Macedonian Stock Exchange Research Articles

Does the Cash Conversion Cycle Affect Firm Profitability? Some Empirical Evidence from Listed Firms in North Macedonia

Abstract This study aims to investigate the potential relationship between the cash conversion cycle (CCC) and firm profitability for the period from 2011 to 2019. To do this, a fixed effects panel regression model is applied to a sample of firms listed on the Macedonian Stock Exchange. Firm profitability is measured by the return on assets (ROA) ratio, while the liability ratio, firm size, current ratio, acid test and liquidity ratio are used as control variables. Our main finding is a decreasing and convex relationship between cash conversion cycle and profitability. In terms of working capital management policy, this implies that firms with a shorter cash conversion cycle perform better than others, since financial managers repay suppliers and reduce investments in working capital.

The Impact of Debt Financing on the Value of a Company: the Case of North Macedonian Companies

Abstract The purpose of this paper is to determine the relation between a company’s indebtedness and its value. We used a sample of 20 North Macedonian companies, listed on the Macedonian Stock Exchange (MSE) mandatory listing, and the data for 6 years’ time span. In the paper, we use Panel Data models (Pooled OLS regression, Fixed and Random Effects models) to estimate the relation between debt financing and the company’s value measured by return on assets (ROA) and Tobin’s Q. According to the results of short-term debt has a statistically significant and negative impact, while the return on investments in human capital (HCROI), company’s size and current ratio have a positive and statistically significant impact on the ROA. When investigating the impact of indebtedness on a company’s value measured by Tobin’s Q, short-term and long-term debt have positive and statistically significant effects. Our research suggests that while debt increases a company’s indicators for market performance, it also decreases the company’s accounting operating performance. Therefore, when analyzing a company’s value, investors should be considering not only Tobin’s Q, which can be sometimes regarded as a market-to-book value ratio, but also to look at the fundamental ratios, such as ROA, ROE (return on equity) and EPS (earnings per share).

The Turn-of-the-Month Effect: Evidence from Macedonian Stock Exchange

Abstract We examine turn of the month effect for the Macedonian Stock Exchange using daily return data utilizing OLS and pooled regression analysis for the 10 components of the MBI10 index. We find that for most of the individual stock returns the coefficients of the turn-of-the-month effect are all positive indicating the presence of the turn-of-the-month effect. When the data is pooled, we obtain even stronger results. The study confirms that the turn-of-the-month effect holds for Macedonian Stock Exchange which has not been examined before. Therefore, on average, the daily return over the turn-of-the-month effect period is significantly higher than the daily return over the rest-of-the-month period and hence providing room for more investment opportunities.

LONG-RUN AND SHORT-RUN CAUSALITY BETWEEN STOCK PRICE INDICES AND MACROECONOMIC VARIABLES: EVIDENCE OF PANEL VECM ANALYSIS FROM BOSNIA AND HERZEGOVINA, CROATIA, NORTH MACEDONIA AND SERBIA

The purpose of this paper is to identify the long-run and short-run relationship between the values of the Macedonian Stock Exchange Index composed of 10 most liquid listed stocks (MBI10), the Zagreb Stock Exchange Index (CROBEX) composed of the most liquid listed stocks, the Sarajevo Stock Exchange Index (SASX-10) composed of 10 most liquid listed stocks and the Belgrade Stock Exchange Index composed of 15 most liquid listed stocks (BELEX 15) and the selected macroeconomic variables. In order to identify the macroeconomic variables that affect the values of the selected stock indices, the analytical-synthetic method and the statistical method are applied. The statistical method uses econometric models for data analysis and interpretation and includes the application of the following econometric tools: Panel unit root test, Fisher -Johansen cointegration test, application of the panel vector error correction model (PVECM) and the Wald test statistics. The results of PVECM between the values of the selected stock indices and independent variables such as industrial production index 2015=100, average monthly gross wages, shows existence of conditionality or causal relationship on the long-run, when independent variable Harmonized Index of Consumer Prices (HICP) according to the COICOP classification 2015=100 is exluded from the model. By applying PVECM, it can be concluded that there is a long run causality running from independent variable to dependent variable, meaning that between the values of the selected stock indices and industrial production and average gross wages there is speed of adjustment towards long run equilibrium.

Influence of macroeconomic indicators in the development of the Macedonian Stock Exchange – period 2017-2022

Influence of macroeconomic indicators in the development of the Macedonian Stock Exchange – period 2017-2022

LTMS Forecasting on the Macedonian stock exchange (MSE)

LTMS Forecasting on the Macedonian stock exchange (MSE)

The Practice and Drivers of CSR Disclosure Among the Blue-Chip Companies in North Macedonia

Non-financial reporting is becoming an increasingly common topic of discussion and is a matter of time before it is regularly implemented around the world. Stakeholders want to see how companies contribute to the common good and what social activities they undertake, so although in the Macedonian practice Corporate Social Responsibility (CSR) disclosure is not mandatory, there is a growing intention to publicly disclose information about social activities. CSR is extremely important for businesses and other stakeholders, and it requires businesses to develop a corporate strategy that balances environmental, social, and ethical concerns. Through this type of activities, companies manage to increase their influence in society, to leave a good impression but also to contribute to the improvement of society and place of living, which is a win-win situation for everyone. The paper aims to examine the level of CSR reporting in domestic practice, through research conducted on the blue-chip companies listed on the Macedonian Stock Exchange. We analyzed the financial and annual reports and official websites of the joint stock companies that were part of the MBI10 index in the period from 2016 to 2020. First, a theoretical review of the CSR is presented, followed by a literature review on the CSR’s indicators and the state of the CSR in the Macedonian practice. Our findings from the conducted content analysis and linear regression show that larger and more profitable companies show a greater propensity for social responsibility and display more information about their undertaken social related activities.

The Profitability Analysis of the Best Companies Listed on the North Macedonian Stock Exchange (MBI10) during the Pandemic Crisis Covid-19

The Profitability Analysis of the Best Companies Listed on the North Macedonian Stock Exchange (MBI10) during the Pandemic Crisis Covid-19

A study on audit report timeliness: The Macedonian Stock Exchange

Abstract Financial statements reflect important information about the entity's financial position, operating performance, and cash flows and must be made available in a timely fashion to all interested factions to stimulate opportune business judgments. Ergo, this paper examines the association of the audited annual report delay with eight entity and audit firm attributes. The sample includes 396 observations of 99 nonfinancial firms listed on the Macedonian Stock Exchange (MSE) for the period 2014–2017. The regression results designate a statistically significant relationship between the audit opinion, company liquidity, size, and industry with the audit opinion lag. Moreover, the publication period ranges from 43 days to 374 days suggesting that timeliness may be a significant concern for Macedonian entities regarding financial reporting policy. This is the first study to thoroughly assess the relationship between entity, auditor characteristics, and audit report timeliness on the developing Macedonian market.

Comparative analysis of the explanatory power of the CAPM and the Fama-French three-factor model on cross-sectional variation of returns on stocks trading on the Official market of the Macedonian Stock exchange

The amount of literature on factors that explain the cross-sectional variation in average returns is vast, however, the majority of these papers attempt to explain the variation of returns in developed and emerging markets. In that sense, the literature lacks sufficient evidence regarding the variation of returns of frontier markets. The Republic of North Macedonia is considered to be a frontier market and in this paper we aim to empirically test the ability of the Capital Asset Pricing Model and the Fama-French Three Factor Model in explaining the cross-sectional variations of stock returns of securities trading on the Macedonian Stock Exchange. The empirical study is based on monthly returns from January 2011 to April 2021. Additionally, we use annual data obtained from the financial statements of the analysed companies included in this study. Using OLS time series regression we find that both models have limited explanatory power of the cross-sectional variation in expected returns on the Macedonian Stock Exchange. The study shows that only the size factor exhibits some limited explanatory power regarding stock returns. Based on the comparative analysis the Fama-French Three-Factor Model describes the variation of returns on the MSE much better than the Capital Asset Pricing Model.

Prilagođavanje sastava odbora tokom krize Covid-19 - analiza preduzeća u makedoniji

The aim of this paper is to make an analysis of the reported changes in the boards' composition of the Macedonian stock exchange -listed companies during the Covid-19 crisis. In order to achieve this objective, secondary data of the companies reports published on the Macedonian stock exchange website were used. The sample consists of 80 companies, and firstly we performed qualitative analysis on the companies' reports regarding boards' composition changes (over 30 companies reported changes). Afterwards, in order to increase the understanding of the factors that determine boards' composition in Macedonian joint-stock companies, we designed a model to examine the relation of company characteristics, industry characteristics and market perception of company value with board size, board independence and board diversity. The results from our analyses show that during the Covid-19 period a substantial number of companies from the sample have made changes in board composition and only 9.38% of the companies that reported change (over 30) decided to reappoint the same members. However, this does not mean that the Covid-19 crisis has been the only factor influencing the changes. Furthermore, one of our conclusions from the presented results in the study is that most of the variations in board/boards size can be explained by the differences in firm characteristics (in particular operating revenues and chosen boards structure), while the variations in board independence can be explained by firm characteristics (in particular operating revenues and chosen board structure) and industry characteristics.

LEGAL ASPECTS OF THE MANNERS OF HOLDING SHAREHOLDERS’ ASSEMBLIES IN THE CONDITIONS OF COVID 19 PANDEMIC

The functioning of the world social and economic order in the 21st century has faced many challenges, but the global Covid-19 pandemic has caused unpredictable tendencies that require immediate, effective and adequate reactions that will respond seriously to the new situation. No society, including Macedonia, has remained immune to the consequences caused by this pandemic, penetrating deeply into all segments of society. The Covid-19 pandemic directly raised the question of the readiness of national socio-economic orders to function in digital format. The functioning of the main carriers of economic fluctuation, i.e., business entities and their capacity for digitalization, is one of the main preoccupations imposed by the pandemic. These issues are current in global and Macedonian aspects. The main purpose of this paper is, through analysis of the practice of joint stock companies listed on the Macedonian Stock Exchange and those with special reporting obligations, to identify the degree of utilization of the opportunity provided in the Law on Trade Companies for organization at shareholders' assemblies by electronic means during the conditions of the pandemic. At the same time, the paper concentrates on the effects that the pandemic causes in the realization of the shareholder rights under the newly created conditions. In addition to analyzing the current situation, the paper provides guidance for improving the provisions for the organization of shareholders' assemblies by electronic means and the exercise of shareholders' rights. Keywords: Joint stock companies, shareholders’ assemblies by electronic means, shareholders' rights, COVID 19 pandemic

Međuzavisnost između tržišta u razvoju i razvijenih berzi - slučaj makedonske, beogradske, "Six" švajcarske i "Euronext" pariske berze

The aim of the paper is to examine the level of interdependence between developing and developed stock markets. The correlation of the Macedonian (MBI10) stock exchange index with the Belgrade (BELEX15), the Six Swiss (SLI) and the Euronext Paris (CAC40) stock exchanges from November 2005 to October 2018 was studied. In order to assess the impact of the crisis on the interrelations between these equity markets, the analyzed period was we subdivided into three segments (pre-crisis, during crisis and post-crisis) and the data sets were subjected to linear regression analysis. The research results indicate an increased correlation of the Macedonian with Belgrade and Euronext Paris Stock Exchanges and decreased correlation with Six Swiss during the time of financial distress comparing to pre and post crisis periods. The findings of this study contribute to the overall picture of the relationship between stock markets in the time of Financial Crisis. Moreover, by investigating the interrelationship between developing and developed European stock markets, the results suggest that financial market integration is time-varying.

THE INFLUENCE OF BOARD INDEPENDENCE AND INTERNAL AUDIT FUNCTION ON COMPANY’S PERFORMANCE, STUDY OF MACEDONIAN COMPANIES

Corporate governance and company performance are issues that continue to raise interests of the researchers worldwide, as they provide valuable lessons for vast audience, such as company owners, company leaders, supervisors and policy makers. This study aims towards contributing to the previous literature showing that there is positive correlation between corporate governance mechanisms and company performance. It specifically focuses on the correlation between board independence and internal audit function existence with performance of the companies listed on the Macedonian Stock Exchange, for specific periods 2003-2004 vs. 2014- 2018. In particular, the influence of the board independence and the internal audit function over company performance are investigated through Profit, Return on Equity (ROE) and Earnings per Share (EPS) indicators. The results of the performed research and analysis suggest that corporate governance is important for the company performance, i.e. corporate governance improvements such as board member independence and internal audit function have positive impact on the performance of the companies listed on the Macedonian Stock Exchange. However, given the fact that, other factors apart from board member independence and internal audit function can influence the Profit, ROE and EPS of companies, it is reasonable to assume that the increase of profit and of ROE and EPS indicators may not be connected exclusively with having independent board members and internal audit function. First and foremost, this study is of interest for company owners and leaders; yet, it also provides useful information for supervisors and other policy makers.

The Impact of Foreigners’ Trades on Equity Prices: Evidence from Macedonian Stock Exchange

Abstract Emerging countries’ economies are dependent on foreign capital inflows. For policy makers and researchers of particular interest is to understand the nature of these flows and their impact on the domestic capital market. The first significant foreign inflows entered the Macedonian Stock Market at the end of 2004, and stock prices were increased. It was general belief among the investors that foreigners are driving the prices on the Macedonian Stock Market. This study examines the influence of foreign investors’ trades on stock returns in Macedonia using base broadening and price pressure hypotheses. Strong evidence consistent with the base-broadening hypothesis shows that 1% of monthly net inflows as a percentage of last month market capitalization is connected with 7% rise in monthly returns on the Macedonian stock market. The findings do not support the price pressure hypothesis, so the rise in the prices is permanent.

Trade-Off Between Liquidity and Profitability: An Empirical Study of Pharmaceutical Sector in the Republic of North Macedonia

Abstract The relationship between liquidity and profitability is one of the most interesting topics in the corporate finance research. Having in mind that the pharmaceutical industry is one of the most competitive sectors globally and that its substantial investments in research and development make this industry a key asset for a country’s economic well-being, this paper examines the liquidity-profitability trade off in pharmaceutical sector of RNM. The empirical research engages the secondary annual financial report data of the two pharmaceutical companies listed on Macedonian Stock Exchange (MSE) over the period from 2006-2016. Current ratio (CR), quick ratio (QR) and cash ratio (CAR) were used as measures of liquidity while return on assets (ROA) and return on equity (ROE) were used to measure profitability as a dependent variable. The statistical tests used to evaluate the effects of liquidity on profitability involved descriptive statistics, correlation and regression analysis. The findings suggest that there is no significant relationship between profitability and liquidity determinants of the listed North Macedonian pharmaceutical firms. Regarding practical implications, these findings can help managers overcome dilemmas with respect to the liquidity and profitability tradeoff. Furthermore, this study contributes to the existing research base in this field and represents one of the pioneer attempts in the case of RNM. The results gained from the research are very important for companies themselves, but they can also serve as a starting point for future research to eliminate financial and other corporate issues related to the relationship between profitability and liquidity determinants.

Factors Determining Trade Credit Dynamics During Crisis: Panel Data Analysis for Macedonian Firms

The study is aimed at determining the factors influencing the trade credits dynamics for twenty three firms registered on the Macedonian Stock Exchange, as well as at checking for crisis effects from 2011 to 2015. The study includes a review of the literature on commercial credit factors; elaborately analyzed descriptive statistics of the collected data and dependent variable variance; tests for unobservable effects and their functional form; evaluation of panel regression and interpretation of the results. The authors have proved that net trade credits for these firms depends mainly on the growth potential of lagging firms and their vulnerability, and the crisis effects are significant only for the latter factor. Moreover, the overall efficiency of firms’ assets and their ability to convert income into cash does not have a significant impact in the crisis and post-crisis periods. The growth opportunities and profitability demonstrate a negative impact, meaning that growing and more profitable firms on average tend to expand and receive more trade credits than counterparties. Profitability has a significant impact on trade credit and the effect is seen during the first year after the crisis. Thus, the dynamics of trade credits of registered Macedonian firms is largely determined by the internal factors of a firm, and not by the external macroeconomic situation. Therefore, better financial management is suggested to improve the trade credit policy. One of the directions for further research is the evaluation of the autoregressive component of the trade credit dynamics, as well as including spatial effects in the regression equation.

Liquidity and Profitability Analysis of Non-Financial Entities Listed on the Macedonian Stock Exchange

Liquidity management has a considerable influence on company performance. By analyzing secondary financial company data, this paper seeks to assess the correlation between liquidity and profitability. Through the use of audited annual report of 76 non-financial entities listed on the Macedonian Stock Exchange for the period 2014-2017, the study looks into the association between two traditional liquidity measures, current ratio and acid-test ratio, and three profitability measures, return on assets, return on equity and return on capital employed. Prior to embarking on the statistical research, literature review was performed to obtain basis for the test of hypotheses. Through the use of SPSS software, the dataset comprised of 304 observations generated descriptive statistics, and was subjected to tests of normality and variable correlation testing. The empirical findings designate that liquidity and profitability depict a positive association and that the correlation between current ratio and quick ratio on one hand and ROA and ROE on the other is statistically significant. Moreover, the empirical work reveals a slow trade receivables collection across several Macedonian industries which may damage the long-term solvency of companies, especially in times of recession and economic hardship when liquid funds are a must. In conclusion, this study suggests that the liquidity-profitability relationship should be subject to further scholarship having in mind the immense importance that liquidity management has on the financial health and stability of firms.

Performance Evaluation of Stocks’ Valuation Models at MSE

Abstract Subject and purpose of work: The main task of this paper is to examine the proximity of valuations generated by different valuation models to stock prices in order to investigate their reliability at Macedonian Stock Exchange (MSE) and to present alternative “scenario” methodology for discounted free cash flow to firm valuation. Materials and methods: By using publicly available data from MSE we are calculating stock prices with three stock valuation models: Discounted Free Cash Flow, Dividend Discount and Relative Valuation. Results: The evaluation of performance of three stock valuation models at the MSE identified that model of Price Multiplies (P/E and other profitability ratios) offer reliable stock values determination and lower level of price errors compared with the average stocks market prices. Conclusions: The Discounted Free Cash Flow (DCF) model provides values close to average market prices, while Dividend Discount (DDM) valuation model generally mispriced stocks at MSE. We suggest the use of DCF model combined with relative valuation models for accurate stocks’ values calculation at MSE.

Investors’ behaviour in regard to company earnings announcements during the recession period: evidence from the Macedonian stock exchange

The study investigates the reaction of investors to annual earnings releases as reflected in the volume and price movements of common stocks during a recession. We provide an apparent example where investors did not react to firm-specific positive earnings announcements. Event methodology is employed, and the returns in an event window, defined conventionally as the day before to two days after a firm-specific public earnings announcement, are not abnormal. The volume of trade in the event window is not atypical either. The psychological impact on the investors was such that fear could not be alleviated by the good news and good financial results.