Profitability Risk Research Articles

Bank stocks, risk factors, and tail behavior

We examine how the tail behavior of risk factors affects the tail behavior of individual bank stock returns in the United States. Using 26 common risk factors, we construct univariate and multivariate conditional exceedance measures. We find that returns on banking industry, security-trading industry, and broad market portfolios have the largest impact on the probability of observing high positive tail returns on bank stocks. A small-minus-big bank return factor, market volatility, and a profitability risk factor have the largest impacts on the probability of lower tail returns. Bank capital ratios and total allowances for loan losses are notably related to tail risk. • The tail risk of bank returns is highly sensitive to the tail risk of several underlying risk factors. • Tail risk can more than triple when key market risk factors exhibit extreme realizations. • Bank capital ratios and total allowances for loan losses are also notably related to tail risk.

Обоснование стратегии развития горнодобывающих предприятий на основе анализа доходности и риска при аутсорсинге и диверсификации

The article presents an approach to addressing the challenges of increasing the efficiency and viability of mining operations in changing market conditions. A solution to the problem posed is based on analyzing the application of various strategies to manage production resources and the overall complex activities of the company depending on the objectives pursued by the user of mineral resources. A mining company can operate in the traditional way, when all production functions and processes are carried out in-house, and the product is only the mined raw material. Outsourcing and production diversification are considered as alternative strategies. The paper describes possible sets and combinations of business strategies, as well as directions to diversify mining companies, including those that involve the formation and development of man-made georesources. A model is described that helps to choose an optimal complex of production functions for a mining company as well as a combination of strategies to be applied, which are balanced in terms of profitability and financial risks of separate types of activity. An economic and mathematical model for optimization of complex activities of the company is presented with the view to minimize risks at a given profitability level and to achieve the maximum efficiency at a given risk level. The research uses a deterministic approach to assess the performance indicators. The model presented has been tested in a small-scale operation that mines chromium ores. The research shows that a diversification strategy for a mining company reduces the risk of economic losses and increases its viability in conditions of volatile commodity prices.

Revelation for green product operation strategy of a retailer under different reliability levels of servicing the market

To a great extent, the risk of enterprises’ green strategy implementation lies in the demand uncertainty of green products and the competition pressure from non-green products. This paper studies a green strategy implementation problem of a retailer working with a supplier introducing a new green product into the market of a congeneric non-green product under uncertain demands. The reliability level of serving the market (RLSM) is defined to characterize the reliability of market supply satisfying uncertain demand. Under different RLSMs, the models based on the profit risk level of retailer (PRLR) are built. For any given RLSM and PRLR, the optimal order quantity of the non-green (green) product is not less than its market demand, rather than exactly equal to it, which is the result of the retailer’s tradeoff between the profit maximization and reliability condition. The RLSM and PRLR directly influence the decisions and potential profits of the retailer and supplier. According to some of these influences, the retailer can adopt proper RLSM and PRLR to accelerate the process of her green product operation strategy. Finally, a condition is provided for both the retailer and supplier having an incentive to implement the green product operation strategy because under which it is triple-win for the supplier, retailer and environment.

Entrepreneur’s perceived risk and risk-taking behavior in the small-sized creative businesses of tourism sector during COVID-19 pandemic

The small-sized creative business in the tourism sector has been suffering risks of bankruptcy since the outbreak of coronavirus disease (COVID-19). Drawing on the basic theory of reasoned action, this study aims to investigate entrepreneur risk perceptions affect their risk-taking behavior. This study only focuses on the determinants of risk-taking, with regards to the perspective from an entrepreneurial lens in perceiving business, product, and profit risk during the COVID-19 pandemic. A quantitative approach using a structured questionnaire survey was utilized to attain the study objective. The dataset consists of 177 valid responses by the owner of the small-sized creative business of Indonesia’s tourism sector (mainly in handicraft and fashion categories). Correlation analysis and partial least square (PLS) modeling were employed to examine the causal relationship between constructs. Our empirical findings revealed that while entrepreneurs' perceived risk on business and product aspects was the most significant aspect that could affect their risk-taking behavior, entrepreneurs' perceived risk on profit aspects have an insignificant influence on their risk-taking behavior. It implies that the higher the level of business and product insecurity perceptions (as long as it can generate profitability and ensure business sustainability), the higher the level of risk-taking of entrepreneurs.

THE EFFECT OF CAPITAL STRUCTURE ON CASH DIVIDEND POLICY WITH LIQUIDITY AS MODERATION IN MINING COMPANIES ON IDX 2015-2019

A company will be assessed for its resilience in surviving as an economy, one of them is a mining company that is required to have a stock of funds. This research involves mining companies, because the mining sector has experienced a decline and has had the lowest growth since 2013 until now. This occurs because the price of global mining commodities is experiencing a price decline following the decline in demand from China and other developing countries, as well as the existence of the Mineral and Coal Law policy which also suppresses the growth of the mining sector internally and has the potential to be a liquidity value for a company. This study will measure the capital structure through IOS, company size, growth rate, profitability, and business risk which affect the cash dividend policy with liquidity as a moderating variable in mining companies listed in 2015-2019. The research method used is to use associative quantitative with a sample of 41 mining sector companies listed on the Indonesia Stock Exchange during the 2015-2019 period.The type of data used in this study is secondary data which includes data from the financial statements of mining companies with analysis using descriptive statistics. The results of the research show that simultaneously, IOS, Company Size, Growth Rate, Profitability (ROI) and Business Risk have a significant effect on cash dividend policy (DEV) through liquidity moderation.

Resilient supply chain to a global pandemic

The design and management of a supply chain (SC) in a global pandemic require a different approach than those used for more spatially restricted risks, such as earthquakes. A successful SC design and management plan should consider pandemic spatiotemporal characteristics as well as its effects on production and logistical operations, and on the SC workforce at risk. In this paper, a stochastic mixed integer linear programming model is developed to maximise the conditional value at risk (CVaR) of SC profit given a set of pandemic scenarios. An exemplar SC network from the literature is utilised, along with randomly generated pessimistic and optimistic pandemic scenarios. The proposed model is demonstrated by obtaining SC designs for different cases pertaining to pandemic influence and strategic policies. The resultant SC designs are used to contrast the performance of management plans across different pandemic scenarios and for different levels of workforce at risk. Supply chains for socially critical products, such as ventilators, are studied separately to examine the impact of SC network expansion on maximizing satisfied demand. Finally, we investigate the effects of diversifying network node locations across different administrative regions on SC performance. Several managerial insights are presented for SC planners to aid in creating viable designs and management plans.

Information shocks and profitability risks for power plant investments – impacts of policy instruments

Climate change mitigation requires governmental intervention and there are various measures that can achieve this. While economists generally advocate first-best instruments, the reality is rather different, as subsidy schemes are commonly used for supporting renewable energy sources. The supporters of these schemes often argue that investment risk reduction is essential to achieving ambitious environmental targets. In this paper, we compare four different instruments (carbon cap, carbon tax, minimum renewable quota, and feed-in tariffs / renewable auctions) in terms of effectiveness, efficiency, and mitigation of investment risks. Risks are assessed assuming an uncertain investment environment, represented by different information shocks on demand, investment, and fuel cost. We employ an electricity market equilibrium model (generalized peak load pricing model) of the future German electricity market implemented as a linear optimization problem. Beginning from a long-run equilibrium, single input parameters such as demand, fuel prices, and investment costs are varied to simulate the arrival of new information. Rerunning the model with partially fixed capacities enables us to analyze the sequential adjustment of the power generation portfolio toward a new equilibrium over time. As expected, we find that quantity-based instruments are effective in ensuring the achievement of quantitative goals—notably a certain emission level. However, risks for investors are rather high in such cases. While our analyses confirm that the first-best instruments—carbon cap and carbon tax—provide the most efficient trade-off between emission reduction and cost, we also establish that investment risks are lower with price-based mechanisms. Particularly feed-in tariffs / renewable auctions provide the possibility of substantially limiting risks by diversification even when only electricity market assets are considered.

PENGEMBANGAN PRODUK ROWE LUWA MENGGUNAKAN METODE QUALITY FUNCTION DEPLOYMENT (QFD)

Financing risk is a condition of uncertainty that affects the success of a business to gain profit. Meanwhile, basic earning power is the ability to generate profits based on the capital owned. This study analyzes the risk and basic earning power of financing in the tapioca agro-industry using an interest-free calculation basis. The data used are primary data from field observations at the center of tapioca agro-industry in Ciluar, Bogor Regency, and secondary data from literature studies. The analysis is carried out by calculating the risk of loss and profitability of financing using the assumption of an acceptance rate of 10% of the total capital and when the level of acceptance falls -10% of the total capital owned. Furthermore, a comparison is made between tapioca agro-industries that use an interest-bearing financing scheme, including variables of risk of loss, income level, and profitability level. The research results prove that the bigger the loan used, the greater the risk to be borne. Another finding is that interest-free financing in the tapioca agro-industry has a higher return and income rate than interest-bearing financing.

Diversification of Bank Profitability and Bankruptcy Risk in ASIA

This study aims to determine the bank interest margin and non-interest income in 25 countries in ASIA in the study period 1993 and 2020. This study uses the quantitative method Generalized Method of Moments (GMM). Prudence in developing the banking business by banking business actors is essential in preventing a systemic financial crisis in the future, such as the experience of the Asian financial crisis in 1997 and the subprime mortgage crisis in 2008. Bank interest margins and non-interest income are both required in maintaining bank cash inflow.

ANALISIS RISIKO DAN RENTABILITAS PEMBIAYAAN TANPA BUNGA PADA AGROINDUSTRI TAPIOKA

Financing risk is a condition of uncertainty that affects the success of a business to gain profit. Meanwhile, profitability is the ability to generate profits based on the capital owned. This study aims to analyze the risk and profitability of financing in the tapioca agro- industry using an interest-free calculation basis. The data used are primary data from field observations at the center of tapioca agro-industry in Ciluar, Bogor Regency, and secondary data from literature studies. The analysis is carried out by calculating the risk of loss and profitability of financing using the assumption of an acceptance rate of 10% of the total capital and when the level of acceptance falls -10% of the total capital owned. Furthermore, a comparison is made between tapioca agro-industries that use an interest-bearing financing scheme and an interest-free financing scheme which includes variables of risk of loss, income level, and profitability level. The research results prove that the bigger the loan used, the greater the risk to be borne. Another finding, interest-free financing in the tapioca agro- industry has a higher rate of return and income than interest-bearing financing

Apakah Peningkatan Risiko Likuiditas, Risiko Kredit, dan Risiko Suku Bunga Berdampak Terhadap Profitabilitas Bank?

Banking performance has decreased on average in terms of credit quality, liquidity, ability to generate net interest income, and profitability in the last two years. This indicates an increase in credit risk, liquidity risk, interest rate risk, and bank profitability risk. This study contributes in providing an explanation regarding banking performance which can lead to a decline in profitability that can influence investment decision making by investors in terms of the performance of the issuer. This research is included in the category of quantitative research with a sample of commercial banks in Indonesia selected based on purposive sampling method. The results of this study indicate that the lower the credit risk the higher the bank's profitability, the higher the interest rate risk the higher the bank's profitability, and the liquidity risk which has a significant positive effect on the performance of banks listed on the Indonesia Stock Exchange in the 2016-2018 period.

Testing the Efficiency of Capital Structure and Assets Structure in Bank

This study aims to examine and analyze the effect of capital and asset structure on the risk of financing and profitability of Islamic banks in Indonesia. This type of research is explanatory research, namely research that explains the relationship of the influence of the independent variable on the influence of the dependent variable through a hypothesis test using path analysis. The data used in this study is secondary data on capital structure, asset structure, risk, and profitability in Islamic banks for the 2014-2018 period. The data collection method used in this research is the documentation method. The results of the study conclude that capital structure has a significant effect on risk but does not have a significant effect on profitability, asset structure has no significant effect on risk and profitability and risk has a significant effect on profitability. The results of analysis and discussion can be advised the management of Islamic banks to improve the performance of Islamic banks, so the management of Islamic banks must be able to establish an efficient capital structure, namely by using temporary syirkah funds that use an efficient profit-sharing system and loans with the wadiah system.

Carbon Intensity Bumps on the Way to Net Zero

The recent update of the EU Benchmark Regulation mandates the use of enterprise value rather than revenues as the denominator for the computation of carbon intensity. The regulator’s advisers justified the substitution by its detrimental impact on the coal industry and affirmed that enterprise value—like revenues—would be applicable to both equity and fixed-income indices. However, all companies with low enterprise value to sales have suffered from the change, and enterprise value cannot be computed in the absence of equity market capitalization. Furthermore, enterprise value inherits equity market volatility, which weakens the link between changes in measured carbon intensity and underlying emissions and produces metric volatility that rewards an issuer’s market performance over its decarbonization performance. Impact-concerned investors that wish to guide portfolio decarbonization by carbon intensity should favor the use of revenues as denominator over that of enterprise value so as to encourage reductions in emissions and gains in process efficiency in the real economy. <b>TOPICS:</b>ESG investing, legal/regulatory/public policy, mutual funds/passive investing/indexing, performance measurement <b>Key Findings</b> ▪ Substituting enterprise value for revenues for the computation of carbon intensity, far from simply hurting sectors exposed to stranding risks, predictably benefits issuers associated with expectations of higher profitability, higher growth, and lower risk. ▪ The substitution introduces capital market volatility into measurement, which significantly weakens the link between carbon intensity and real-world decarbonization; impact-concerned investors should favor the traditional metric.

VCS and CVS: New combined parametric and non-parametric operation research models

The constancy of efficacy derived from parametric and non-parametric is not significant, this paper provides a scientific assessment and proposes two novel combined parametric and non-parametric operation research models, which will be a new experiment in literature perception. A scientific assessment of banks based on two novel optimizations VRS-CRS-SFA (VCS) and CRS-VRS-SFA (CVS) as the combination of the efficiency measurement method of CCR(Charnes, Cooper and Rhodes model) or CRS(Constant Return to Scale), BCC(Banker, Charnes, and Cooper model) or VRS(Variable Return to Scale) in Data Envelopment Analysis (DEA), as well as Stochastic Frontier Approach (SFA) for 65 banks during Feb to July 2020 are introduced. For analyzing the performance of the parametric and non-parametric approaches, we have considered the linear regression and Unreplicated Linear Functional Relationship (ULFR). Finally, the superior bank and the best performance model are introduced. For more clarification, three different approaches, which are production, intermediation, and profit/revenue in financial institutions, are considered. Among the proposed techniques, the two novel recommended VCS and CVS compared with BCC-CCR, CCR-BCC, and SFA models, in all of the three suggested approaches have a more positive correlation with profit risk and show the higher coefficient of determination values.

PROBLEMATIC ASPECTS OF ACCOUNTING REFLECTION OF PROVISIONS FOR FUTURE EXPENSES AND PAYMENTS

The relevance of this research is indisputable because a significant number of issues regarding the accounting of future expenses and payments (mandatory creation, different approaches to classification, imperfect regulations, complexity of calculating the size and order of accounting) are debatable and require detailed study. as it is one of the effective ways to prevent risks that may arise in the course of economic activity of any enterprise, as well as the formation of collateral improves financial stability of the enterprise, as it reduces the risk of significant losses and profitability in some periods. The article systematizes and explores the main problematic aspects of accounting for future expenses and payments, in particular due to the presence of many uncoordinated issues of collateral: mandatory creation, different approaches to classification, imperfect regulations, complexity of calculating the size and order of reflection in accounting. Possible ways to solve these problems by researching and further developing the issue of collateral classification are suggested. By separating different types of collateral, unifying regulations, detailing the existing chart of accounts (by introducing new sub-accounts for future expenditures and payments by type of collateral in the Chart of Accounts, the lack of detail which, in turn, does not allow management to meet existing needs in information), development and improvement of primary documents (taking into account the peculiarities of their activities and the feasibility of forming appropriate collateral), as well as to avoid distortion of financial statements, reflect the reduction (write-off) of collateral only in the amount accrued in the reporting year, and if the amount of reduction (write-off) of collateral exceeds such amounts, the amount of excess should be recorded on the debit of the collateral account and the credit of the account of retained earnings (uncovered loss).

Measuring the selectivity and market timing performance of Islamic mutual funds in the KSA

This paper examines the selectivity and market timing abilities of Islamic fund managers in the Kingdom of Saudi Arabia (KSA), since the empirical research has yet to explore the profitability and investment risk factors involved. We use a uniquely large set of data for 134 Islamic funds for a period from June 2002 to December 2019, and this was free from any survival bias. We found that Islamic fund managers in the KSA demonstrated good selectivity skills but no market timing ability. We also found that Islamic fund managers in the KSA tend to select companies with aggressive investment patterns despite their low profitability.

What Determines The Capital Structure of Property, Real Estate and Building Construction Companies? Evidence from Indonesian Listed Companies

This research is intended to prove the influence of financial flexibility, asset structure, firm size, profitability and business risk on the capital structure. The population on this study are property, real estate and building construction sector that are listed on the Indonesia Stock Exchange in 2009-2018. The number of samples used were 28 companies with a purposive sampling method. The data studied was obtained from the Indonesia Stock Exchange (IDX). Methods of data analysis used in this study is multiple linear regression. The results showed that financial flexibility has not significant negative effect on capital structure. Asset structure and firm size have a significant positive effect on capital structure. The profitability and business risk have a significant negative effect on capital structure. Further research is needed to use another proxies such as ROE for profitability variables or standard deviations from ROE for business risk on capital structure and add another sectors or the number of observation periods.

Analysis Of The Effect Of Good Corporate Governance, Company Profitability And Risk On Tax Avoidance

Taxes are one of the main sources of state revenue. The difference in interests between tax authorities and companies based on agency theory will lead to non-compliance by taxpayers or company management which has an impact on companies to do tax avoidance. Tax avoidance actions taken by companies can cause tax revenue by the state to be not optimal. This study aims to analyze the factors that influence tax avoidance. The variables used are GCG, Profitability, and Company Risk to assess the extent to which these variables affect tax avoidance. Based on the purposive sampling method with the period 2017 to 2019, a total of 54 samples from 18 companies were obtained. Hypothesis testing is carried out using multiple linear regression analysis. The results showed that the indicators of corporate risk variables had a positive effect on tax avoidance; the audit committee variable has a negative effect on tax avoidance; Independent commissioner variable, institutional ownership and profitability have no effect on tax avoidance

Philosophy behind Islamic Economics: Limited Desires and Unlimited Resources

The most famous definition of economics among modern academicians and economists is a branch of science which deals with the study of the relationship between limited resources and unlimited wants or desires. Under the shadow of this definition, there are different types of conventional economic systems included relativism, utilitarianism, and universalism, etc. This study has been introduced in the economic world through an evolution process. There is a dominant feeling within the Muslim elites that either Islam is unable to respond to complex contemporary challenges in the fields of trade and economics or its economic concepts are old and outdated. Both of these perceptions are incorrect. The real philosophy, concept, and definition of Islamic economics are based on limiting desires and unlimited resources which are supported by Quran and Hadith. The beauty of Islamic economics is based on limited desires and unlimited resources. This concept of Islamic economics can share the risk of profit and loss in their business. Islamic banks with this revolutionary approach will feel at ease in implementing Shari’ah-based finance and offer risk-sharing products and services.

The Relationship Between Working Capital Management and Risk Management Among SMEs in the Philippines

Working Capital Management WCM as a business strategy enables an organization to operate seamlessly and with minimal problems by monitoring its liabilities with its assets Part of WCM is Risk Management, but often is an overlooked component specially for Small to Medium enterprises where priorities mostly focus on making profits Risk Management RM on the other hand is quintessential for controlling present and future threats, allowing room to adapt due to uncertainties such as errors, accidents, and natural disasters Organizations that have RM tend to focus more on customer service than profits particularly in COVID-19