Non-financial Investment Research Articles

Financial and non-financial investments: comparative econometric analysis of the impact on economic dynamics

The purpose of the study is to determine the degree of influence of investments in financial and non-financial assets on the rate of economic growth in a comparative aspect for the US, German and Russian economies. It is determined by the level of development of the financial sector, which can either support growth or slow it down. The methodology of the study is a structural analysis and an econometric approach which allows to build econometric models when the dynamics of GDP and types of investments, to the structural formula as a model to evaluate the contribution of each type of investment in economic growth. A regression analysis was used to show the relationship between financial and non—financial investments, the growth rate of the economy and the financial market bias parameter proposed in the framework of the analysis, an increase in which indicates an expansion of the financial market's influence, a decrease—a reduction in such influence. The built econometric models made it possible to give a forecast estimate of GDP dynamics in the unfolding recession of 2020–2021, when reducing financial and non-financial investments, identifying together with the application of the structural formula and the possible change in the contribution of investments to the rate of economic growth, when their own rate changes. The study also revealed a sharp increase in the financial market bias in the Russian economy compared to the United States and Germany, which significantly affects the rate of economic growth, depending on changes in financial investment. This unbalanced influence requires macroeconomic policy measures to correct the structural imbalance between financial and non-financial investments.

Corporate Financial Portfolio and Distress Risk: Forewarned is Forearmed

This paper explores how corporate financial portfolio influences distress risk. We define distress risk as a dummy determined by whether firms need external subsidies to repay the interest payable. Spanning our analysis with 3,698 listed firms in China during 2006 and 2019, our findings are twofold. First, financial portfolio is associated with less distress risk, especially in start-up firms and degenerating firms. Second, the impact is more pronounced for firms with higher consumption of liquid financial portfolio, which is weakened for firms with lower consumption of that. Besides, the impact is enhanced for firms with seniors who had financial vocation previously. The findings suggest that corporate financial portfolio reduces distress risk by relaxing borrowing constraints and by improving profitability. While corporate financial portfolio is found to squeeze out non-financial investment, it can alleviate over-investment for firms.

Economic crisis as a consequence COVID-19 virus attack: risk and damage assessment

The purpose of the research is to reveal the mechanism of influence of coronavirus on the economic crisis and to develop a method for assessing threats and risks. Understanding the mechanism of generating an economic crisis allows to develop methods of anti-crisis government policy. The research methodology is based on structural analysis and taxonomic approach. Their application makes it possible to distinguish activities with decreasing demand relative to initial supply, and with increasing demand, which generates deficits of goods. The results of the research at the theoretical level of analysis is the proposed method of assessing threats and risks from the spread of coronavirus, which allows the benefits of certain types of activities (pharmaceuticals and medicine), and consider the damage on other activities (tourism, transportation, education). The diagram of the ratio of benefits and losses from the spread of the virus attack allows to position different economies in different zones of the diagram, according to the reaction of a particular economy to the epidemic, with a different scale of influence. Using such a chart, estimating the expected damage and expected benefits, the impact of COVID-19 on the economy is assessed based on changes in the dynamics of investments in financial and non-financial assets. Analysis of financial and non-financial investments in some countries has led to the conclusion that the financial system that is less biased in terms of financial investment relative to the functioning of non-financial sectors is the least vulnerable in a crisis. The multiple excess of financial investments over non-financial ones for Russia creates the foundation of financial instability and recession. This is confirmed using econometric analysis and forecast. Therefore, overcoming the economic crisis caused by COVID-19 in addition to the current measures will require correcting, in particular, the structure of "financial-non-financial" investments.

The Corporate Supply of (Quasi) Safe Assets

Investors value safety services in financial assets, such as the ability to serve as a store of value, to serve as collateral, or to meet mandatory capital and liquidity requirements. I present a model in which investors value safety services not only in traditional safe assets such as US Treasuries, but also in corporate debt. Shareholders thus maximize the value of the firm by complementing standard business operations with safe asset creation. Based on this theoretical framework, I use the CDS-bond basis to derive a measurement of the safety premium of corporate bonds. I document substantial cross sectional variation in the safety premium of corporate bonds, which allows me to test the model's predictions. I show that a high safety premium leads to a marked increase in debt issuance by relatively safer firms. These debt proceeds have a small impact on real investment and are largely used instead for equity payouts. This mechanism can explain why, in the aftermath of the financial crisis, non-financial investment grade companies significantly increased their debt issuance and equity payout while investment remained weak.

ANALYSIS OF CASH FLOW REPORTS IN ASSESSING FINANCIAL PERFORMANCE AT THE PESISIR SELATAN DISTRICT HEALTH OFFICE

The Pesisir Selatan District Health Office Technical Implementation Unit that has been determined to apply the Financial Management Pattern of the BLUD Work Unit is given in the form of flexibility or flexibility to apply sound business practices to optimally improve health services to the community. Testing the hypothesis in this paper by using a comparison of the value of the test sign with the test table sign. The results of the study found (1) The evaluation of cash flow performance through the current liability ratio in the South Pesisir District Health Office is not good, so the department is unable to pay its current liabilities using only operating cash flow. (2) Evaluation of cash flow performance through the capital expenditure ratio shows quite good results from year to year so there is no need to wait for external funding such as creditors and investors. However, in the last 2 years, there has been a decline so external funding is needed. (3) The evaluation of cash flow performance through debt expenditure ratios at the South Coastal District Health Office is not good. The company does not have a good ability to pay all of its obligations using cash flow originating from the company's normal operating activities and (4) The results of the answers to the second problem found in the South Pesisir District Health Office have applied to account by PSAP and Government Regulation Number 71 of 2010 both in terms of Operating Activities, Non-Financial Asset Investment Activities, Financing Activities, and Non-Budget Activities.

Energy Diagnosis of University Buildings: Renewable Energy Institute from UNAM

The purpose of this study has been to conduct an energy diagnosis research of the third level. An energy diagnosis is a tool aimed to seek improvements related to measures of energy efficiency and saving, and environmental conservation as well. These improvements would prove to be relevant for any kind of building. The diagnosis was carried out in 36 university buildings (Renewable Energy Institute—REI) through survey and census; that in order (to identify and) to characterize current patterns of energy consumption and demand, as well as for generating specific strategies towards energy efficiency and saving, for instance the identification of systemic indicators and corrective proposals, and non-financial investment. The results promote the achievement of grand energy efficiency. The task on energy conservation entails the supporting participation of each person who either studies or works in the entity, whereas some other activities require economic stimulus for being implemented. Annual per capita energy consumption in the REI is 40 kWh/person: that is greater than the country’s average consumption rate. The main energy consumption corresponds to Building 3.1 (49% of total energy consumption). This is due to its large concentration of laboratories specialized in renewable energy research and innovation.

ASSESSMENT OF FACTORS INFLUENCING THE EFFICIENCY OF SECTORAL ACTIVITIES IN THE NATIONAL ECONOMY

To work effectively for commercial companies in different sectors of the economy, it is of interest to business owners, investors, management, employees, the state and society as a whole. The efficiency of commercial companies is crucial for the process of financial and economic decision-making. In Latvia, there have been neither in-depth research studies on the efficiency of financial activity, nor studies on the efficiency of certain sectors of the economy. The aim of the research is to summarize and analyse data on factors influencing the operational efficiency of commercial companies working in the national economy sectors: number of employees in the sectors, number of enterprises, value of exports and imports, personnel costs and number of employees in enterprises of a given sector, gross investments in material matters, land, machinery, equipment, non-financial investments in intangible assets and fixed assets, turnover, indicators of financial performance of enterprises, which provide aggregated information on liquidity, profitability and solvency of enterprises. The data processing used ibm spss statistics v21 method. The result of the research study is to group the factors that have a significant impact on the efficiency of the economic sector.

A comprehensive approach for the selection of a portfolio of interdependent projects. An application to subsidized projects in Spain

Abstract Interdependency is an ubiquitous concept in project portfolio selection, both at the firm and industry levels. However, despite the wide acceptance of this fact, there is a remarkable scarcity of models involving interdependencies amongst non-financial investments. This paper presents a flexible model developed to address the scarcity of interdependency models: a fuzzy interactive multi-objective model, based on the reference point approach, which elicits the evaluation of interdependencies from a group of experts in a natural way. The model is presented in a sequential way, to highlight its contributions. Then, it is applied to solve a real portfolio selection problem, consisting on a large set of investment projects eligible for a subsidy program. The portfolio selected using the model achieves a sharp reduction in the deviations from objectives compared to the portfolio originally selected by the granting authorities.

How ESG Information Determines Emotional Returns of Socially Responsible Investments: Evidence from an Experimental Decision Case

This paper is the first to experimentally address the influence of the level of non-financial information provided for a socially responsible investment on the related non-financial, emotional return of non-professional investors and thus on their investment decision. Based on an experimental investment decision case with 223 participants, results indicate a strong influence of the amount and specific type of information both on the SRI allocation ratio and the willingness to forego financial returns. This effect holds across different return scenarios and is strongest for the presentation of precise non-financial investment criteria. Adding these information on the presentation of the SRI fund can increase the investment ratio up to a tripling, especially in case of a high financial underperformance of the SRI fund. Thus, it can be assumed that there is some form of non-financial, emotional return that can be influenced via the level of information to such an extent as to compensate for foregone financial return.

Estimation of certain parameters of Black-Scholes model in analysing effectiveness of development investments

The option pricing theory has wide applicability in corporate finance, but it is also increasingly used to analyze the effectiveness of non-financial (material) investments. In traditional investment analysis, a project or a new investment should be accepted only if the returns on the project exceed the hurdle rate; in the context of cash flows and discount rates, this translates into projects with positive net present values (NPV). There is no doubt that it does not take full account of the numerous options that usually relate to developer investment. However, in many cases, the valuation of real options is more difficult than the valuation of options for financial assets. In this paper, we will analyze one of the options, which isembedded in capital budgeting projects - the option to delay a project, especially when a the company has exclusive rights to the project. The value of the option is largely derived from the variance in cash flows – the higher the variance, the higher the value of the project delay option. The variance in the present value of cash flows from the project can be estimated in different ways, however, in the case of non-financial investment projects, these methods are very limited. We are analyzing the possibility of estimating this volatility, taking into account the fact that the forecasted cash flows may show varying volatility in individual years. The paper shows, that by using a probability-based valuation model (using the Crystal Ball techniques) it is possible to incorporate uncertainty into the analysis. The method of presented volatility estimation can be applied by taking into account the randomness of many input data to the project.

Finansowanie inwestycji rzeczowych w niemieckim sektorze przedsiębiorstw

W artykule przyjęto dwa cele, a mianowicie: zaadoptowanie sposobu badawczego zaproponowanego przez Corbett i Jenkinson’a do wymogów Europejskiego Systemu Rachunków 2010; identyfikacja struktury finansowania inwestycji rzeczowych w niemieckim sektorze przedsiębiorstw. W analizach wykorzystano dane pochodzące ze sprawozdawczości narodowej, a dokładniej z dwóch rachunków wchodzących w skład rachunków akumulacji, tj.: rachunku kapitałowego oraz rachunku finansowego. Przyjęto metodologię źródeł finansowania netto, w której wykorzystano przepływy środków finansowych, a nie ich stany. Identyfikując strukturę źródeł finansowania inwestycji rzeczowych zauważono, iż w niemieckim sektorze przedsiębiorstw dominują środki wewnętrzne i transfery kapitałowe.

Parental Investments and Educational Outcomes: Trivers–Willard in the U.S.

In the U.S. there is evidence of a Trivers-Willard (T-W) effect in educational attainment, such that the sons of high status fathers attain more education than the daughters, and the daughters of low status fathers attain more education than the sons. This paper seeks to uncover the mechanisms by which this T-W effect occurs. Data are from the High School and Beyond Study by the U.S. National Center for Education Statistics. Results show that the T-W effect is not a result of the fact that fathers are less likely to be present in the homes of children of low status fathers. Other results show that the sons of high status fathers are more likely than daughters to be sent to private high school, while the daughters of low status fathers are more likely than sons to be sent to private high school. These parental investments pay off, as the sex gap in academic GPAS (favoring women) is narrower for the children of high status fathers than the children of low status fathers. In turn, academic GPA in high school helps explain the T-W effect in educational attainment. Parental non-financial investment as measured by student academic expectations as sophomores in high school also helps explain why the sons of high status fathers obtain higher degrees than the daughters. Together, these two factors: student’s academic GPA in high school and his /her expectations of educational attainment, fully explain the T-W effect in educational attainment in the U.S.

Assessing the non-financial investment profitability with variable discount rate

In the work, the subject of the discount rate assessment is presented. The discount rate is usually considered as constant in the whole investment period, which seems to be the main problem. The constant discount rate does not take into account the actual money loses value in time. Moreover, the discount rate elements can change in time, and it should be remembered that many factors, which could also change, influence the value of those elements. The research confirms that the assumption of using the constant discount rate is erroneous. In the work one can find i.a. the methods of own capital assessment or the proposal of different techniques of risk premium valuation.

Leveraging loyalty programs to build customer–company identification

This study proposes that loyalty programs lead to customer–company identification (CCID) formation. The empirical results show that non-financial benefits from loyalty programs can promote CCID by inducing customers' feelings of status and belonging in a company-initiated community. Relationship marketers interested in building customer identification with loyalty programs therefore should design proper non-financial investment portfolios to strengthen and confirm customers' feelings of status and belongingness.

Shadow banking, relationship banking, and the economics of depression

The paper explores whether a theory of banks doing ‘finance through money creation’ implies a reconsideration of demand-side macro theory as well. To this aim, a simple methodological accounting model of the influence of financial markets over the real economy is presented. The model allows a tidy comparison of relationship and shadow banking, interpreted as alternative schemes of liquidity (not credit) risk management. The model emphasizes the interdependencies in entrepreneurs’ animal spirits, liquidity risk management schemes adopted by financial institutions, and effective demand of households. The underlying idea is that fluctuations in the composition of property incomes trigger fluctuations in non-financial investment that, in turn, drive fluctuations in spending. The article finds that both relationship and shadow banking must have a pro-cyclical impact, and differences are essentially based on different liquidity risk management aggregate cost functions. The model developed here suggests that securitisation does not per se affect the financial sustainability of the growth process, but regulatory measures aimed at checking predatory lending and re-securitisation activities are needed to avoid possible adverse impacts on animal spirits. JEL codes: E44, G20, O16

Assessing the investability of thermal coal over the next 20 years

The demand for thermal coal has risen dramatically over the past 20 years, driven by an emerging markets-led commodities super cycle, which has recently come to an end. Today, thermal coal generates over 40 per cent of global electricity and is available in large quantities in countries such as China, India and the USA. Thermal coal is also the primary contributor to CO2 emissions, a substantial driver of climate change. This has resulted in material tension for ‘sustainable and responsible’ institutional investors and strategic challenges for certain state-owned companies. Deciding upon the electricity generation technology in which to invest poses a significant dilemma. Thermal coal is abundant and by far the cheapest when externalities are not internalized. Electric renewables currently suffer from intermittency, viable storage solutions and are not very scalable. While cleaner than thermal coal, natural gas is abundant yet often needs to be imported and is more expensive than thermal coal. Although safe, scalable and clean from an emissions perspective, ‘new’ nuclear energy suffers from perception problems. The mixed method inductive methodology was used to determine the extent to which thermal coal remains investable over the next 20 years and has led to two divergent yet plausible scenarios impacting thermal coal investability. In assessing the investability of thermal coal across four chief stakeholders and geographies, a multifaceted interpretation of the term ‘investability’ is developed, which recognizes disparate financial and non-financial investment drivers. The research shows that thermal coal remains investable by a variety of stakeholders, particularly in the Transformative scenario, but their reasons for investing differ materially both by geography and the type of stakeholder. Finally, the key drivers for both scenarios are identified that can be monitored and used as an early warning system to inform investment decisions.

Does forward-looking non-financial information consistently affect investment efficiency?

Purpose – The aim of this paper, which is based on Cheng et al.’s (2012) research, is to re-examines the relationship between a firms’ voluntary disclosure of forward-looking non-financial information (FNFI) and investment efficiency. Design/methodology/approach – The authors chose firms that publicly traded in the Shenzhen and Shanghai stock markets from 2005 to 2011, a total of 926 firms and 6,482 firm-year. To control the endogeneity problem between FNFI and investment efficiency, the authors lagged the FNFI variable for one year. Findings – The authors found that FNFI alleviates a firms’ underinvestment but leads to overinvestment. These effects become gradually weaker over time. In addition, the results indicate that corporate governance helps improve the quality of FNFI, thus boosting investors’ confidence and easing financial constraints. Research limitations/implications – The limitations of this paper are mainly focused on the measure of FNFI. The authors only considered the quantity of FNFI disclosed by firms and ignored other characteristics of FNFI. Originality/value – Based on Cheng et al.’s (2012) static findings, this paper considers the dynamic role of FNFI in firms’ investment decisions.

Pojęcie i zakres inwestycji w rachunkowości oraz metody wyceny inwestycji niefinansowych

Investments are essential to the development of business. They allow enterprises to expand, and therefore survive in a competitive world. They also come in a very wide variety. This study presents the variety in the term “investment”, the scope of investment, and also discusses valuation methods of non-financial investments used in accounting.

Are Community-Level Financial Data Adequate to Assess Population Health Investments?

The variation in health outcomes among communities results largely from different levels of financial and nonfinancial policy investments over time; these natural experiments should offer investment and policy guidance for a business model on population health. However, little such guidance exists. We examined the availability of data in a sample of Wisconsin counties for expenditures in selected categories of health care, public health, human services, income support, job development, and education. We found, as predicted by the National Committee on Vital and Health Statistics in 2002, that availability is often limited by the challenges of difficulty in locating useable data, a lack of resources among public agencies to upgrade information technology systems for making data more usable and accessible to the public, and a lack of enterprise-wide coordination and geographic detail in data collection efforts. These challenges must be overcome to provide policy-relevant information for optimal population health resource allocation.

Responsible Investing 2.1 - A Top-Down Multi Asset Perspective

Many large institutional asset owners (in particular pension funds and sovereign wealth funds) have started to move into alternative asset classes over the past few years or so and today represent key players in these markets. With their market power, they are the ones who finally determine the rules of the game. Parallel to the diversification process that was driven by financial risk and return considerations and triggered by the experience of bursting stock market bubbles, the same group of asset owners began to embrace Responsible Investing ideas, not least triggered by the debate around the effects of climate change on the value of their investments. Today they are the main protagonists of the Principles for Responsible Investment, the UN PRI. The challenge that these investors – often characterised as ‘universal owners’ – face, is that they pressed ahead with their move into alternatives without having established a systematic and consistent multi asset approach and now need to fill the gap that has emerged retrospectively. To do so we propose a combination of the concepts of ‘strategically aware investing’ (SAI), a term introduced by RI legend Matthew Kiernan, and which in our interpretation describes the idea of integrating ESG information in order to enhance the quality and added value of financial analyses and investment decision processes, and of ‘Impact Investing’, which calls for a systematic consideration of non-financial investment impacts. As a result we present the main features of a strategic asset allocation (SAA) process for the entire RI portfolio (including the alternative asset classes) and an ‘enhanced passive’ investment process (including tactical asset allocation (TAA) and selection) for the conventional asset classes that make up 70% of our model portfolio. Besides helping to address some of the perceived contradictions of Responsible Investing as it is practised today (e.g. related to cases like BP), our approach is rich in implying changes to the current status quo.