in China are as high as 16.6 kg N2O‐N ha–1 year–1 and 21.3 g N2O‐N per kg tea production (several times greater than in other croplands), respectively, severely damaging the ‘green’ signature of Chinese green teas. To reduce the risk of a sudden collapse of the currently booming tea industry, due to the dramatic decline of economic profit in the event of an agricultural carbon tax scheme being implemented in the near future, investigations of the mechanisms for the high rate of N2O emissions and the effective N2O mitigation practices in tea plantations are urgently needed. Of the counties with large tea plantations, only China, India and Japan have contributed data. The measurement and research of N2O emissions from other large tea plantations in Africa, South and Central Asia should be alerted by this report to close the global gap of N2O emissions from tea plantations.

Value-Added Tax: Portuguese Experience and Anticipated Impact on the Greek Tourism Industry

This paper estimates the impact of the recent 10% VAT increase on Greek tourism industry, the effect on firm profitability and probability of firm survival by testing the consequences of an equivalent VAT change in Portugal. The analysis is divided into 3 periods: before and after the VAT hike, and during the financial crisis with the total time period from 2003 to 2013. The sample is composed of 23,388 Portuguese and 4,969 Greek unique firms with 5.1 and 6.9 year-observations per firm for Portugal and Greece, on average and respectively. The results show that the increase of VAT from 13 to 23% will lead to a negative scenario with the effect even more dramatic than the recent financial crisis. The equivalent 10% VAT raise in Portugal caused a significant decline in firm profitability, an average drop of 9.4% compared to 1.15% during the financial crisis, a massive increase in the number of inactive firms and amplified the likelihood of firms to become bankrupt by 3.063 times. Such consequences will inevitably affect unemployment and will cause a slump in tax revenue in the long run. Hence, this research has wide practical and academic implementation and should be considered by the Greek and Portuguese government before taking a next step of interventions in the tourism sector.

PELAKSANAAN PROGRAM CONTINUITY MARKETING DAN ONE TO ONE MARKETING DALAM UPAYA MENINGKATKAN LOYALITAS PELANGGAN ROYAL VANESSA HOTEL (Survei pada tamu repeat individu di Royal Vanessa Hotel Bengkulu)

Indonesia’s tourism industry has developed very rapidly, it’s characterized by the increasing number of tourist both foreign tourists. Form of tourism businesses that are currently experiencing a fairly rapid increase in the hotel industry as tourism support facilities. Customer loyalty is important in the hotel industry. A decline loyalty in Royal Vanessa Hotel is seen from the decrease in occupancy rate repeat guests. Decrease in the level of loyalty is a major threat to the hotel industry because of the presence of this loyalty will decrease the thread indicated a decrease in corporate profits. If a decline in profit the company will have an impact on the company’s losses. Moreover, the adverse effect that will be received from the company is going to decrease the loss of customer loyalty that will turn to another hotel. So do implementation of continuity marketing and one to one marketing program in an effort to increase customer loyalty at the Royal Vanessa Hotel. Respondents of this study is a repeat guest Royal Vanessa Hotel. The method which is used in this research is descriptive and verifikatif, with the survey explanatory method and cross section approach. Sample size of 100 respondents from existing population by using the formula slovin. The data used are primary data and secondary data collected through observation, questionnaires, literature study and interviews. The purpose of this research was to determine how much influence the implementation of continuity marketing and one to one marketing program in an effort to increase customer loyalty at Royal Vanessa Hotel. The results of this study is that there is continuity of influence between the implementation of marketing programs and one to one marketing in an effort to increase customer loyalty at the Royal Hotel Vanessa. Smallest degree of influence in an effort to improve customer loyalty is to the implementation of marketing continuity program, it needs to be fixed by the Royal Hotel with fixing Vanessa Operational Standards (SOP) regarding the marketing continuity program and also the hotel in order to add the programs other than programs that has been done. Thus may increase the effects of the implementation of continuity marketing program in an effort to increase customer loyalty.

Cheap oil hits BASF

The low cost of oil—currently about $37 per barrel—is dealing BASF, the world’s largest chemical company and an oil and gas producer, a series of financial challenges. The firm’s 2015 profits fell 22.7% to $4.5 billion on sales of $79.5 billion, down 5.2%, largely because of the low oil price and slowing growth in China’s economy, Kurt Bock, BASF’s chairman, said at the firm’s recent financial results briefing. If the oil price dips below $30 per barrel, BASF will experience a further decline in profits, Bock said. Oil’s collapse has also forced the firm to reconsider plans to build a major methanol-to-propylene plant in Freeport, Texas. “If the price of oil is low, then it is very competitive against this natural gas process,” Bock said of the proposed plant’s technology. The firm will decide whether to go ahead with the project by the end of June. BASF says it would

THE ECONOMIC IMPACT OF MINIMART ON TRADITIONAL SHOP IN MALANG, EAST JAVA, INDONESIA

Minimart is a modern store similar to convenience store. In urban areas in Indonesia, it is hard to find a location without a minimart. The proliferation of minimart in urban areas feared would displace the traditional shop. The study aims to measure the economic impact of the minimart on the traditional shop in Malang. 172 traditional shops scattered in Malang was purposively chosen in this study; 86 shops located near to the minimart, and 86 shops located away from the minimart. Using difference-in-difference estimation, the simple model reveals that the drop in revenue (-125,116.28 IDR) was not significant; on the other hands, the drop in profit (-25,193.02 IDR) was significant. The econometric model shows that the minimart gives the negative impact on both revenue (-2.7%) and profit (5.5%). However, the impact was not significant. Furthermore, the interview reveals that the declining in revenue and profit was caused by the loss in the number of buyers. The decline in revenue and profit has happened due to many emerging new traditional shop. The new traditional shops come up with several innovations to attract the buyers. The presence of the new traditional shop has forced the existing traditional shops to take action to survive. The four actions that most traditional shops did were: diversify products, better display, adding new brands and lower the prices.

Crop diversification to enhance nutrient use efficiency in Indian scenario

Indian agriculture is now facing second generation problems like raising or lowering of water table, nutrient imbalance, soil degradation, salinity, resurgence of pests and diseases, environmental pollution and decline in farm profit. About 2.5 million tone of additional food grains are required annually in the next 10 years to meet the demand of the growing population. This is a huge challenge as it has to come from shrinking both in quality and quantity. Crop diversification shows lot of promise in alleviating these problems through fulfilling the basic needs and regulating farm income, with standing weather aberrations, controlling price fluctuation, ensuring balanced food supply, conserving natural resources, reducing the chemical fertilizer and pesticide loads, environmental safety and creating employment opportunity.

Corporate Sector Vulnerabilities in Ireland

The paper uses both macro- and micro-level data to assess how has the financial health of the Irish non-financial corporate (NFC) sector changed in the post financial crisis period. The analysis suggests that vulnerabilities have generally declined in recent years, but the NFC sector and especially smaller domestic firms remain vulnerable. A sensitivity analysis indicates that a non-extreme shock, which comprises a decline in profitability and an increase in interest rates, is likely to push many firms into a vulnerable state and that the share of firms with interest cover ratio of lower than one would triple to nearly fifty percent, largely reflecting the deterioration in the financial health of small firms. In such a scenario, the share of risky debt would increase to the level observed during the financial crisis, resulting in a significant increase in new corporate defaults.

A Spark from the Public Sector: Co-Lending by Government-Owned and Private-Sector Lenders

Co-lending by private-sector and government-owned lenders accounts for nearly one-tenth of all syndicated-loan funding to corporate borrowers over the three decades spanning 1980 to 2010. I find evidence that private-sector institutions co-lend with government-owned lenders to benefit from better legal protection and implicit debt guarantees. This leads to loans with lower spreads, longer maturities, larger syndicates, less collateral, and a greater participation of foreign lenders, particularly for borrowers headquartered in countries with weak property rights. Yet, firms that receive loans from a mixed syndicate comprised of both private and government-owned lenders show a decline in profitability and valuation in subsequent years, which suggests that governmentowned lenders fail to efficiently allocate funding.

Indian Takeovers: A Residual Income Approach to Analyse Value Creation for the Acquirer

The objective of the paper is to test financial performance of major merger and acquisition deals done by Indian companies in the past. The traditional accounting methodologies do not sufficiently address the key issue that whether mergers and acquisitions have a positive value creation for the acquirer and hence, is a positive NPV proposition or not. The paper employs residual income approach for valuing, and comparing the present value of the acquirer’s future earnings before the acquisition, with those that actually result following the takeover. The cost of the acquisition, the acquirer’s cost of capital, and the earnings have been taken into account. The residual income approach is used for evaluating a few major Indian takeovers during 2000-10. Using the traditional accounting method, it was observed that acquisitions result in a significant or marginal decline in profitability. However, the results using the residual income approach shows that the fundamental valuation of acquirers is significantly lower after the acquisition than it is before the acquisition.

Evaluating Banking Profit Performance in Ghana during and post Profit Decline: A five Step Du-Pont Approach

In this study we aimed at three objectives. First, identify and rank banks based on a composite score comprising of all five du-pont variables. Second, we identify variables in the five step du-pont set up that are most likely to influence bank ROE during and post profit declining periods. And third, we estimate a model to capture the variables that drive bank ROE during and post profit declining periods. We first establish from our rankings that, foreign banks in Ghana performed better during profit declining periods while the local banks performed better in post profit decline periods using the top ten banks as a benchmark in both periods. Employing Pearson correlation coefficients matrix, we recognized that operating profit margin, asset turnover and leverage were most likely to influence bank ROE in both time periods. We further employ OLS regression and find that bank ROE was impacted by operating profit margin and leverage during profit declining periods and post profit decline while tax effect added up in post profit declining periods.

Too Much Attention on Low Prices? Loss Leading in a Model of Sales with Salient Thinkers

Loss leading is analyzed in a model of promotions (as in Varian 1980) with limited consumer attention: (i) Consumers only compare prices of a selected number of products and (ii) they may pay more attention either to price or quality, depending on the salience of the respective attributes. When consumers have standard preferences, which is our benchmark case, manufacturers benefit when one-stop shopping induces retailers to discount their products, as this expands demand. Results are strikingly different when consumers are salient thinkers. When one-stop shopping or retail competition increases the scope for loss leading, manufacturers' profits decline and there may be an inefficient substitution to lower-quality products. In particular, shoppers who compare products may end up with a choice that is strictly inferior to that of non-shoppers who are locked in to a (local) retailer. Our analysis has implications both for competition policy, as we analyze the implications of a ban on loss leading, and for marketing, as we also analyze how salience affects retailers' product and promotion strategies.

Do Share Issue Privatizations Really Improve Firm Performance in China?

This paper argues that the documented post-share issue privatization (SIP) decline in profitability is not evidence per se that China’s SIP program is ineffective or unsuccessful. Instead, the positive privatization effect is often outweighed by a negative listing effect. We employ a triple difference approach to separate these two effects, and examine a sample of 248 Chinese SIPs from 1999-2009 matched with otherwise comparable SOEs and privately-owned firms. We document a negative listing effect since ROS of privatelyowned firms tends to decline after going public by 2.6% and their EBIT/Sales by 3.8%. After adjusting for this negative listing effect, however, we show that China’s SIP program yields significantly improved profitability (ROS and EBIT/Sales), and find this result is robust to alternative specifications. Our study highlights the need to account for the listing effect in analyzing performance improvements following share issue privatizations--which have accounted for the bulk of China’s listed companies and market capitalization.

Bosnia and Herzegovina Telecommunication Sector Outlook

The upcoming privatization of two remaining telecom operators in Bosnia, and not so recent privatization of one of the incumbent, will create dynamic and changing sector environment for all participants. At the same time the investors are scanning the sector trying to find the right approach and the market niche for more competitive start. In our overview we have looked at regulatory status, core services figures, followed by financial overview for incumbent operators in the past decade, as well as mobile users’ attitudes in carrier section. What we will show is that sector development and the expansion of consumers’ base is far from over. The services offered are still at rudimental level, and the potential owners of incumbent operators as well as new entrants will have considerable room for development. Financial analysis has shown that revenue for all three incumbent operators is stagnating in the last years, while the small private operators are experiencing steady growth. Although BH Telecom is still the largest company in the sector, it dose face slight decline in net profit while its biggest competitor – Telecom Srpske in 2013 had biggest ROE. We find that BH Telecom and Telecom Srpske had unexploited franchise growth and competiveness potential. We assessed the intrinsic value of all three companies stocks by application of Franchise Factor Model and find that BH Telecom stock price is in equilibrium, Telecom Srpske stock is underpriced and Croatian Telecom is stock strongly overpriced. Finally, the analyses of consumers’ perspective have revealed existence of network effect in mobile market and the strong competition between two market leaders. In all, BiH telecommunication sector is still in its expanding phase and the potential owners of state operators as well as new entrants will have competitive well regulated market.

Network function virtualization: opportunities and challenges [Guest editorial

Over the past decades, the scale of communications networks has been growing rapidly with the emergence of more and more networkbased services. However, network operators all over the world are experiencing a decline in profitability in the last few years. Responding to such a challenge and paradox, the concept of network function virtualization (NFV) has been introduced with the aim of efficiently enabling networkbased services (1) by deploying standardized and programmable hardware systems and (2) by virtualizing network functions with software. Compared to the current approaches to network and service deployment, which are based on a large variety of propriety equipment, NFV opens up many opportunities to the telecommunications industry. By reducing the cost of equipment and increasing the revenue with virtualized services, NFV has the potential to revolutionize the entire telecommunication industry.

Why Law Firms Collapse

Law firms don’t just go bankrupt – they collapse. Like Dewey & LeBoeuf and Bingham McCutchen, law firms often go from apparent health to liquidation in a matter of months or even days and they never manage to reorganize their debts in bankruptcy and survive. This pattern is puzzling, especially because it is strangely out of proportion to law firms’ actual financial distress. Most collapsed firms have remained profitable up through the days they dissolved. Drawing on an informal review of every large law firm collapse in the last thirty years, I look for an explanation in law firms’ organizational structures. Law firms are fragile because they are vulnerable to partner runs: When one partner withdraws, she damages the firm, causing still other partners to withdraw, which further damages the firm, and so on. These runs gather momentum from several aspects of law firm structure. The main one is that law firms are owned by their partners, rather than by investors. Partner ownership forces partners into a race for the exits, because it promises brutal financial punishment to partners who stay. As owners, partners directly suffer the decline in profits caused by other partners’ withdrawals and they face extensive personal liability if they stay until their firms dissolve. These forces naturally make a firm’s partners more likely to leave once others have already left. This structure-based theory offers many insights. It tells us that law firms can often collapse inefficiently. It also tells us which firms are most vulnerable and how we can stop them from falling apart.

Is the psychology of high profits detrimental to industrial renewal? Experimental evidence for the theory of transformation pressure

The theory of transformation pressure maintains, by reference to cognitive and emotional factors, that productivity and innovation are stimulated by a decline in actual profits. In periods of increasing profits, firms governed by historical relativism, the peak-end rule and overconfidence will opt for the status quo. In the following profit recession, actors become more alert, calculating and creative, favoring a transformation, especially if they fear that the survival of the firm is at stake. The theory of transformation pressure was tested by a within-subjects experiment where undergraduate students in macroeconomics acted as managers for an established company. The role play sheds light on the students’ investment strategy choices and underlying psychological perceptions under varying profit conditions. The theory was only partly confirmed by the experiment. There are arguments in industrial economics, psychology and neuroscience for a qualified theory of transformation pressure. Productivity is enhanced by moderate pressure or by periodic shifts between hard pressure and good opportunity.