Human Resource Related Risks, Their Sources and ...

Innovation Management and Education Excellence through Vision 2020

Human Resource Related Risks, Their Sources and Prevention Jan Urban Institute of Technology and Business in eské Bud jovice, Czech Republic E-mail: [email protected]

Abstract Human resource related risks can become a substantial part of business or company risks. Though often understood as “only” dangers of noncompliance with occupational safety requirements and/or employees’ health protection rules and regulation, they can have considerably broader and more profound impacts. The reason is that human errors including management failures can occur in any area of an enterprise’s activity and can thus significantly influence company´ ability to reach its goals. Understanding, identifying, analyzing, and preventing human resource risks is therefore a crucial part of enterprise risk management. Moreover, human resource risks and failures are often the cause of corporate problems and issues attributed to other factors. In spite of their importance, human resource related risks can usually be prevented with relatively low costs. The purpose of the article is to promote better understanding the substance and sources of corporate human resource risks, highlight their main types as well as their specific causes, and to examine the possibilities and tools of their prevention and/or elimination. Methodologically, it leans on literary review as well as case studies analyses which provided a basis for a classification of the main types of HR related risks including recommendations of adequate preventive steps and measures.

Keywords: human resource risks, risk management, human resource risks prevention Introduction Though often underestimated and sometimes even neglected (because of not understanding their substance and sources), human resource risks, creating often severe dangers and leading to grave companies´ losses, fall among the most important risk that enterprises have to face (Airmic, 2010), They can arise from individual human failures caused by personal factors which might have been circumvented, as well as errors caused by managerial deficiencies and broader organization failures (Colman, 2007). In total, they may not only be associated with grave consequences but can stand behind a large number if not the majority of an enterprise’s problems including performance shortcomings. All the more so because employees´ mistakes are often directly or indirectly connected with management errors or ill-conceived organizational rules and policies that are not quite visible. At the same time, compared to other types of enterprise risks, human resource risks are usually not a top management priority and the tools of their analysis as well as methods of their minimization do not have a systematic character. The objective of the article is to highlight a classify the main types, sources, and concrete causes of human resource related risks, and to examine the possibilities and tools of their prevention. Special attention is laid on risk causes following from systematic or long-term management failures.

Theoretical Framework Individual employee failures can be caused by their insufficient abilities, integrity imperfections, inappropriate motivational characteristics as well as their work attitude flaws.

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All of these causes can lead to wrong tasks executions, e.g. forgetting to carry out an important part of a work task, not passing along an important information to a colleague or manager, violating important rules and procedures of the enterprise or even not complying with broader legal or ethical norms and standards. The source of these human resource risks can be both intentional and unintentional. In the first case the usually arise form ill-conducted hiring or promotion decisions or low employee motivation, satisfaction or loyalty. In the second case they often emerge due to insufficient employee training, inadequate control and feed-back and/or ill-guided employee motivation. In both cases a common denominator of a broad category of human resource risks are management and organization omissions or mistakes. Being connected to management errors conducted by individual superiors and/or to mistakes in the overall management rules of the enterprise as a whole, these risks have a “systematic” character. At the same time, they usually represent those source of risks which tend to be the most overlooked. They can, for example, be a consequence of an inadequate or insufficient staff in key enterprise areas (Heath, 2007), caused by insufficient personnel planning or planning of successors, but also a consequence of an increased dissatisfaction of employees, the lack of management control, or, quite often, faulty or ill-directed motivation of employees (Meyer, Roodt and Robbins, 2011, Malkin, R. ,2007). Severe impacts of human resource risks, associated with these and similar factors, are documented by international statistics. The statistics resources show that almost 80 percent of all detected severe enterprise deficiencies are caused by human resource risks, be it risks leading to significant deviations from performance requirements or exceptional occurrences caused by performance failures (Ernest and Young, 2009, ISO, 2009). Risks connected to human resources cannot, obviously, be completely eliminated. The goal of human resources risk management is, however, to approach their analysis and prevention with the same attention as managing technology, financial, or other business and safety risks (Paul and Mitlacher, 2008, Brown, W., 2006)). This should specifically apply to situations when the issues connected to human resources multiply (Deloitte, 2008) or when their primary origin are not understood properly.

Research/Secondary Documents Analysis Errors caused by human resources related risks can be caused by a variety of specific factors. Identifying the primary causes of these risks is thus the fundament of preventing them. Such an identification should be based on examining/checking all possible circumstances that influence the behavior of employees in specific situations. Particular attention in this process should be payed to distinguishing between problems produced by human resources “themselves”, especially those which come from their intentional behavior, and problems or risk sources associated with management behavior as well as insufficient tools and methods of people or human resource management including some general rules, or habits of the enterprise. The reason for this is that significant sources of human resource risks are quite often associated with

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• • •

incorrect employees hiring and promotion decisions, improper or ill-directed motivation of employees, and insufficient employees´ performance management including their control.

Most of these management mistakes may commonly occur without the company or individual manager would be aware of them. There. They often have a tendency to attribute them to other factors and causes including deliberate employee behavior. Impact of Incorrect Hiring and Promotion Decisions Common causes of human resource risks come from recruitment and hiring of unsuitable employees, or even promotions of individuals who do not have the sufficient requirements for managing or higher responsibilities positions. The only way to prevent these situations is to timely recognize the warning signals of insufficient candidates´ requirements in the hiring and promotion process (B., Hilbron, D., Koob, J., & Szumyk, R., 2005). Quite often, the incorrect hiring and promotion decisions are connected to the fact that it is not the insufficient candidates´ skills and abilities but rather the unsuitable personality and motivation characteristics of individuals that create the problem. These characteristics are often overlooked in human resource decisions, partly because their importance tends to be underestimated, partly because organizations or their managers do not possess the skills necessary to fully identify them. The possibility of changing these personality characteristics after a wrong decision has been made – unlike in the case of missing skills and ability requirements which can be increased– is, however, usually very limited. Among the personality and motivation characteristics increasing the risks of inappropriate and faulty behavior we usually find both more or less permanent personality traits (for example low level of individual responsibility, emotional instability and/or negativity) and wrong work attitudes, like low level of work or profession identification, increased tendency to disrespect rules or authority, conservativeness (unwillingness to try new work approaches), inability of admitting fault (tendency to reject criticism) etc. Similar impact usually have the traits and characteristics influencing the relationship to social work environment, such as high individualism, excessive competitiveness or a tendency to an alibistic or conflict behavior. Unsuitable personal motivation as a source of risk is usually associated with low or missing internal motivation. i.e. low interest of employees in their jobs, or even their desire to work rather somewhere else. An even more severe source of risks can be coming from a too strong financial or material motivations, or excessive (unrealistic) ambitions. Both become a frequent cause of breaching both legal and internal enterprise norms. The most frequent source of risk associated with faulty human resource decision is connected to improper promotions, i. e. situations when individuals are promoted to managerial roles who are good experts but unsuitable or even destructive managers. Their personal characteristics and managerial style then make the work of the colleagues more difficult, can demoralize them, or even hurt the enterprise’s reputation. In the cases of individuals applying for managerial

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positions, decreased personal efficiency (inability of managing oneself) also becomes a factor of risk. Individuals with unsuitable managerial style or personal characteristics are, however, often promoted in enterprises because their unsuitable characteristics are mistaken for virtues. One example are people with a low level of empathy, a tendency to perfectionism, “micromanagers,” narcissism, aggression, etc. who are mistakenly regarded as competent and high performing managers.

Human Resource Related Risks Due to Improper Employee Motivation Paradoxically, human resource related risks can also arise due to behavior of employees conditioned by how their superiors or the enterprise as a whole manage and motivate them. These human resource risks can be understood as risks caused by a failure of employee motivations. Individuals in any enterprise carry out tasks that they are rewarded for. At the same time, they try to avoid actions that they would get “punished” for. By “rewards” or “punishments” in a broad sense of these words we understand anything that individuals perceive as either pleasant or unpleasant. Enterprises often do not realize this: if their employees act differently than expected, they blame it on their lower abilities or insufficient responsibilities. In reality, they should often blame the habits that they created instead. The reason is that the patterns of employees’ behavior is substantially affected by the way a company motivates them. In this sense, an imminent reason for unsuitable employee motivation, leading to specific behavior, can be the actions of a superior. Sometimes, however, it can also be a “systematic” consequence of certain way of remuneration. As an example can serve “performance” remuneration that supports excessive rivalry and discourage cooperation of employees leading to low quality or errors. A similar situation arises when employees are “punished” for warning about mistakes or dangers the company has to face, for example when superiors make it clear that feedback and opinions from employees are irritating them. A similar, though reverse motivation failure situation arises when some employees are not sufficiently sanctioned for not fulfilling their tasks correctly. In this case, the enterprises actually “rewards” them for their flaws: the reward is that unlike others they get away with their mistakes. An issue can, however, also be harsh sanctions for mistakes that lead to the effort of hiding and masking such errors. Employee dissatisfaction (Harris, 2010) is also one of the sources of human resource risks. Contrary to common belief, it may not only be caused by low remuneration level but quite often also by unfulfilled promises, unfair rewards, or insufficient level of information provided to employees (Martin and Schmidt, 2010).

Human Resource Related Risks Due To Faulty or Insufficient Performance Management Risks associated with imperfect employee performance management system or it specific measures are primarily connected to unclear tasks setting, incomplete or insufficient job

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descriptions (primarily jobs responsibilities), insufficient employee control, limited, unclear or delayed feedback, or the insufficient or ineffective training of employees. Examples are tasks that are not fully understood by the employee (associated with fear of the employee to ask about their more specific clarification, tasks whose priorities were not clearly defined (leading to situations when employees do not pay attention to subtasks with higher priority because they do not understand why are they important), tasks that the employees believe to be impossible to fulfill because they were not adequately trained how to fulfill them, etc. A similar situation arises when tasks that are not timely controlled, or when the employees believe they will not be controlled. As far as trainings are concerned, a problem can come into being when the training results are not checked by superiors or other persons in the company and managers thus believe that the employees have gained certain skill even though they have not. Human resource related risks falling into this category are among the most severe sources of “human” risks because they very often tend to be overlooked by managers. Their consequences are usually blamed on the employees.

Results Human resources risk management and prevention is a continuous process starting by selecting each employee. It is based on understanding the wide cope of sources of human resource risks that the enterprise faces, as well as the principles of their prevention, including everyday management measures, steps, or methods eliminating all potential sources of human resource risks. Significant sources of human resource risks usually cover incorrect personnel decisions concerning hiring and promotion, improper or ill-directed motivation of employees, and insufficient employees’ performance management including their control. In all of these areas answering the following two questions is essential for human resource risk prevention: “What approaches to human resources management including their choosing, promoting, motivating, and performance management cause risks and why?” and “Which timely managerial steps can prevent losses caused by human resource risk factors?”. If necessary, the specific answers to both questions need to be clearly explained in the enterprise. If needed, manager trainings should also become a part of human resources risk management. Their goal should be to present human resource risks not only as individual failures but also or even primarily as consequences of long-term managerial errors. Conclusions Human resources risk management is a crucial part of enterprise risk management. It is a longterm, usually permanent process which is based on understanding risks that the enterprise faces and corresponding measures, steps, or methods that restrict the individual risks or that prevent their most severe consequences. The main sources of human resource related risks are, however, often not fully understood. Therefore, they are also often not as systematically addressed as needed.

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Though they can be employee related, often their rather arise due to organization negligence as well as to human resource management failures and mistakes, specifically to apply necessary prevention steps and measures Moreover, human resource related performance problems and organization shortcomings often remain disclosed to company managements and/or tend to be attributed to other factor, commonly to causes on the side of employees. A frequent cause of human resource risks is the hiring of unsuitable employees. The issue is usually not the insufficient abilities of the applicants (which can be usually detected and the skill as such if needed developed) but their adverse personality and motivation characteristics. The source of the risks can also be unsuitable promotion of experts who lack the necessary managerial and social or communication skills. Another cause of human resource risks can be associated with ill-driven motivation of employees that enterprises fail to identify. One of the most severe sources of human resource risks is insufficient or unsuitable performance management of employees. It is usually connected to insufficient training, unclear definition of tasks, insufficient control, delayed feedback, or inappropriate rewards. Further research based primarily on management case studies should be looking at ways and measures of human resource risk management implementation including typical barriers of its successful introduction into management practice.

References Airmic, S. (2010). A structured approach to Enterprise Risk Management (ERM) and the requirements of ISO 31000. London: The Association of Insurance and Risk Managers. Brown, W. (2006). How well does your HR management system curb fraudulent practices? People Dynamics, 24(8), 23. Colman, S. (2007). Employment Practices’ Liability and Risk Management. People Dynamics, 25(11). 32-43. Deloitte. (2008). Taking the Reins: HR’s opportunity to play a leadership role in governance, risk management and compliance. CHRO Strategist and Steward Series. Deloitte Consulting. Midtown: Manhattan Ernest, & Young. (2009). The 2009 Ernest & Young Business Risk Report. Retrieved February 21, 2017, from http://www.ey.com/Publication/vwLUAssets/Newsletter_Business_Risk_English/$FILE/Busin ess_Risk-Media_and_Ent_2009-E.pdf Harris, M. (2010, 30 May). High cost of disengaged workers. Business Times. Business Times. Heath, W. (2007). The biggest risk of all — not developing tomorrow’s talent. CEO, 6(6), 74– 75. Heslop, B., Hilbron, D., Koob, J., & Szumyk, R. (2005). Why HR Governance Matters: Managing the HR Function for Superior Performance. New York City: Mercer Human Resource Consulting.

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ISO. (2009). ISO 31 000 International Standard: Risk management – Principles and guidelines. Geneva: International Standards Organization. Malkin, R. (2007). The cost of absenteeism. People Dynamics, 25(10), 30. Martin, J., & Schmidt, C. (2010). How to Keep Your Top Talent. Harvard Business Review, 54–61. Retrieved March 19, 2017, from https://hbr.org/2010/05/how-to-keep-your-top-talent Meyer, M., Roodt, G., & Robbins, M. (2011). Human resources risk management: Governing people risks for improved. SA Journal of Human Resource Management/SA Tydskrif vir Menslikehulpbronbestuur, 9(1). Retrieved March 20, 2017, from doi: 10.4102/sajhrm.v9i1.366. Paul, C., & Mitlacher, L. (2008). Expanding risk management systems: human resources and German banks. Strategic Change, 17, 21–33.

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Factors Affecting the Selection of an External Education Provider among Companies in the Czech Republic Zden k Caha, Mgr., MBA, PhD., Department of Management, Institute of Technology and Business, eské Bud jovice, Czech Republic, e-mail address: [email protected]

Abstract Corporate education is one of the key responsibilities of human resource departments. For numerous reasons, many companies do not facilitate corporate education through their own instructors, but prefer to outsource this to an external provider. To make the education provision organised in this way efficient, a company needs to determine the most important factors to be taken into consideration in the selection of an external provider. The aim of the study presented in this article was to find out whether the majority of companies are able to determine at least three factors that are of high or highest priority in that choice, what those factors are, and whether any possible differences exist in those factors according to company size. The research conducted among companies revealed that the majority of medium-sized and large companies were able to determine three high or highest priority factors, but that this was not the case among micro- and small companies. The findings also revealed a relatively significant difference in the order of the determined factors for the selection of an external provider of education according to company size.

Keywords: corporate education, external provider, selection, criteria, difference Introduction Corporate education is usually provided on the basis of internal personnel resources or through an external education provider (Vaní ková and Kmecová, 2014, Kmecová and Bajtoš, 2010 ). The clear identification of the goals and methods to be adopted for education activities, as well as other factors, are important for the selection of a suitable external education provider and the implementation of corporate education from a company’s own resources (Armstrong and Taylor, 2014; Urban and Caha, 2017). The education of employees is usually outsourced to an external provider where it concerns specialised forms or topics of education. The efficiency of such education programmes very much depends on the educational needs of an organisation, which can vary considerably. Organisations that perform identical activities, or those operating in the same field, often have very different educational requirements as well (Ryan, 2010). Whatever the situation is, the basis for the preparation of the provision of education in this manner should always be based on what the instructor knows about the organisation and what the specific educational needs the education programme should respond to (Kampf, and Ližbetinová, 2015). It is not appropriate to transfer this role to an external provider, i.e. for the external provider to determine the content of the education programme. This often leads to generally conceived education programmes without links to the specific goals and needs of an organisation. An extreme situation is, if the responsibility for assigning a training assignment to an external provider is placed in the hands of the purchasing department whose decisions are limited to formal parameters and price. On the other hand, an organisation that is not able to present an offer that complies with a company’s current needs cannot be a suitable partner for an organisation that wants to increase the effectiveness of education programmes for its employees (Urban, 2013). According to Armstrong and Taylor (2014), education and development, like strategic HR management, plays a key role in the achievement of an organisation´s success. Employees are one of the most important resources a company possesses when it comes to generating potential competitive advantage. Blahuš (2011), claims that it is very important to educate and develop employees effectively and systematically. Bencsik and Sólyom (2011) state that the more a company is able to maintain, develop and utilise the knowledge of its employees the more it is able to achieve business

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success, as knowledge becomes a resource of long-term competitiveness and an advantage from the business strategy point of view. Koubek (2015) is convinced that the education of employees in an organisation is the most effective if it has a cyclical character, is based on the education strategy and policy of the particular organisation and is in compliance with the overall strategy of the organisation. The basic cycle for the systematic education of employees within an organisation consists of the identification of the need for education, planning of the education, implementation of the education process, and an assessment of the education programme´s results and effectiveness. N mec (2014) states that the systematic education of employees and the conceptual planning and management of their careers supports the achievement of an organisation´s strategic goals and contributes to the long-term competitiveness of a company. Similarly, Barták (2011) underlines the importance of the strategic planning of corporate education by claiming that the cost of education should represent a profitable investment, which is why education planning should be based on an analysis of the present situation, thereby taking into account the future needs and demands for individual work positions. In the opinion of Hroník (2017), the presence of development and education specialists is an indication of a strategic approach, particularly in large and medium-sized companies. Quality training enables people to develop their capacities and to exploit social opportunities, as well as improves the productivity of employees and a company as a whole, contributes to the future strengthening of innovation and development, and encourages domestic as well as international investments. In doing so, it creates jobs, reduces unemployment, leads to higher levels of pay and reduces social inequality. Collier, et al. (2011) claim on the basis of their own research that companies that systematically educate their employees have a 13% higher probability that they will survive. They go on to say that more research is required into the long-term impact of education or human capital on a company´s overall performance. Kitching and Blackburn (2002) confirm the positive impact of a strategic approach to education. Korenková (2014) states that at the present time, it is people that help a company distinguish itself from others. Support for education is therefore crucial for maintaining competitiveness. Staff education and development should be a part of overall company strategy and policy, and it should be a coherent and systematic process. Tej, Sláviková and Hrvolová (2010) divided companies into three categories according to their approach to education, namely companies without an education strategy, companies with a non-systemic strategy and companies with a positive systemic strategy. They hold the view that companies achieve competitive advantages through their employees. Although the effectiveness of the money invested into education is often difficult to enumerate, education is an investment that certainly pays off for companies. Cagá ová, et al. (2014) characterise the orientation of companies active in the field of education and employee development in Slovakia and present the results of research conducted in 340 companies in 2012. They came to the conclusion that the need for education and a comprehensive approach to education are the characteristics of an innovative organisation. They conclude that organisations should become so-called “learning companies” with the aim of achieving permanent education focused on the improvement of performance not only on a short-term basis, but also on a long-term one.

Methodology As previously stated, the aim of the study presented in this article was to find out whether the majority of companies are able to determine at least three factors that are of high or highest priority for the selection of an external education provider, what those factors are, and whether any possible differences exist in those factors according to company size. The following hypothesis was therefore set: More than 50 % of companies are able to determine at least three factors that are of high or highest priority for the selection of an external education provider and that these factors are not dependent on company size. The results of a questionnaire survey conducted among 607 companies of various sizes were available to test this hypothesis. The respondents were asked to evaluate the importance of various factors for the selection of an external education provider. These factors were: professional reputation and quality (including certification); staffing of courses; methodological quality; presentation and preparation; range of services; form of completion (certificates); course frequency; time demand;

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price; opportunities for long-term cooperation. The companies were also given the opportunity to identify other factors. The testing of the hypothesis was divided into two parts. Firstly, we examined, on the basis of the results of the questionnaire survey, whether the proportion of the companies that were able to identify at least three factors that were of high or highest priority for the selection of an external education provider was independent of company size in more than 50% of cases. Secondly, we examined whether the identified high or highest priority factors differed according to company size or not.

Methodology for the First Part of the Statistical Assessment From all the responses to the questionnaire, the numbers for each factor that were assigned high or highest priority were counted. The companies were then split into two groups. The first group contained those companies that selected less than 3 factors as being high or highest priority, whilst the second group contained those that selected 3 or more factors (theoretically up to 11). The companies in each group were subsequently divided according to size category: large companies (250 or more employees), medium-sized companies (50-249 employees), small companies (10-49 employees) and micro-companies (less than 10 employees). For each size category a test was conducted to determine whether the proportion of companies that had identified at least three factors as high or highest priority was statistically significantly higher than 50%. For this purpose we used a one-sided one-selection test for the proportion and a calculation of the 95% one-sided interval estimation, whereby the lower limit served as an informative figure. From the point of view of the statistical test itself, a zero hypothesis was tested, whereby the proportion of companies that had identified at least 3 factors as high or highest priority was 0.5 against the alternative that this proportion was statistically significantly > 0.5. The test was performed at a confidence level of 95%, i.e. at a significance level of 0.05. The value of the testing statistics, the p-value and the lower limit of the interval estimation for the proportion are presented as the outputs. If the p-value of the test was less than the significance level of 0.05, the zero hypothesis could be refuted and the monitored proportion is statistically significantly > 0.5 (50 %). The absolute and relative frequencies are presented in tables and figures. The statistical tests and the interval estimation calculations were carried out using R statistical software, and the tables and figures prepared in MS Excel.

Methodology for the Second Part of the Statistical Assessment In order to be able to compare which particular factors are the most important for each group of companies and whether the structure of these factors does or does not change according to company size, it was necessary to divide the companies into size categories (see previous section). The number of companies in each size category that assigned high or highest priority to a particular factor were then counted. The absolute frequencies were then expressed as relative frequencies (percentages). For each company size category, the relative frequencies for each factor were subsequently put into descending order to generate a scale of factors, i.e. from the most to the least frequently presented factor for each company size category. By comparing the results, it was possible to draw conclusions with regards to whether a particular selected factor was dependent on company size.

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Results Part 1 Table 1: Absolute numbers for the number of identified high or highest priority factors according to company size Company size

At least 3 factors

Less than 3 factors

Total

Micro-company Small company Medium-sized company Large company

71 89 121 95

70 90 43 28

141 179 164 123

Total Source: author

376

231

607

Table 2: Relative frequencies for the numbers of identified high or highest priority factors according to company size Company size Micro-company Small company Medium-sized company Large company Source: author

At least 3 factors 50.4% 49.7% 73.8% 77.2%

Less than 3 factors 49.6% 50.3% 26.2% 22.8%

Statistical tests on the proportions: Table 3: Micro-companies Z-test statistic P-value Lower limit of one-sided interval estimation Source: author

0.084 0.466 0.434 (43.3%)

Table 4: Small companies Z-test statistic P-value Lower limit of one-sided interval estimation Source: author

-0.075 0.530 0.436 (43.6%)

Table 5: Medium-sized companies Z-test statistic P-value Lower limit of one-sided interval estimation Source: author

6.091 5.618 10-10 0.678 (67.8%)

Table 6: Large companies Z-test statistic P-value Lower limit of one-sided interval estimation Source: author

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6.041 7.649 10-10 0.705 (70.5%)


Conclusion: The tested hypothesis was not confirmed for the groups of micro- and small companies. The p-value is lower than the significance level of 0.05 in both the groups and the lower limit of the interval estimation fluctuates between 43% and 44%. The proportions ascertained through the questionnaire hover close to the 50% mark (0.4% over 50% for micro-companies and 0.3% below 50% for small companies). A statistically significantly higher proportion than 50% was therefore not proven. However, the hypothesis was confirmed for the groups of medium-sized and large companies. On the one hand, the proportions ascertained through the questionnaire are significantly higher than 50%, whilst the lower limits of the interval estimations easily exceed this limit on the other. We can therefore state that at the given confidence level that more than 50% of medium-sized and large Czech companies are able to identify at least three factors that are of high or highest priority for the selection of an external education provider. This cannot be stated for micro- and small companies.

Part 2 To make the tables and graphs clearer we assigned the identification codes F1 to F11 to each of the factors presented in the questionnaire (see Table 7) to which the companies assigned their level of priority for the selection of an education provider. Table 7: Potential factors affecting the selection of an external education services provider professional reputation and quality (including certification) Staffing of courses Methodological quality Presentation and preparation Range of services Form of completion (certificates) Course frequency Time demand Price Opportunities for long-term cooperation Other Source: author

F1 F2 F3 F4 F5 F6 F7 F8 F9 F10 F11

The questionnaire survey results: Table 8: Absolute numbers of companies that assigned high or highest priority to a particular factor Company size

F1 F2 F3 F4 F5 F6 F7 F8 F9 F10 F11

Micro-companies Small companies Medium-sized companies Large companies

59 90 119 102

33 60 85 73

33 57 90 80

39 44 74 80

57 63 81 67

39 46 54 55

Source: author

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20 19 38 38

37 54 60 43

49 74 60 59

41 42 76 59

4 4 4 4

Number of companies in the group 141 179 164 123


Table 9: The proportion of companies that assign assigned high or highest priority to a particular factor Company size Micro-companies Small companies Medium companies Large companies

F1

F2

F3

F4

F5

F6

F7

F8

F9

F10

F11

0.418 0.503 0.726 0.829

0.234 0.335 0.518 0.593

0.234 0.318 0.549 0.650

0.277 0.246 0.451 0.650

0.404 0.352 0.494 0.545

0.277 0.257 0.329 0.447

0.142 0.106 0.232 0.309

0.262 0.302 0.366 0.350

0.348 0.413 0.366 0.480

0.291 0.235 0.463 0.480

0.028 0.022 0.024 0.033

Source: author

Figure 1: The proportion of companies that assigned high or highest h priority to a particular factor Source: author

Figure 2: The proportion of micro micro-companies companies that assigned high or highest priority to a particular factor Source: author

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Figure 3: The proportion of small companies that assigned high high or highest priority to a particular factor Source: author

medium-sized sized companies that assigned high or highest priority prior to a Figure 4: The proportion of medium particular factor Source: author

Figure 5: The proportion of large companies that aassigned ssigned high or highest priority to a particular factor Source: author

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Table 10: Comparison of the factors according to the relative frequencies Order 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Micro-companies F1 0.418 F5 0.404 F9 0.348 F10 0.291 F4 0.277 F6 0.277 F8 0.262 F2 0.234 F3 0.234 F7 0.142 F11 0.028

Small companies F1 0.503 F9 0.413 F5 0.352 F2 0.335 F3 0.318 F8 0.302 F6 0.257 F4 0.246 F10 0.235 F7 0.106 F11 0.022

Medium companies F1 0.726 F3 0.549 F2 0.518 F5 0.494 F10 0.463 F4 0.451 F8 0.366 F9 0.366 F6 0.329 F7 0.232 F11 0.024

Large companies F1 0.829 F3 0.650 F4 0.650 F2 0.593 F5 0.545 F9 0.480 F10 0.480 F6 0.447 F8 0.350 F7 0.309 F11 0.033

Source: author

Conclusion The results of the research conducted among Czech companies clearly reveals that, in general terms, the proportions are significantly lower among micro-companies and small companies than among medium-sized and large companies. These results were anticipated and confirm the conclusions drawn after the first part of the evaluation. In terms of the factors which were selected by companies and identified as high or highest priority, it can be stated that there are differences according to company size. This is reflected in the five most frequently selected factors. Factor F1 – professional reputation and quality (including certification) is the most important factor regardless of company size. Factor F9 – price is one of the most frequently selected factors among micro- and small companies, but plays a much less significant role among medium-sized and large companies, Factor F5 - range of services plays an important role for micro-, small and medium-sized companies. Factor F2 – staffing of courses, which is one of the least important factors for micro-companies (8th place), is however, one of the five most important factors for small, medium-sized and large companies. Factor F3 – methodological level of the courses is of importance to medium-sized and large companies. In determining the least important factor, it is possible to ignore factor F11 (Other) because no responses were forthcoming. Under these circumstances, factor F7 – course frequency was considered to have the lowest priority across all company size categories. In conclusion, it is possible to state that there are differences in the most frequently selected high or highest priority factors for the selection of an education provider, that these are dependent on company size, and that a provider’s professional reputation and quality is the most important factor regardless of company size.

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References Armstrong, M. and Taylor, S. (2014) Armstrong's Handbook of Human Resource Management Practice, Graphicraft Limited, Hong Kong. Barták, J. (2011) Personální ízení, sou asnost a trendy, UJEP, Prague. Bencsik, A. and Sólyom, A. (2011), ‘Education and Training Practice Strategies in Small and Medium Sized Enterprises.’ Proceedings of the 6th International Conference on Management and Artificial Intelligence (IPEDR) [online], Bali, Indonesia, 65-69. From: http://www.ipedr.com/vol6/14-A10004.pdf [2017-04-20]. Blahuš, R. (2011). ‘Experiential Education as a Part of Human Development in Czech Republic Business Companies.’ Proceedings of the 7th European Conference on Management Leadership and Governance, Antibes, France, 467-476. Collier, W., Green, F., Kim, Y.-B. and Peirson, J., (2011), 'Education, Training and Economic Performance: Evidence from Establishment Survival Data.’ Journal of Labor Research. [online] [2017-04-20], https://www.econstor.eu/bitstream/10419/50617/1/588114138.pdf. Hroník, F. (2007) Rozvoj a vzd lávání pracovník , Grada, Prague. Kampf, R. and Ližbetinová, L. (2015), 'The identification and development of talents in the environment of logistics companies’, Nase More 62 (special issue), 139-142. Kitching, J. and Blackburn, R. (2002). 'The nature of training and motivation to train in small firms’. Dept. for Education and Skills, London. [online]. [2017-04-20] From: https://core.ac.uk/download/pdf/4154524.pdf Kmecová, I. and Bartoš, J. (2010), 'Didactic efficiency of the textbooks of technical education. Diversity unifies-Diversity in Engineering Education.’ Proceedings of the Joint International IGIP-SEFI, Trnava. Korenková, M. (2014), ‘Vplyv regionálnych rozdielností na možnos vzdelávania sa zamestnancov v podniku.’ Proceedings of the 17th International Colloquium on Regional sciences. Masarykova univerzita, Brno. [online]. [2017-04-20]. pp. 264-269. From: http://is.muni.cz/do/econ/soubory/katedry/kres/4884317/48596005/032_2014.pdf. Koubek, J. (2015) ízení lidských zdroj , Management Press, Prague. N mec O. et. al. (2014). ízení lidských zdroj , Vysoká škola finan ní a správní, Prague. Ryan, L. (2010) Corporate Education: A Practical Guide to Effective Corporate Learning. Griffin Press, Australia. Tej, J., Sláviková, G. and Hrvolová, M. (2010). Vybrané kapitoly z manažmentu udských zdrojov, Dubnický technologický inštitút v Dubnici nad Váhom, Dubnica nad Váhom. Urban, J. and Caha, Z. (2017). 'Efektivita podnikového vzd lávání.' AUSPICIA: Recenzovaný v decký asopis pro otázky spole enských a humanitních v d 14(1), 48-55. Urban, J. (2013). Management lidských zdroj . Ústav práva a právní v dy, Praha.

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Vaní ková, R. and Kmecová, I. (2014) Firemní školení a vzd lávání zam stnanc . In Rozvoj lidských zdroj ve v d a výzkumu. Sympozium: Inova ní a technologické centrum p i VÚTS, Liberec, s. 51 - 56, 6. ISBN 978-80-87184-46-2.

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What Motivates Generation Z at Work? Insights into Motivation Drivers of Business Students in Slovakia Zuzana Kirchmayer, Faculty of Management, Comenius University in Bratislava, Slovakia, [email protected] Jana Fratri ová, Faculty of Management, Comenius University in Bratislava, Slovakia, [email protected]

Abstract Generation Z, born to a globally connected world, is slowly but surely entering their first jobs with their own set of expectations, preferences, and perceptions of the world of work. Similarly to previous generations, members of Generation Z are expected to share some unique characteristics that might bring noticeable changes to organizations in the future. Our study aims to identify and explore the perceptions of Generation Z members regarding the factors of their future work motivation. Using the narrative data collection method of empathy-based stories (MEBS) on a sample of 235 business students we collected 665 unique items that were further analyzed, coded, grouped into a set of 25 factors, and finally organized according to their relationship to three dominant themes (employee, job, and organization) into 5 clusters presenting different intersections of these themes. According to our results, enjoying one´s work, quality of relationship with co-workers, and achieving one´s goals seem to be the most prevalent motivational factors in the eyes of Generation Z. On the other hand, the factors of work load, work-life balance, organization of working time, and job security were far from being given importance. The factors generated in our research can be used for questionnaire construction in further quantitative research on motivational preferences of Generation Z.

Keywords: Generation Z, motivation, work-related preferences, MEBS, Slovakia. Introduction Every time a new generation enters the workforce it attracts a lot of attention among both academics and practitioners aiming to understand the new group (Gelbart and Komninos 2012). A “generation” is “an identifiable group that shares birth years, age, location and significant life events at critical developmental stages” (Kupperschmidt 2000: 66). Members of the same generational cohort are presumed to adopt similar mindsets as a result of shared unique cultural, political, and economic experiences (Parry and Urwin 2011; McCrindle 2014) which leads to different beliefs, attitudes, behaviors, and values of each generation (Xander et al 2012). As these differences also concern work and work environment (Lyons and Kuron, 2014), every time a new generation enters the workforce, managers tend to struggle to understand the new group (Gelbart and Komninos 2012) for understanding their unique motives, attitudes and personality profiles is crucial for attracting and retaining talented workforce. Currently, there are three prevailing generations in the workplace – Baby Boomers, Generation X, and Generation Y (Tapscott, 2009); however, Generation Z has already started to enter both colleges and their first jobs. There is a fair change that this generation, which is considered to be approximately 2 billion big (McCrindle 2014) will change the world of work noticeably in the upcoming years. The study presented in this article aims to identify and explore the perceptions of Generation Z members regarding the factors of their future work motivation. As this generation is only starting to enter the labor market, there is a lack of research on their work preferences. We aimed to shed some light on their unique

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perception of work motivation, and to form a basis for future research on Generation Z´s motivation at work.

Generation Z Entering the Workplace Generation Z characteristics. Generation Z, also referred to as Generation C (connected, communicating, content-centric, computerized, community-oriented, clicking) (Friedriech et al. 2010) born between 1995 and 2009 (McCrindle 2014) or 2010 (Seemiller and Grace 2016; Koulopoulos and Keldsen 2016) is the first generation that came into a globally connected world (Cilliers 2017) where technology was easily accessible to young people (Turner 2015). During their childhood or early adulthood, they have experienced unique stimuli such as uncertain economic times with the Global Financial Crisis followed by economic and social renewal, periods of terrorism and climate change, growing diversity, spread of worldwide known brands, acceleration of communication in social media, mobile and smart technologies (McCrindle 2014). They are “globally focused” (McCrindle 2014) as they are the first generation experiencing globalization and culturally diverse times early in their lives together with having connection to others from different cultures, backgrounds, and circumstances via social media. They expect diversity and are concerned with equality (McCrindle 2014; Schwabel 2014; Lanier 2017). Having used technology from the youngest age, members of Genration Z are seen as “digital integrators” (McCrindle 2014), or “digital natives” (Friedriech et al. 2010; Sidorcuka and Chesnovicka 2017) for being technically fluent, highly connected, and seamlessly integrating technology into almost all areas of their lives. They are visually engaged, opting to watch for a video summarizing an issue rather than read an article on the subject (McCrindle 2014). Although technology is intimately woven into their lives and many of their social interactions take place on the Internet (Friedrich et al. 2010), when it comes to communication with managers, they prefer honest in-person communication (Schwabel 2014). Moreover, they are more concerned with privacy and safety then slightly older Generation Y, and drawn to more private social networks (Lanier 2017; Roblek et al. 2018). McCrindle (2014) characterizes Generation Z as the most materially endowed, technological saturated, globally connected, and formally educated generation our world has ever seen. Further, they are characterized as realists, materialists, and pragmatics (Freidrich et al. 2010; Lanier 2017). They are expected to become more educated than any of the previous generations have ever been, with preference for learner adaptive, engagement focused, and interactive learning environments (McCrindle 2014). Though often described as multitaskers in popular practitioner literature, recent research indicates that compared to Generation Y, Generation Z members are less inclined to agree they like multitasking, as well as less likely to intend to work in a fast-pace environment (Schwabel 2014). Generation Z research areas. Up to the present, existing research on Generation Z has focused mainly on these areas: (1) unique factors associated with Generation Z that actually made the emerging generation different from the previous ones (Friedrich 2010; McCrindle 2014; FTI Consulting 2014); (2) digital fluency of Generation Z members, patterns in their use of smart technologies, social network platforms, etc. (Roblek et al. 2018); (3) their purchasing preferences and consumption behavior (Nagy 2017; Özkan and Solmaz 2017, Meret et al. 2018); (4) how the Generation Z characteristics would affect the educational process and the altered role of teachers (Seemiller and Grace 2016; Cilliers 2017); and finally (5) the business aspect i.e. how Generation Z might affect the employment practices and human resources (HR) management in organizations (Schwabel 2014; Bencsik et al. 2016; Kubátová, J. 2016; Nie urawska et al. 2016; Kirchmayer and Fratri ová 2017, Meret et al. 2018). Work preferences of Generation Z. In 2014, the first worldwide study on the workplace preferences of Generation Z (ages 16 to 20 at that time) was presented. According to the study, the three most important work motivators for Generation Z are opportunities for advancement, more money, and meaningful work

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(Schwabel 2014). Two years later, Kubátová (2016) replicated Schwabel´s study in the Czech republic and came to similar results - respondents in her research mentioned the same motivators, just in a different order of importance (more money, meaningful work, and opportunities for advancement). Kirchmayer and Fratri ová´s (2017) research on career preferences of Generation Z university students in Slovakia showed that in search for a future employer, nature of job and work-life balance were the most important factors. Also, Generation Z expected their jobs to yield internal satisfaction and considered reward (together with work-life-balance) a strong factor of both job retention and work satisfaction. Another research was conducted by Meret et al. (2018) on a sample of high school students mainly from Italy and some East European countries. According to their results, when choosing a job, the most important factors for Generation Z students were possibilities for learning and development, trust, and job security. As far as trust within workplace is concerned, Lazanyi and Bilan (2017) researched it in Hungary and came to a conclusion that the workplace behavior of Generation Z employees differed from that of older generations, and that respect and trust towards superiors had to be earned through professional excellence. And finally, the results of Sidorcuka and Chesnovicka´s (2017) research on perception of existing methods of attraction and retention of employees in Latvia indicate that Generation Z employees are not looking for life-long employment, put forward their specific values, expect their employer to meet their needs in terms of flexible working hour and flexible jobs where their individuality can be applied, are attracted by company reputation, innovation, speed of change, platform for education and promotional advancement, and specific fringe benefits. The results of these studies seem to correspond to a certain level. However, they mostly resulted from questionnaire surveys where respondents were given a set of factors to assess. Although the results present an important contribution to understanding Generation Z´s perception of existing work-related attitudes, they might not reveal the unique motivators and preferences of the generation.

Research Design and Methodology Our primary aim was to explore the factors of work motivation among Generation Z business students in Slovakia. The arrangement of this study is based on the work of Kultalahti and Viitala who examined the perceptions of Generation Y concerning what makes work motivating (Kultalahti and Viitala 2014). It is our understanding underlined by a number of academic studies (e.g. De Hauw and De Vos 2010, Hays 2013; Kultalahti and Viitala 2015; Dziewanowska et al. 2016) that the motivational patterns of Generation Y (or Millenials) at work have been profoundly described including the mechanisms through which these patterns operate. As a result, we moved on to focus on empirical research exploring work motivation among Generation Z. The substance of our research lies at the intersection of two of the three research areas on Generation Z as outlined in the introduction of this paper i.e. description of unique factors characterizing Generation Z and the employment of research findings into HR practice. Essentially, we wanted to identify unique motivation drivers that Generation Z associates with their future work. We assume that a deeper understanding of factors that drive work motivation of Generation Z can be highly beneficial for employers by enabling insights into the needs and preferences of the generation shortly emerging at the workplace. Our main research question was: What are the factors which Generation Z students consider motivating at work? In our research, we adopted the data collection method of empathy-based stories (MEBS) which is

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sometimes referred to as passive role-playing (Kultalahti and Viitala 2014) and we performed data collection among management students at Comenius University in Bratislava, Faculty of Management. MEBS, generally attributed to Eskola (1998) is based on role-playing and is typically used in sociology. According to Kultalahti and Viitala (2014), “at least two background stories are provided in MEBS and respondents are asked to interpret, explain or complete them. In the stories, one factor is varied in order to be able to make comparisons.” In data collection that stretched throughout the winter term of 2017/2018, we followed MEBS as a method of narrative data collection and provided students with both framework stories, one positive and one negative (i.e. stories of high and low engagement). In this paper, we only present the results of the positive story. The exact wording of the positive story was used as based on Kultalahti and Viitala’s 2014 paper; the story was translated to Slovak language, and the name Sami was changed to Samuel, which is a prevalent Slovak male name. Positive story: Imagine that one day Samuel comes home from work. He feels truly motivated and he has a lot of energy to work. It is nice to go to work in the morning and Samuel is always looking forward to the next working day. Why does Samuel feel this motivated and so enthusiastic? While aware that Generation Z grew up with technology at their hands, we insisted that data collection was performed on paper. We wanted to make sure to arrange for conditions of data collection as much alike for all respondents as possible. Providing extra time after seminars for respondents who wanted to participate, we tried to eliminate disturbances and impact of situational factors that possibly go with electronic data collection. Both stories were printed on one sheet, leaving enough space for respondents to express their understanding of why the suggested situation was happening. The data sample includes 235 Generation Z members who completed interpretations of both positive and negative stories. As for the positive stories (which are only dealt with in this paper), most respondents’ narratives included actual reasons they felt could bring about Samuel’s feelings. On average, a respondent provided 3 different reasons to explain Samuel’s current state of motivation. All collected items have been listed for further analysis, generating a list of 722 items in total. Items which were recorded by a single respondent but were equal in content or representing the same theme have only been coded once, thus excluding 57 items from the list. Most typically, the items which were recorded twice by a single person and thus excluded were related to the theme of “work enjoyment”. Finally, after excluding duplicated items, the total sample accounted for 665 items. Using content analysis, we have coded all of these items into a set of 25 unique factors, each of them comprising items that were equal or similar in terms of their meaning. The list of factors and their general descriptors can be found in Table 2 in the results section of this paper. Following the first level of coding and composition of factors, we proceeded to the process of grouping the 25 factors into clusters based on the nature of each factor on the list. In the pattern of factors following content analysis, we have identified three main themes, namely the employee (jobholder), the job with all features attached to it, and finally the organization as the immediate environment in which both the job and the jobholder operate. Working on these themes and their intersections, five factor clusters were identified (Fig. 1).

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Fig. 1: A brief model of factor clusters

Research Results Having generated the list of unique factors possibly accounting for Samuel’s positive motivation, we were able to calculate item frequency for individual factors as depicted in Table 1 below (for the complete list of the factors, see also Table 2). The most prevalent item provided by 64.7% of respondents to clarify Samuel’s work motivation and enthusiasm in the entire dataset was the theme of Samuel enjoying his work (22.9% of all items). This factor comprises a whole range of items expressing feelings of having good time at work, enjoying oneself and doing what one likes to do. Second down the list, 36.6% of respondents (12.9% of items) mentioned Samuel’s coworkers/colleagues/peers as a potential source of his enthusiasm. The Slovak word used in the original transcripts was “kolektív” which semantically includes peers including those outside one’s immediate working team. Accordingly, the idea that Samuel enjoys the qualities of his peers can easily be interpreted in broader context as the quality of work climate. The third major theme was reward, included in the stories of 34.5% of respondents, and accounted for 12.2% of all items. Mostly, it was seen in terms of financial reward – typically base salary or total cash with no reference to benefits (25.1% of respondents; 8.9% of items). Next, 6.8% of Generation Z members (2.4% of all items) saw the reason of Samuel´s motivation in “being adequately rewarded for his performance”, or “having a job, in which he is valued and rewarded accordingly”, i.e. accenting both emotional and material feedback regarding their performance and mentioning variable pay. Finally, total package including employee benefits was mentioned in 2.6% stories (i.e. 0.9% of items). Achievement was another major factor listed by 33.6% of respondents (11.9% of items). All items suggesting that Samuel perhaps feels good after he has achieved any sort of work-related goal were coded under the achievement factor. A typical narrative in this case included a description of Samuel solving a major problem, completing a project or simply accomplishing a task. In order to distinguish between regular performance achievement and career advancements (especially upward career moves) all narratives speaking of promotion have been excluded from this factor and coded under career advancement. Interestingly, promotion, which has been mentioned by 11.9% of respondents (in 4.2% of collected items) as an underlying reason for Samuel’s enthusiasm seems to be a much less prevalent theme than achievement of a major performance in one’s current job.

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Both having a job that enables Samuel to grow and develop, as well as, recognition was mentioned by 11.5% of respondents (4.1% of items). Next, the quality of the workplace in general i.e. an enjoyable working environment has been appreciated by 10% of respondents in 3.6% of items, followed by having a good leader (9% of stories; 3.3% of items); and having a work of interest (9% of stories; 3% of items). Some respondents also believed that the reason for Samuel´s work motivation is not tied to work itself or the organization he is part of, but rather to the fact, that he is in a good mood and having a good day in general (7.2% of respondents; 2.6% of items), or to the level of his private happiness (6.8% of respondents; 2.4% of all items). Suggestions that Samuel´s work has an impact, as he is doing something that really matters, were mentioned in 6% of stories (2.1% of all items). As for the least prevalent factors ( ; ? 2 .

Results The following table 3 presents estimated coefficients for the models. The results show that in the case of the last variant of the model the conditions of stationarity are not met, so GARCH (2,1) is excluded from further considerations. It can also be seen that in the case of the Student-t distribution, for all the remaining models, at least 5% of the significance level, all the coefficients are significant. In the case of a normal division, this applies only to GARCH (1,1). The statistical insignificance of the @ coefficient indicates the unjustified use of the sloping Student-t distribution. Table 3: Coefficient estimates for individual GARCH models

Source: own calculation For the purpose of selecting the most suitable model, Table 4 shows GARCH (1, 1) and GARCH (1,2) the Maximum Log Likelihood (LL) and Akaike (AIC) and Bayes (BIC) Information Criteria. The results show that due to the criteria used, the second model mentioned above is best used when using the Student-t distribution. Table 4: Choosing the most suitable model

Source: own calculation

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Next, we will deal with the presence of asymmetric effects in the time series of ER returns. The above results suggest rather in their absence - see the results in case of application of the sloping Student's t distribution. In order to verify this assumption, we will investigate the suitability of GJR-GARCH (2.1), the above selected GARCH model, considering the leverage effect. The results show the fulfillment of the condition of stationarity, but the statistical insignificance of the coefficient signifies the absence of leverage in a number of ER returns. Therefore, the above-mentioned model remains the GARCH (1,2). Volatility prediction is a very important part of risk models used in financial institutions. For this reason, the prediction capability of the returns of different assets to the prime performance indicators is. In this section, we verify the appropriateness of selecting the GARCH model (1,2) based on its prediction performance in volatility forecasting. For the purpose of comparison, we will further evaluate the performance of the GARCH model (1.1). For both models, we will consider both normal and Student-t distributions. The GJR-GARCH model was not included in this analysis due to the statistical significance of its key coefficient. Table 5 presents the results of the prediction performance estimates of the above models. From these results, it is clear that the GARCH (1,2) model with Student-t distribution is overcome by other variants. If we focus only on the type of distribution used, then it is clear from the table that the prediction performance of models with normal distribution lags behind Student-t distribution models. Overall, we have confirmed the results of the resulting GARCH model (1,2). Table 5: Evaluation of predictive performance

Source: own calculation

For the purpose of comparison, Dukich et al (2010) tested only GARCH models with normal distribution. Daily earnings cover the period 1999 to 2009. The authors conclude that in the case of GBP/USD and JPY/USD it performs best with GARCH (1,2), GARCH (2,1) is best for EUR/USD. From the results presented by the authors in their work, the use of the model with an asymmetric effect would only be justified in the case of the JPY/USD exchange rate. For the remaining two courses, it is obvious that there is no asymmetry effect in their earnings. Abdalla (2012) for Arab exchange rate returns, covering the period 2000 to 2011, finds that in all nine cases an asymmetric effect occurs and EGARCH (1,1) finds the most powerful model, the next GARCH model (1.1) is failing. Pacelli (2012), using data covering the period 1999 to 2009, concludes that when modeling the volatility of the EUR/USD exchange rate returns, a neural network based approach is overcome by ARCH and GARCH models, namely the best performance is demonstrated in the ARCH (2) model , the author works only with a normal division. Xu and Wirjanto (2012) use GARCH with normal, Student-t and mixed normal disributions. The data includes the period from 1985 to 2005. In the case of the returns of all five exchange rates considered, the best performance of GARCH (1.1) with a mixed normal division with time volatility variability is given. The moderate impact of the asymmetric effect was reflected only in the JPY/USD exchange rate. Thorlie et al. (2014) find that SLL (Sierra Leone) / USD exchange rate model provides the best performance of the GJR-GARCH (1.1) model with a skew Student-t distribution, thus confirming the effect of the asymmetric effect. The data cover the period from 2004 to 2013. Ayodei (2015), when modeling KES / USD exchange rate returns, detects a significant effect of asymmetric

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effects on daily data for the years 2006 to 2012 and finds EGARCH (1,1) with the generalized exponential distribution as the most appropriate model . From the above work, our results are most closely related to the findings obtained by Durkheim et al (2010), mainly for GBP/USD and EUR/USD. In the case of JPY/USD returns, the asymmetry that was excluded in our data was very slight. In addition, Pacelli (2012) earns CAD, EUR, GBP, JPY and DEM, all to USD. The results of the remaining work, focusing on the African and Asian markets, show the presence of an asymmetric effect in the returns of their exchange rates. Thus, in summary, our results fit into the context of the European and North American currencies' earnings returns where the effect of asymmetry is not reflected and data modeling is sufficient for the GARCH model, unlike the Asian and African currencies where the asymmetric versions of GARCH , especially GJR-GARCH and EGARCH.

Conclusion Volatility modeling and forecasting has gained considerable attention in recent years by academics, investors, but managers. The reason is that volatility is a significant indicator of the level of risk in the financial markets. It is important to note that portfolio selection, asset pricing, risk management, valuation and option retention are activities that significantly increase the importance of modeling and forecasting exchange rate volatility. The aim of this work was to find an appropriate model representation of the earnings associated with the EUR/CZK exchange rates and to evaluate the prediction performance of the resultant model in predicting the volatility of the analyzed returns. For this purpose, a standard econometric apparatus was used along with heteroscedasticity models, namely the GARCH model and its asymmetric variant of GJR-GARCH with normal Student-t and Student-tier division. The results for each of the tested models showed a preference for the Student's breakdown compared to the other two distributions used, mainly due to the high spikes in the distribution of the observed returns. Further, the inclusion of the sloping Student-t distribution in all the models used proved to be unjustified. The distribution asymmetry is also associated with a very common feature of return time series, namely the leverage effect within the monitored data. However, this influence was statistically insignificant in the time series monitored by the GJR-GARCH model. From the tested variants of the GARCH model, GARCH (2.1) proved to be asymptotically non-stationary for all three distributions used. Based on the Akaike and Bayes information criteria, the GARCH (1,2) model with Student-t division was chosen as the most appropriate. This option also showed the highest value of maximized logarithmic credibility. The suitability of this choice was also confirmed in the predictive performance evaluation, when both RMSE and MAE statistics showed that the prediction performance of GARCH (1,2) with Student-t distribution surpasses other model variants. More detailed analyzes of the standardized residues of the resulting model confirmed that these residues are uncorrelated and without the ARCH effect. Thus, the validity of the model design was confirmed.

Acknowledgment This research was supported by Grant agency of College of Business and Hotel Management (Project: Modern approaches to financial risk measurement and management)

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The Role of Gamification in Material and Immaterial Cultural Heritage Carlos R. Cunha, Applied Management Research Unit (UNIAG), Polytechnic Institute of Bragança, Mirandela, Portugal, [email protected] Vítor Mendonça, Polytechnic Institute of Bragança, Mirandela, Portugal, [email protected] Elisabete Paulo Morais, Applied Management Research Unit (UNIAG), Polytechnic Institute of Bragança, Mirandela, Portugal, [email protected] Aida Carvalho, Centro de Investigação Aplicada em Turismo (CiTUR), Polytechnic Institute of Bragança, Mirandela, Portugal, [email protected]

Abstract Cultural heritage is a legacy that we herder from our ancestors and that we should deliver to our decedents. In this sense, the first steep that we should take, after preserve this heritage, is to develop solutions that enable effective and democratic ways to share and promote it. Unfortunately, this demand presents several constrains – in what concerns to material heritage, most people will never be able to visit all the major civilizational cultural heritages. Also in the immaterial cultural heritage, to much ancestral knowledge is only owned and memorized buy elder people. This last issue leads to a forgetfulness of many traditions, legends, rituals and a whole set of cultural heritage that has not been previously digitized. For last, its important stand that legacy is related to the ability to give to the next generation something. This demand must start in early stages – since people childhood. This paper review the concept of gamification and is potential to the fruition of cultural material and immaterial heritage exploring the affective relations between young people and games to discuss the potential of gamification for cultural heritage. Finally, this paper presents a conceptual model to frame gamification role in the cultural material and immaterial heritage context. We intend, in future work, explore the proposed model, using prototyping and user-data analysis.

Keywords: Gamification, Tourism, Cultural Heritage, Conceptual Model Introduction In this global and globalizing age, with a strong tendency to standardize cultures, the most genuine cultural manifestations risk disappearing if they are not subject to a safeguard, memory preservation plan, making them accessible and available without overlapping them to the massive and speculative tourism component. Access to information leads to a growing interest and appreciation of differentiating cultural aspects, increasing tourist demand for places that can provide unique, authentic and differentiating experiences. Heritage is an identity element of communities, transmitted through formal and non-formal training and education, has the particularity of being transmissible, but also put into practice, experienced and visible, through its materialization in various physical forms such as objects, images, sounds, or gestures, behaviors and actions, catapulting the territory of belonging. It is an economic resource that can generate return and opportunity of employment; however, given its specificity, its differentiation is essential to attract more tourists to the region without adulterating its function and meaning. It is a growing market for the desire to new experiences, and for the increased access to culture that comes from increased mobility, accounting for about 22% of Europeans' travel for cultural reasons. In this context, the creation of innovative mechanisms for the interpretation of heritage is, in our opinion, a need and an opportunity to differentiate, promote and preserve the patrimony of culture. Interpretation consists in the art of communicating values, helping to promote heritage or region and the creation of a reference image, allowing the visitors to enjoy the heritage and the enrichment of their knowledge through the discovery of different cultures and cultural manifestations. The means of interpretation must be adequate for the public (specialized and non-specialized) to enjoy the meanings

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and relations existing between objects and cultural values and / or manifestations. Interpretation is an activity that converts technical language into concepts and ideas that everyone can discover and understand. Like any other communication strategy, it is concerned with transmitting information, in a fun and enjoyable way with the objective, captivating the attention of the receiver, inciting it to participation and a taste for learning (Tilden, 1957). Interpreting is the art of revealing something based on information. Interpretation and communication are expressions with different meanings, however interpretation uses means and interpretive techniques, with different formats regardless of the advantages and disadvantages of each. In the context of interpretation, gamification has emerged as a tool with enormous potential. The technological evolution that is associated with it, enables, more and more, diverse experiences ranging from: (a) small games that allow the youngest children, an easy and friendly learning of historical and cultural contents. (b) Creation of virtual worlds capable of allowing users to be more closely connected with existing places and contexts or even with realities that are part of the past, non-existent, but which can be recreated and enjoyed within the context of the virtual world. (c) Virtual and augmented reality games that join physical spaces with digital constructions. (d) Games with a strong sensory component that allow profoundly immersive experiences that almost allow a virtual trip to space and an interest/experience perceived by the user as extremely realistic. This papers discuss the trends and challenges for material and immaterial cultural heritage fruition, the context of gamification in the promotion of cultural heritage and, presents a conceptual model for the use of Gamification in the cultural heritage context.

Trends and Challenges for Material and Immaterial Cultural Heritage Fruition The term "heritage" had its origin in the "family, economic and legal structures of a stable society rooted in space and time" (Choay, 2015), following the historical and political evolution of nations "(...) prospective memory, as tokens that represent a desired future - reflecting both future pasts and past futures. The act of conferring the label 'heritage' onto something - whether physical or otherwise provides a sense of purpose (Harvey, 2008: 21). According to Claval (2007) "initially the emphasis was placed on its non-material components, such as language, popular poetry, popular music. However, by the mid-nineteenth century, the material bases of daily life, such as, tools, artefacts and houses, began to be incorporated into the idea of heritage. Increasingly ambiguous, it included "landscapes, historical sites, sites and built environments, as well as biodiversity, collections, past and continued cultural practices, knowledge and lived experiences" (Araújo, 2007). According to Ghirardello and Spisso (2008), "they are all material and immaterial goods, natural or constructed, that a person or a people owns or can accumulate," including historical monuments from the year 1790 (Choay, 2015) as a way of identifying medieval buildings considered as works of art and historical legacies. Later, after World War II, the number of identification of archaeological and architectural goods increased, and the categories of buildings gained new denominations in relation to architecture: smaller, vercular and industrial, presenting the heritage at that time "built settlements and the urban fabric" (Choay, 2015). In 1945, the United Nations Educational, Scientific and Cultural Organization - UNESCO, the largest international body in the field of science, education and culture. This institution was an important landmark for the safeguarding of heritage, especially built heritage, catapulting it into public discourse. In the aftermath of the Second World War, in 1949, the Council of Europe was created with the purpose of promoting the defense of Human Rights, covering the themes of heritage. Later, the Charter of Venice (1964) defines a historical monument as the "isolated architectural creation as well as the urban or rural site that bears witness to a particular civilization, a significant evolution or a historical event. It extends not only to great creations but also to modest works, which have acquired, over time, a cultural significance. "The normative framework has been harmonized according to needs and has undergone a significant development during the last century. In Portugal, the Law of Bases of Cultural Heritage, Law 107/2001, established the bases of the policy and the regime of protection and valorization of cultural heritage, defining as cultural heritage "all the goods that, being testimonies with civilization value or culture of relevant cultural interest, should be the object of special protection and appreciation. The legislation divides the universe of cultural heritage into three major groups: intangible heritage, movable heritage and immovable heritage "(art. 1). Although at the beginning all legislation was aimed at

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defending the material heritage, with the evolution of society there was a need to extend the concept of heritage also to intangible goods / intangible goods thanks to the conscious notion that these goods could disappear. Thus, the Convention for the Safeguarding of the Intangible Cultural Heritage of UNESCO was adopted on October 17 of 2003 and entered into force on April 20 of 2006. Among the various objectives was to safeguard intangible cultural heritage; encourage respect for the intangible cultural heritage of communities, groups and individuals; to raise awareness of the importance of intangible cultural heritage and their mutual recognition at local, national and international level. In effect, this convention served as a driving force for communities to become aware of their importance, value and resource, as a generator of cultural diversity and guarantee sustainable development. Broadly speaking, it filled a gap in the legal system for the international protection of cultural heritage, whose instruments did not consider intangible cultural heritage but only tangible, movable and immovable cultural heritage, and intangible cultural expressions could not be safeguarded through existing international legal instruments. According to the Convention, intangible cultural heritage includes "(...) practices, representations, expressions, knowledge and skills - as well as the associated instruments, objects, artefacts and cultural spaces - which communities, groups and individuals as an integral part of their cultural heritage. This immaterial cultural heritage, transmitted from generation to generation, is constantly recreated by communities and groups according to their environment, their interaction with nature and its history, instilling in them a sense of identity and continuity, thus contributing, for the promotion of respect for cultural diversity and for human creativity "(Article 2, Convention for the Safeguarding of the Intangible Cultural Heritage of UNESCO, 2003). In the case of intangible assets, there is a risk of disappearing due to very diversified factors, such as societal imbalances, low population density and / or a very old social fabric. The elderly population is the main asset of the communities that need the regeneration, dissemination and promotion of their heritage through appealing and attractive means that bring tourists to the region in opposition to the contraction period that threatens the low density territories, such as the region of Bragança, Nort of Portugal. In these communities, intangible heritage is severely threatened because human patrimony is increasingly low due to the low birth rate (half the national average) and the high mortality rate and the aging rate (twice the national average) (INE, 2018), placing intangible heritage seriously at risk if it is not the subject of a safeguard plan, making it affordable and available. Moreover, as the world intensifies the standardization of its way of life, various movements have emerged which, in counterpoint, value the authenticity of the territories, the objects rediscovered within the regions. And, in this vision, heritage is gaining expression, notoriety and potential, an immeasurable asset, meeting the guidelines of cultural tourism, aiming to respond to new market segments, whether in the scope of strategic products or in the promotion of differentiating assets, short breaks, etc. It is therefore imminent that the collection and collection of selected testimonies be carried out under certain circumstances and contexts in order to organize the heritage without emptying its meaning and overlapping the massive tourist component and speculative Its collection and disclosure can never be made solely for tourism purposes, but rather must comply with current regulations, in accordance with the UNESCO Convention on Intangible Heritage as well as in accordance with Decrees of Law no. 139/2009 and 149/2015. The meanings will be, fundamentally, individual and contextual, activating in the appropriate contexts, trying to maintain the essence of what is transmitted, attracting new audiences, positioning these territories as authentic tourist destinations capable of satisfying the growing demand for existing visitation.

Gamification as an Immersive Cultural Heritage Experience Gamification has emerged as a trend within the business and marketing sectors, and has recently gained the notice of academics, educators, and practitioners from a variety of domains. Even so, gamification is not a new concept, having roots in marketing endeavors, such as points cards and rewards memberships, educational structures, most not ably scholastic levels, grades, and degrees, and workplace productivity (Nelson, 2012). The rise (or re-emergence) of gamification is thought to have been brought about by a number of converging factors, including cheaper technology, personal data tracking, eminent successes, and the prevalence of the game medium (Deterding,2012). To this list we suggest the addition of the game studies movement generally, which continues to develop a methodically considered framework of the nature, design and impact of games, and particularly relevant to gamification – those essentials aspects that make game(ful) experiences immersive, engaging and fun.

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Deterding et al. (2011) suggest that gamification involves applying elements of “gamefulness, gameful interaction, and gameful design” with a specific intention in mind. Here, gamefulness refers to the lived experience, gameful interaction refers to the objects, tools and contexts that bring about the experience of gamefulness, and gameful design refers to the practice of crafting a gameful experience. While gamification may or may not call for a serious context, it does require that the end system is not a fullyfledged game. As the authors point out, this is less straightforward than it sounds given the subjectivity involved in distinguishing a full game from a system which merely uses one or more game elements (for instance, how many game elements does it take until a gamified system becomes a game?), the range of accepted definitions for “game”, and the role of the participant in interpreting the system as being a game, gameful, or otherwise. During the last decades, there is an increasing tendency for integrating game-based approaches with learning, a trend that is supported by educational theories like experiential learning, active learning and situated learning (Ortiz, Bowers, & Cannon-Bowers, 2015). The terms edutainment (Okan, 2011), playful learning (Resnick, 2004), gamification (De Sousa Borges, Durelli, Reis, & Isotani, 2014), gamebased learning (Whitton, 2011) and serious games (Backlund & Hendrix, 2013; Connolly, Boyle, Macarthur, Hainey, & Boyle, 2012) refer to such blended approaches that are usually technology mediated. Cultural heritage is one of the application areas of game-based approaches to learning. Games for cultural heritage differ from other games for education, because they additionally intend to preserve, reproduce and allow the appreciation of cultural content (Laamarti, Eid, & Saddik, 2014), which can be intangible or tangible (Mortara et al., 2014). These two aspects of cultural heritage are more or less interdependent. Tangible cultural content, which encapsulates intangible elements (Papathanassiou-Zuhrt, 2015), has a fragmentary character and needs to be contextualized in interpretive contexts, in order to be meaningful. Besides the traditional way via books, documentaries and guided tours, or the more recent trend of interactive storytelling in a cultural place (e.g. Lombardo & Damiano, 2012), this can be achieved through games, which can provide an entertaining, experiential and interactive relationship with cultural heritage. The gamification, in our opinion, looks promising for the cultural heritage domain, since a user can discover and interact with artistic artifacts while exploring a contextual world in an adventure-like fashion, especially in young people. As Jane McGonigal, an expert in the games design industry, said, “The average young person today in a country with a strong gamer culture will have spent 10 000 hours playing online games by the age of 21”. If we capture the essence of fun in games that draws these young people in to spend over a year of their lives in a virtual world of fun, we could harness it in order to promote anything we want (McGonigal, 2010). Gaming in cultural heritage creates an immersive experience for visitors to connect through missions and quests with the past history. There is strong scientific evidence that playing evokes the feeling of being present in previous times and with the people who lived back then. Cultural heritage sites increasingly use new forms of learning, drawing on the concepts of serious gaming and gamification. These advancements are more efficient and effective over traditional learning methods in terms of developing social interaction and remembering historical facts. These games open up new opportunities to transfer education and culture through gameplay and thus enhance the visitor experience. The technology of mobile location-based gaming provides a new format of heritage experience by linking ordinary exhibition and interactive gameplay as a digression to the past. Gamification can be applied to the most varied scenarios of material and immaterial heritage. As an example of such application, Figure 1 shows screenshots of a developed prototype-game based on the Portuguese Northeast rock paintings of “Pala Pinto”. This paintings, according to researchers, present radiated signs, formed by rows of points, which are considered as astral symbols. The ramiform signs of which can be see two types in the larger group are generally regarded as schematic stylizations of the

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human figure. These cave paintings belong to the Neolithic/Chalcolithic period (CMA, 2018). 2018) In this game, the player can interact with some artefacts and carry out their their own interpretation of what has been perceived by the peoples of that era, by painting oon the wall the result of the is own interpretation.

Figure 1 : Screenshots of a prototype-game based on the Pala Pinto rock paintings For frame the role of gamification in cultural heritage, heritage, its presented a conceptual model that covers the gamification process from the digitalization of heritage heritage (material and immaterial) to the game development. There are also focus the stakeholders and the different dimensions that games represent in the context of preservation, promotion, fruition, generations-education, generations among others.

A Conceptual Model for or Gamification and Cultural Heritage The cultural heritage represents the intrinsic wealth of nations. nations. Perpetuating this cultural wealth is a mission in which every generation must strive. The evolution of Information and Communication Technologies (ICT) has allowed new ways of recording, recording, representing and presenting physical objects. Nowadays, it is possible to carry out a process of digitization of the heritage that we want to bequeath to future generations. Although there are, and should be put into practice, the conventional methods of physical preservation of heritage, is in digital field, the bestt guarantee of the perpetuation of this heritage. The process of heritage digitization is, however, a complex process. First, the specificities of the heritage must be accomplishing;; in particular, because cultural assets may be material or immaterial. Material heritage can be subject into a process of pure digitization (e.g. video making) or, into the production of digital content, giving rise to components that rec reconstruct onstruct this heritage (e.g. 3D model of an old cas castle that is currently in ruins). With regard to immaterial heritage,, it may be necessary to carry out a complex survey of this heritage. Much of this heritage is only o held in the minds of the elder population (e.g. legends, gastronomic recipes, ancient ways of life). life) ss of pure digitization and / or content production can only be feasible if it is In our opinion, the process

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done cooperatively among all actors who gravitate ttowards owards the concept of heritage (e.g. government entities, researchers and ordinary people), will al allow an effective acquisition tion of digital contents of the patrimony, that should be later stored in a repository. However, having content (acquired or produced) is not enough. Processes are needed to guarantee their veracity and quality. In order for this problem to be solved, taxonomies nomies must be defined and applied, which not only catalogue all digital resources but, at a later stage, allow an assertive query of those resources (i.e. the phase of using those contents ontents and their integration into new applications). Only the definition and application of taxonomies will allow the creation of true historical artifacts that can have a seal of truth and quality, that promotes the creation of applications in the most diverse scenarios. Among the multidisciplinary way in which artifacts can be used to promote, preserve, educate and enjoy the heritage; we are particularly interested in gamification gam processes. In order for the gamification mification to be enhanced, as a heritage-instrument instrument, it should have available agile tools for access to o cultural ar artefacts in such a way that it allow feasible creation of digital games based on cultural patrimony. Thus, in the light of the latest game development technology (e.g. mobile mobile devices, georeferencing, virtual and augmented reality), implies that new mechanis mechanisms must be created that allow and facilitate access to heritage artifacts for digital game developers, as well as real-time real mechanisms to content acquisition (e.g. dynamic real time access interfaces). ). These interfaces will support the digital game market that serves the four major challenges of heritage perpetuation - preservation, promotion, education and fruition. In order to support the vision presented, figure 2 proposes a conceptual model that materializes the foundations presented and which, in our opinion, will allow the leverage of gamification as an instrument at the service of material aterial and immaterial heritage heritage.

Figure 2 : Conceptual Model for leverage heritage-gamification Next, we present the system that supports the previously previously presented model. Therefore, we intend to detail deta features of the system which is at the heart of the conceptual model presented earlier. For this, we use u UML’s Use Cases diagram, this aims to identifi identified ed and describe the system, the features that the system s provides, the actors involved, and the role that ea each ch actor has in the interaction with the system. This Th is showed in figure 3.

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Figure 3 : System Use Cases Diagram The system, at a high level of abstraction, includes the functionality to define taxonomies, taxonomies, to collect digital elements, to add semantics to digital elements, elements, and finally, to allow artifacts to be accessed. accessed The definition of the taxonomies that will be supported suppo by the system is the responsibility of the platform's content manager. The defined taxonomies will allow to classify the contents, as well as group gro and relate them. Contents providers can submit various elements, suc such h as narratives, images, videos, maps, 3d models, among others. rs. At the time of submission, content providers should sh also pre-catalogue catalogue elements. Each content submitted to the system must go throug throughh a classification process according to the previously defined taxonomies, endowing the elements element of semantics. After thiss classification, adding metadata to the elements, they will be referred to as artifacts. This classification can be made by both bo the content manager of the platform and also by the gam games developer. The system provides two ways to access the resource resources deposited osited there. Game developers will have a graphical interface available that will allow them to search and download various artifacts needed for game development. The "access artifacts" functionality functional through Application Programming Interface (API) will provide vide a set of services allowing application engines to interact to access the content, content available in the system. Allowing thus not only to use the artifacts to develop games, but also to dev develop games that, for example, access, access in real time, the contents based sed on the type of game and their the geographical coordinates.

Conclusion and Final Remarks The potential of heritage gamification it's huge, pperforming erforming an essential role in reaching certain tar target audience, awaken interest at material and immaterial immateria heritage, promote and preserve the patrimony, instruct and educate. However, the inherent difficu difficulties lties of game development process, especially as a lot of multimedia content is often required, constitute an opportunity to develop a content facilitating platform.

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Gamification can be a powerful tool at the service of cultural heritage. However, it will be necessary to create conditions for game developers to have access to authentic and quality heritage artifacts, giving developers assurances that the products they develop will be successful. The current state of the material and immaterial heritage is still at a stage that shows several gaps in the survey and digitization of this heritage. In order to contribute to the fulfilment of this void it was, after discussion of cultural heritage issues and of the gamification process, presented a conceptual model that could contribute to the leverage of the development of digital games as a tool in the service of preservation, promotion, education and fruition of heritage. We believe that the proposed model will serve as the basis for future research on the implementation of a technological architecture that implements the model presented and that manages a system of artifacts available to the game development industry as well as to the service of communities and peoples - to whom in fact heritage belongs. The model and the system proposed intends to contribute to streamline the gamification process, especially the development of games within the scope of tourism.

Acknowledgments UNIAG, R&D unit funded by the FCT – Portuguese Foundation for the Development of Science and Technology, Ministry of Science, Technology and Higher Education. UID/GES/4752/2016. Students of Digital Games Design: Carina Sofia Oliveira Soares, José Gabriel Cardoso Lopes, Pedro Gabriel Silva Sá and Roberto Carlos Lindo Alves for the construction of the prototype-game.

References Araújo, A. B. (2007). Carta internacional do turismo cultural. Adoptada pelo ICOMOS, 12ª Assembleia Geral no México, 1999. Barañano, A., Garcia, J.L, Cátedra, et all (2007): Diccionario de relaciones interculturales. Diversidad y globalización, Editorial Complutense. Backlund, P., & Hendrix, M. (2013). Educational games-are they worth the effort? A literature survey of the effectiveness of serious games. 5th International Conference on Games and Virtual Worlds for Serious Applications (VS-Games). Connolly, T. M., Boyle, E. A., Macarthur, E., Hainey, T., & Boyle, J. M. (2012). Computers & Education A systematic literature review of empirical evidence on computer games and serious games. Computers & Education, 59(2), pp. 661-686. Claval, P. (2007). Changing Conceptions of Heritage and Landscape. In: Moore, N.; Whelan, Y. (Org.). Heritage, memory and the politics of identity: new perspectives on the cultural landscape. England: Ashgate. Choay, F. (2015). Alegoria do Património (Edições 70). Lisboa. CMA – Câmara Municipal alijo.pt/Arte_Rupestre.htm

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De Sousa Borges, S., Durelli, V. H. S., Reis, H. M., & Isotani, S.. (2014). A systematic mapping on gamification applied to education. Proceedings of the 29th Annual ACM Symposium on Applied Computing - SAC ’14, (Icmc), 216-222. Ghirardello, N.; Spisso, B. (2008). Patrimônio histórico: como e por que preservar. Org.: G. G. M. Faria [et al.]. 3 ed., Bauru, SP: Canal 6. Instituto Nacional de Estatística (2018) available at: https://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_unid_territorial&menuBOUI=13707095&conte xto=ut&selTab=tab3 Laamarti, F., Eid, M., & Saddik, A. El (2014). An overview of serious games. International Journal of Computer Games Technology, 2014, 1-15. Lombardo, V., & Damiano, R. (2012). Storytelling on mobile devices for cultural heritage. New Review of Hypermedia and Multimedia, 18(1e2), 11-35. McGonigal, Jane. TED Talks - Jane McGonigal. March 2010. Mortara, M., Catalano, C. E., Bellotti, F., Fiucci, G., Houry-Panchetti, M., & Petridis, P. (2014). Learning cultural heritage by serious games. Journal of Cultural Heritage, 15(3), 318-325. Nelson, M.J., 2012. Soviet and American precursors to the gamification of work. In: Proceedings of the 16th International Academic Mind Trek Conference. Presented at MindTrek'12.ACM, pp. 23–26. Okan, Z. (2011). Edutainment and learning. In N. M. Seel (Ed.), Encyclopedia of the Sciences of learning (pp. 1080e1082). New York: Springer. Ortiz, S. A., Bowers, C., & Cannon-Bowers, J. (2015). Video game self-efficacy and its effect on training performance. International Journal of Serious Games, 2(3), 63-75. Papathanassiou-Zuhrt, D. (2015). Cognitive load management of cultural heritage Information: An application multi-mix for recreational learners. Procedia - Social and Behavioral Sciences, 188, 57-73. Portuguese Law N.º 107/2001, of September 8. Portuguese law N. º 139/2009, of June 15. Portuguese law N. º 149/2015, of August 4. Resnick, M. (2004). Edutainment? No thanks. I prefer playful learning. Associazione civita report on edutainment. Tilden F. (1957): Interpreting Our Heritage: Principles and Practices for Visitor Services in Parks, Museums, and Historic Places. University of North Caroline, 3rd edn. Press, Chapel Hill, North Carolina. UNESCO (2003). Convenção para a Salvaguarda do Património Cultural Imaterial. Paris. Available at: http://www.unesco.org/culture/ich/doc/src/00009-PT-Portugal-PDF.pdf. access on March 18th, 2018. Whitton, N. (2011). Games-based learning. In N. M. Seel (Ed.), Encyclopedia of the Sciences of learning (pp. 1337-1340). New York: Springer.

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How Mobile Marketing Tools Drive the Banking Services’ Competitiveness in Russia Dr. Svetlana Karpova, Professor, Department of Management, Financial University under the Government of the Russian Federation, Moscow, Russian Federation, email: [email protected] Veronika Panyukova, Associate Professor, Department of Management, Financial University under the Government of the Russian Federation, Moscow, Russian Federation, email: [email protected] Ilya Rozhkov, Associate Professor, Department of Management, Financial University under the Government of the Russian Federation, Moscow, Russian Federation, email: [email protected]

Abstract This research seeks to identify key competitive performance drivers for the Russian mobile banking services. We have assessed the current state of and the outlook for the Russian domestic remote banking market and have addressed various national practices for rating mobile banking services. We have also analyzed the results of the mobile banking ratings by top consulting firms (Markswebb, Deloitte, and USABILITYLAB), and the choices based on the Google Play mobile banking service application downloads statistics. The research has proved that a standard, consistent method needs to be created for adequately assessing the mobile banking services competitive performance based on technical characteristics and operating features availability and performance, and the service information completeness and customer accessibility, on the one hand, and feedback and scores from the financial businesses’ customers, on the other hand. We suggest that the customer centricity be considered as the key competitive performance driver for the remote banking services in Russia. As part of the research, we have analyzed the results of the online survey covering Russian mobile banking service users by the NAFI Research Centre. So we were able to understand what the most sought-after mobile banking services are and what aspects need to be addressed to boost the domestic mobile banking services marketability.

Keywords: bank marketing, mobile marketing, competitive performance, marketability, remote banking, remote banking service, customer focus, customer centricity, mobile banking service rating Research Design and Methodology The purpose of the research is to find out what are the factors driving the competitive performance and marketability of the Russian mobile banking services of importance to various customer segments, and to suggest the action agenda for making mobile applications offered by Russian banks more competitive. Our study is based on the bank and mobile marketing applied research publications by Russian and foreign researchers. We have used data integration and statistical and systems analysis as tools. Our team has studied statistics regarding the level of development of the Russia’s domestic remote banking market and as a result identified the market’s key growth areas. We have systemically analyzed the rating data regarding the key Russian mobile banking services and service platforms and pinpointed the key criteria making a service competitive given the competition. We have interviewed university students so we able to find out how much young people need and seek to use mobile banking services. We have analyzed the results of the online survey covering Russian mobile banking service users by the NAFI Research Centre, so we were able to identify the most sought-after mobile banking services and the aspects to be addressed in order for the Russian mobile banking services to be more effective competitively. And we were able to spot areas with high potential for enhancing services while overcoming rivals to win customers in the Russian banking market

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Literature Review The potential avenue to achieve success is to be customer-focused and offer well-timed appropriate and reasonably priced banking products or services (Svetlana V. Karpova, 2016). We have overviewed the ScienceDirect publications by non-Russian researchers. The overview showed that over the last 5 years researchers had addressed using mobile applications as part of banking service as an element for enhancing banking technology and customer communication; that dedicated mobile banking marketing research had been carried out, and that the following relevant key aspects had been studied: – specific features and aspects of using mobile banking services across countries, including countries classified as emerging markets (Aijaz A. Shaikh, Heikki Karjaluoto, 2015), Iran (Daniel Mehrad, Shahriar Mohammadi, 2017), Pakistan (Sahar Afshan, Arshian Sharif, 2016), Malaysia (Mohamad Noorman Masrek, Intan Salwani Mohamed, Norzaidi Mohd Daud, Normah Omar, 2014), etc.; – demand (ubiquitousness) drivers for the mobile banking services (with a focus placed on how the word of mouth propels the popularity of the mobile banking applications (Daniel Mehrad, Shahriar Mohammadi, 2017); – relevance of mobile banking services for Russian people of various ages (young people, retireds, etc.), how the mobile banking usage is linked to the gender and age (Tommi Laukkanen), etc. At the same time, there are no research publications in international reviews or magazines dealing with the specific aspects of the mobile service use in Russia.

Overview of the Russian Remote Banking Market Today’s seamless marketing management system is based on the modern information technologies (Svetlana V. Karpova, 2015). As the information technology evolves, and the Russia becomes more digitalized both socially and economically, various technologies and techniques are gaining popularity for making banking services available to individual and business customers remotely via telecommunications without the customer’s physical presence. The technologies and techniques using the remote service mechanisms are classified as remote banking. Generally, the following channels and mechanisms are seen as most wide-spread in the Russian market: – dedicated remote banking systems (‘Bank-client’), where people access services via the dedicated banking PC software that has to be installed at the user’s computers; – online banking, where banking services are accessed by using Internet browsers and banks’ Web servers; – mobile banking where customers are served remotely via mobile devices such as smartphones or personal digital assistant (PDA) and special smartphone or PDA applications; – external services that are made available via self-service banking points such as automatic tellers, cash and payment terminals and information kiosks (booths). Russian remote banking market is growing steadily. The 2017 statistics say that the mobile and online banking services volume grew by 7–8% versus 2016. However, according to the Expert RA (RAEX) rating agency, adding new features and functions to the mobile banking services will not help grow the share of active users, still it will drive the amount of transactions by the existing customers using mobile banking applications. Customers who are loyal to classic, traditional remote banking systems continue to process more and more transactions via mobile applications. With the share of transactions processed via mobile banking services at 11% of the total transactions processed by individuals in 2015, it grew to 31% after the first half of 2017. So the two key remote banking

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technologies (traditional and mobile) will continue to compete with each other in the pursuit of customers.

Analysis of the Russian mobile banking service ratings There are multiple Russian annual mobile banking service ratings using various methods and criteria for revealing market leaders. Below we cite the top Russian annual ratings for the segment. Mobile Banking Rank. The Mobile Banking Rank is a rating by Markswebb, an agency active in the area of research, audit and consulting for effective online product development. According to Markswebb, the key success factors for the mobile banking are: • completeness of the banking product information (balances, tariffs, limits, details, transactions history); • simplicity (convenience) of transfers (between own bank/bankcard accounts, currency conversion, bankcard top-up, transfers to other individuals using various mechanisms); • accessibility of regulatory payment services for paying for utilities and services/of taxes and fines (telephone, Internet, TV, utilities, taxes, and fines); • flexible choice of debit card operation parameters (enabling/disabling the card’s being linked to a cashless payment system, PIN change, security settings, blocking, reissue due to expiry or loss, notification settings, possibility to set the limits); • availability of banking products via mobile applications; • functionality for locating outlets and ATMs and getting the information about the outlet/ATM; • time spent before being consulted/advised to by a bank customer service person in a convenient way. Based on the Mobile Banking Rank 2017 rating, the mobile rating services rated as best for 2017 were those offered by the following banks: Tinkoff Bank, Binbank, Alfa-Bank, Post Bank (Pochta Bank), and Sberbank. Deloitte1, and international consulting and audit firm uses a different approach to the mobile banking service rating using criteria such as: • availability of general information about the services and connection (zero-fee or feebased, availability of a trial version, authorization processing time, time spent to connect the service, additional information about services offered by a bank, whether other services from the bank can also be bought/are also available; • convenient use (intuitive controls, choice of features and functions, geolocation availability, information about the outlet working hours, user authentication mechanism, personification functions and features, etc.); • payment and transfer functionality (amount operators in the preset operator list used for paying for services, transaction templates, possibility to make a transfer to an account with another bank, functionality for scanning/reading bill barcodes, etc.); • deposit accounts and debit cards (deposit accounts can be opened, and deposits can be topped up, information regarding the current deposit (account); • loans and credit cards (loans are available, customers are informed about upcoming loan repayment dates, information/reminder about other loans products are available, customers can block cards without contacting the bank/another company/person, information/reminder about the next payment date, etc.); • additional functionality and features (bank’s new can be viewed, bank retail products are presented, bullion account operation functionality available, currency exchange rates available,

1

Mobile banking solutions for smartphones. Overview of the mobile applications offered by Russian banks. Deloitte & Touche Regional Consulting Services Limited, 2014.

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limit management functionality, customers can receive details for their current accounts, personal finance service); • security (notification that an application has been accessed, automatic exit from the application in case of zero activity, password needs to be entered in order to process transactions, password can be changed, etc.). After 2016 (the data for 2017 are not available), the mobile banking applications rated as best by Deloitte were those offered by Tinkoff Bank, Alfa-Bank, VTB24, Sberbank, and UniCredit Bank. Yet another approach for rating the Russian mobile banking service leaders is based on Google Play downloads statistics. And the mobile banking application rating factors are: • number of the application downloads; • number of user evaluations submitted regarding an application; • average user score for the application; • last update date. The results of this survey were posted to the kubdeneg.ru2 Website, and the banks rated as leaders were Sberbank, Tinkoff Bank, Alfa-Bank, VTB24, and OTP Bank. USABILITYLAB, Russia’s No.1 user interface research company, has addressed the mobile banking service appraisal issue non-conventionally, with its rating based on user evaluations in terms of functionality, interface convenience (usability) and accessibility for handicapped or impaired customers. The key rating criteria was usability that was assessed via usability testing. Other rating criteria were how well the functions worked and how elaborate they were given the levels of the customer demand regarding particular functions. The availability/accessibility criterion did not affect the rating3. According to USABILITYLAB rating, the top performers were Binbank, Sberbank, VTB24, Tinkoff Bank, and Bank Saint Petersburg. Based on the ratings reviewed, we can conclude that though the same 5 Russian banks are rated as best by various sources, their rating positions differ across ratings (Table. 1). Table 1: Comparison of the top 5 Russian mobile bankers rating positions across ratings for 2017 Rating position 1. 2. 3. 4. 5.

Rating agency / Mobile banking service rating Markswebb Google Play USABILITYLAB Tinkoff Bank Sberbank Binbank Binbank Tinkoff Bank Sberbank Alfa-Bank Alfa-Bank VTB24 Post Bank VTB24 Tinkoff Bank Sberbank OTP Bank Bank Saint Petersburg

The data shown in Table 1 prove that no consistent, single method has yet been created for assessing the performance for the mobile banking services available in the Russian market. Such method would need to be based both on the level of technical performance and functionality and on the user evaluations from customers served by financial institutions. Furthermore, potentially, mobile banking services could be rated for various customer segments.

2

Most popular mobile banking applications. Banks 2017 (http://www.kubdeneg.ru/reiting/samyepopulyarnye-mobilnye-prilojeniya-banki-2017). 3 USABILITYLAB announced the publication of its 2017 rating of Internet banks usability for individuals (https://usabilitylab.ru /blog/usabilitylab-anonsirovala-yuzabiliti-rejting-internet-bankov2017).

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Russian remote banking services, including mobile banking services, will continue to rival each other to win Russian customers. The key competition drivers will be: – elaborating and upgrading the mobile banking service functionality to make it comparable/similar to that of the Internet banking services; – evolution of customer focus and customer loyalty programs based on integrating mobile banking services into CRM systems; – growing contactless payments share (Apple Pay, Samsung Pay, and HCE); – boosting the popularity of modern user identification technology among users (Touch ID, Face ID); – developing Web chat- and messenger-service-based customer support systems; - simpler processes for mobile banking services together with greater processing security (Veronika V. Panyukova, 2016). In light of the remote banking development trends described above, a front burner research objective is to identify and analyze the competitive performance drivers for the Russian mobile banking service sector.

Competitive Performance Drivers for the Russian Mobile Banking Services We have reviewed strategy documents of Russian banks (Sberbank, Alfa-Bank, Russian Agricultural Bank (Rosselkhozbank), VEB, etc.) and proved that a key development priority for a modern bank seeking to achieve adequate competitive performance is to become a customer-centric bank. Developing and elaborating mobile banking service is a lever to enhance customer centricity. The Russian Central Bank policy paper called 2018-2020 Key Areas of Action to Drive Financial Technology Development says that ‘…by 2020, 35 to 50% banking customers will be using mobile banking services”. Table 2: Russian bank’s key customer centricity goals Bank Sberbank Alfa-Bank

VTB

Rosselkhozbank VEB

Customer centricity provisions set out in the strategy document A strategic priority for 2018-2020 is to achieve ‘best customer experience and implement ecosystem approach’. An end-2018 strategic goal in terms of ‘Services. Remote channels and customer convenience’ is to become ‘The top banking choice in terms of the quality of service, operating simplicity and convenience. Main choice for life and work. The No.1 mobile bankers’. According to 2017-2019 VTB Group Development Strategy, the strategy priorities include ‘Modernization by jump-starting as a modern customer-centric bank due to a massive technological transformation’. 2020 Russian Agricultural Bank Strategy says that the Bank ‘develops a versatile, diversified product line based on the customer focus’. 2021 VEB Development Strategy and Business Model sets out, among other goals, that VEB seeks ‘to dramatically enhance its customer focus and the speed of processing for both internal and external clients’.

Source: Publicly accessible information posted at the banks’ official Websites.

Out research further focuses on how mobile banking services drive a bank’s customer centricity and competitive performance, with the following performance drivers identified from the competition standpoint: level of the mobile applications security; time of user request processing; mobile banking functionality, and application interface user/customer-friendliness. The NAFI online survey covered 5,907 persons (53% females and 47% males) and returned the following results:

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1.

Top 5 most popular/essential mobile banking services:

– mobile communication service payments (73%); – checking the bankcard account or bank account balances, and tracking transactions (61%); – transfers to other persons (friends, colleagues, family, etc.) (51%); – Internet service payments (46%); – transfers between own accounts (44%) (Figure 1).

Mobile communication payments Checking a bank/bankcard account balances, transaction (progress) tracking Transfers to other people (friends, colleagues, family, etc.) Internet service payments Transfers between own accounts Payment for goods in online stores Utility payments Automatic payments Loan repayment Loan repayment updates/reminders (repayment date and amount to be repaid), loan status/repayment statements Paying fines, taxes and duties Deposit account opening, topping up Card blocking/unblocking, ordering a new card to be issued, changing the bankcard account Opening of new accounts (RUB, FX, demand deposit/savings) Investments (buying investment units, securities, etc.) 0

20

40

Figure 1: Mobile banking functions used by bank customers over past 3 months. Source: NAFI online survey

2. If we analyze the data in terms of where mobile banking customers are located, the service popularity and demand trends are similar across Russia’s federal districts (Figure 2).

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60

80


! %

&

"

#&

!"

# "&

"

$

'$

Figure 2: Mobile banking services popularity/demand across Russia’s federal districts. Source: NAFI online survey.

Mobile banking services use by Russian young people As part of our research, we have interviewed 102 college and university students aged 18-23, with 100% of the respondents based in Moscow and Moscow Region (Table 3). Table 3: Russian young people preferences regarding payment for products/services

Question Do you have a bankcard?

Do you use mobile banking services for paying for products and services?

Do you use your mobile phone for paying for services using the mobile device account via very

Answer options Yes I have 1 bankcard

Results 100% 49.0%

I have 2 bankcards

39.3%

I have 3 (or more) bankcards

11.7%

No

0%

It’s my usual way.

34.3%

Yes, I do, but it is not my usual way. No, I don’t.

53.0% 14.7%

Yes, it’s my usual way.

17.6%

Yes, but it’s not my usual way.

57.9%

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short text messages (access to download music, tunes, games, movies and other content)

No, I don’t use it.

24.5%

Preferred communication channel for the banking service interactions (only one option can be picked)

Physical outlet.

9.8%

Bank’s website.

39.2%

Telephone call.

29.4%

Mobile bank

21.6%

Table 3 shows that 100% of the students interviewed as part of the survey hold bankcards, and 51% of them use 2 or more bankcards. 85% of the respondents have installed a mobile banking application, but only about 35% of them use it regularly/on a routine basis. With multiple service and communication channels now existing in the financial market and with new alternative channels created, bankers can choose the best ones for addressing young people. Out survey shows that 60% of the respondents prefer to interact with banks via Website and/or mobile banking applications. To make mobile banking services offered in Russia more competitive, behaviour differences should be borne in mind in terms of the customers’ age. Even though university and college students in Russia are part of the digital generation, the mobile banking service potential has not been fully utilized.

Key Areas of Action to Drive the Russian Mobile Banking Services Competitive Performance In terms of key areas of action to drive the Russian mobile banking services competitive performance, the following types of action could be identified: 1. Mobile applications offered to be adapted to various mobile platforms, including Android, iOS, and Windows Phone. 2. Cost of building the communication and customer service system to be optimized by standardizing mobile banking services. 3. Services to be personified based on the comprehensive study of the customer’s interaction with the bank service persons either via mobile banking channels or via other integrated communication and sales channels purporting to inform positive customer experience. 4. Dedicated offers to be created for various audiences given age and generation-based cultural differences across segments. 5. Range of mobile banking services to be expanded. As fintech sector and solutions are booming, mobile bankers start to act as personal consultants catering to customers seeking information they need to take well-substantiated decisions. Gamification gains momentum and more social media-based projects emerge that are processed via mobile applications. 6. Mobile bankers functionality transforms, so they now act as messenger service and communication channel for clients (which is a way far from its traditional functions). For example, a messenger service beta version (part of Sberbank Online application) was launched by Sberbank in February 2018. 7. New generation authentication system to be implemented. Mobile banking services security to be boosted by further integrating biometric identification capabilities, voice ID, face ID, etc. With

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the new generation protection in place people will have more confidence in the mobile banking services. 8. Mobile-bank-based advertising campaign to be rolled out, tailored to clients’ age and behaviours. For example, young people might be attracted by seeing a video promoting new banking services and financial literacy, while older people might find it helpful if they are offered special ‘induction’ mobile banking services with functionality limited to essential functions. We can conclude that, in the offing, the Russian remote and mobile bankers will be competing more aggressively to win their customers. They key competition driver will be gaining the customers’ loyalty, which can only be achieved by the Russian banks, if they consistently enhance the services and improve customer service by integrating modern technology that would enable faster and more convenient access to banking services for customers, so bankers would be able to become more customer centric as businesses. In our opinion, further research regarding the competitive performance drivers for Russian mobile banking services needs to be based on the clients’ behaviours, age and sex across segments, which will bring about a more precise data about the target market needs and improve customer satisfaction. The findings of such research could be used as basis for creating and tailoring Russian banks’ remote banking strategies.

References Aijaz A. Shaikh, Heikki Karjaluoto (2015) Mobile banking adoption: A literature review, Telematics and Informatics, Volume 32, Issue 1, Pages 129-142. Daniel Mehrad, Shahriar Mohammad (2017) Word of Mouth impact on the adoption of mobile banking in Iran, Telematics and Informatics, Volume 34, Issue 7, Pages 1351-1363. Svetlana V. Karpova (2015) Modern Financial Market Development Trends // Economics. Taxes. Law, Issue 4, Pages 6-10. Svetlana V. Karpova (2016) Current Financial Market Development Challenges // Economics. Business. Banks, Volume 8, Pages 9–20. Maayan Zhitomirsky-Geffet, Maya Blau (2016) Cross-generational analysis of predictive factors of addictive behavior in smartphone usage, Computers in Human Behavior, Volume 64, Pages 682-693. Mohamad Noorman Masrek, Intan Salwani Mohamed, Norzaidi Mohd Daud, Normah Omar (2014) Technology Trust and Mobile Banking Satisfaction: A Case of Malaysian Consumers, Procedia Social and Behavioral Sciences, Volume 129, Pages 53-58. Veronika V. Panyukova (2016) Marketing Communication Tools Evolution for Banking Service Sales Management // Marketing Communications, Issue 2, Pages 80-87. Ilya V. Rozhkov (2014) Marketing Information Systems and Technologies (a thesis by publication). – Moscow: Ru-Science, 196 pages. Pages 39-44. Sahar Afshan, Arshian Sharif (2016) Acceptance of mobile banking framework in Pakistan, Telematics and Informatics, Volume 33, Issue 2, Pages 370-387. Tommi Laukkanen (2016) Consumer adoption versus rejection decisions in seemingly similar service innovations: The case of the Internet and mobile banking, Journal of Business Research, Volume 69, Issue 7, Pages 2432-2439

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Tax Havens in the Age of Digitalization Rita Szarkova, Faculty of Management, Comenius University in Bratislava, Slovakia, [email protected] Darina Saxunova, Faculty of Management, Comenius University in Bratislava, Slovakia, [email protected]

Abstract The phenomena as tax frauds and tax havens are frequent research objects. The variability of entrepreneurial ideas processed into distinctive schemes and mechanisms is always surprising and tax manipulators or fraudsters are always one-step ahead of the tax authorities in creativity that results in tax frauds in numerous forms. Fraudsters frequently consider a tax haven with its services to be one of a most important instrument to avoid taxing or to decrease tax burden. The objective of this scientific paper is to identify and analyze characteristics of countries that can be considered as tax havens and what legislation and business environment can increase the investors´ interest in these countries. The object of the research of the submitted study are locations of tax haven jurisdictions in the last decade and their key features. The research effort is aimed at focusing particularly on the European Union´s lists of tax havens. The situation in Slovak and Czech enterprises and their initiative and activities in tax havens are critically analyzed in the period from 2008 to 2017. The comparison and analysis, as methods, were applied while processing the collected information. The results present how the situation in tax haven has been developing in selected countries (Slovak and Czech economic entities versus US economic entities) over one decade.

Keywords: tax evasion, tax haven, black listed and gray listed countries, digitalization Introduction Taxes primarily have a fiscal (budgetary) role. The fiscal role of a tax instrument means that taxes affect the amount and the structure of budget revenues and expenditures. Taxes are incorporated in the prices of products and services. As a result, the volume of consumption of goods and services is also influenced, so is the production volume. Investment into production of goods or services requires capital, the domestic one or from abroad e.g. in the form of foreign direct investments. Investors made a decision maybe also influenced by the state aid, in the form of „tax holidays “, which is a useful instrument to attract foreign direct investors. The social role of taxes is also significant. It is reflected in the appropriate tax burden of individual population groups. Taxpayers sensitively perceive tax scandals, which should be solved by the state. States should work on the improvement of legislation to prevent their occurrence. The intervention of the state is necessary to create a tax system that motivates people to work and do business honestly. If the state does not act adequately when the scandals about tax havens have come to the light, by doing nothing of inference, it supports tax evasions, which has negative consequences for the entire national economy. Tax havens have allured investors and entrepreneurs by low tax liability for many years. The functioning of tax havens and offshore centers causes tax evasion and thereby it leads to reducing governments´ tax income in the countries that have higher tax rates. It influences their budget significantly. International organizations are trying to map individual countries with zero or low tax rates and businesses established in tax havens owing to growing numbers of tax evasion or tax fraud. The OECD, encouraged by the G20 group of finance ministers has a long history of developing initiatives to reduce the illegal tax evasion

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through hiding assets and income, profits and gains in tax havens, e.g. one of the main initiatives - the OECD Model Tax Treaty (Exchange of Information). The following three priority areas of the tax policy are highlighted in the resolution of the Committee on Economic and Monetary Affairs of the European Parliament: (Saxunová, 2016) • • •

To strengthen of the internal market´s benefits through the tax policy. To fight against tax fraud, tax evasion, aggressive tax planning and tax havens. To enforce effective tax coordination to secure a long-term growth-oriented economic policy.

If the states of the European Union succeed in meeting the objectives of priority areas, it should contribute to the growth of the economy and the social and economic status of the member states´ population.

Objectives and Methodology The objective of this scientific paper is to examine the phenomenon of a tax haven and to analyze existing criteria that can assist determining countries considered as tax havens; and to study the most important characteristics and features of tax havens. The aim of this paper is to point out which countries are tax havens from the European Union´s point of view. Comparison, analysis and synthesis, deduction as scientific methods are applied. The first part of the article is focused on compiling theoretical thresholds associated to tax havens, their classifications, what are possibilities to limit their activities, and focusing on determination of tax havens´ most important features. Additionally, the anti-tax haven policy is also considered. In the second part of the paper, we focus on tax havens and their impact on the biggest multinational companies in the USA, and the Slovak and Czech entrepreneurs´ enterprising activity. Secondary data provided by Bisnode and the Institute of Taxation and Economic Policy have been analyzed in the period from 2008 to 2017.

Theoretical Framework in the Literature Review A country or an independent region, a principality or other type of legal jurisdiction, where taxes are levied at a low rate is the image that conjures up when debated about tax havens. The growth of tax haven usage is the subject of a considerable interest of the governments worldwide. Entrepreneurs are trying to hide their profit in tax jurisdictions, and thereby avoiding tax obligation in the original country. Gleeson (2018) says that there is no generally accepted definition of tax havens. Palan et al. (2010) also characterize the notion of a tax haven as a phenomenon hardly identifiable. Tax havens are countries or places that provide adequate autonomy to accept own tax regulations and finance laws. „They all take advantage of this autonomy to create legislation designed to assist non-resident persons or corporations to avoid the regulatory obligations imposed on them in places where those nonresident people undertake the substance of their economic transactions.“ Another characteristic offered by most tax havens is some degree of secrecy – the above-mentioned advantage allows individuals and corporations subjected to national law to do everything anonymously. Access and establishment simplicity of business entities in a tax haven is another attractive, tax-haven feature. Tax havens can be characterized as jurisdictions that provide certain benefits to entities in the form of a reduced tax burden. It is implemented on the grounds of favorable tax legislation having been enacted in these jurisdictions, what represents a) their quasi “competitive advantage” for attracting capital, which even may come from illegal activities or b) their instruments to optimize tax obligation. Gupta (2017) adds self-promotion as another feature of tax havens. Tax havens usually promote themselves as the best destination for offshore financial centers.

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Kudrle (2003) states that tax haven performs three types of functions that are frequently combined: a) produce goods and services; b) shift tax claims among jurisdictions; and c) hide tax claims. These functions are reflected in 4 types of tax havens occurring the most frequently, therefore, Miller and Oats (2016) distinguish four types of tax havens: 1) Production havens – real activity is transferred to the tax haven, there is tangible value added – Ireland (12,5% tax rate), this tax policy attracts FDIs. 2) Base havens – no/very low taxes on all business income - colonies or formal colonies of onshore jurisdictions 3) Treaty havens – low withholding taxes on money flowing into or out of haven, often no tax while it remains there and no withholding tax when it flows back out - suitable for intermediate holding companies, - the Netherlands with very favorable networks of DTT’s. 4) Concession havens – countries offering particular tax incentives or benefits, (e.g. Swiss branch of a Dutch company the Netherlands offers more concessions than others, Belgian coordination centers -headquarter haven. Miller and Oats (2016, p. 544) highlight rationale for tax havens usage highlighting the goal of a multinational enterprise to minimize the global tax liability of the group. They want to minimize tax liability in the following way: a) searching for the way of “minimizing taxable income arising in high-tax jurisdictions; b) preventing or delaying earnings and/or investment income from entering high-tax jurisdictions by parking them in a very low-tax country until needed elsewhere within the group; and c) sitting operation (especially financial operations) in low-tax countries wherever possible to cut the MNE’s average tax rate on its global profits.” Other attractions are, for example, favorable tax regime, favorable legal environment (allowing MNEs to adopt innovative financial products fast and flexibly) and a preferential regulatory system. OECD (2009) defines tax havens as territories that must have the following characteristics: 1.

Zero or nominal tax rate on the relevant income

2.

Lack of effective exchange of information

3.

Lack of transparency

4.

No significant activities

Tax havens may be used as a base for manufacturing operations but selecting them as a location seat for bank deposits and intellectual property, insurance business or other business involving mobile capital is a prevailing option. The attractiveness of many tax havens is their specialization. For example, Bermuda, Guernsey and the Isle of Man offer advantages to insurance companies and organizations providing investment in certain funds. Most of transactions in these jurisdictions consist of passive income transfers (interest and royalties) and fictitious payments. (Tax Justice Network, 2017). Anonymity provided by tax havens is beneficial for companies because of their being interested in not revealing secret information about businesses registered in this area which tax havens’ jurisdiction allows. Some countries do not require bookkeeping, reporting accounting information on companies established in that territory. Other favorable characteristics include the absence of inheritance and gifts taxes and minimizing interference in business offices.

Anti-Tax Haven Policy in the Age of Digitalization Tax havens are used legitimately and illegitimately. Corporations use them legitimately if they invest capital and perform operational or financial activities in the tax haven and respect full reporting

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obligation by disclosing income, profits and gains due to the tax authority in which the taxpayer is resident. It may lead to tax savings if a system of double tax relief by exception may be applied in the country of residence (usually it is applied to active income, a credit relief is applied only to passive income). The exemption method is restricted for a use usually to corporate taxpayers, individuals and trusts must use the credit method. To discourage illegitimate use of tax havens is almost impossible. A harmful combination of a dishonest taxpayer and a tax haven operating a policy of secrecy result in hiding the income arisen in tax haven before taxation in the country of taxpayer’s residence for which it will be impossible to find out about it. Nowadays anti-haven legislation may apply to corporate taxpayers, individuals if interested, hardly can be stopped from illegitimate use of tax havens. Measures introduced by the OECD, such as: a) OECD Model Tax Treaty, b) the establishment of the Global Forum (its goals are to reduce the availability of secrecy for would-be tax evaders and possible improvement of small tax havens being able to act in accordance with information exchange procedures), c) the Mutual Convention on Administrative Assistance in Taxation (multilateral treaty for the exchange of information and with the option of assistance in tax collection), and d) in 2014 Common Reporting Standard (for the exchange information for tax purposes, accompanied by a multilateral treaty allowing mutual tax authorities’ communication) , are voluntary, countries show their attitude for abandoning banking secrecy and willingness of exchanging information that will complicate hiding offshore income for the citizens of non-tax haven countries. Possible measures against tax havens (Miller, Oats, 2016): A. LEGITIMATE: i) on the national level: a) Anti-haven legislation; b) Information exchange and better cooperation between tax authorities c) Economic and political sanctions d) Legal action against intermediaries facilitating investment into tax havens ii) on the supranational level: a) Taxpayer’s amnesties B. ILLEGITIMATE: i) on the national level

a) Taxpayer’s amnesties

ii) on the supranational level: a) Economic and political sanctions b) Information exchange and better cooperation between tax authorities To eliminate harmful tax competition is an important step towards the tax haven countries that still are or were considered as tax havens. Modern technology is also an obstacle for tax havens; electronically realized payments via electronic cash registers, which many countries have been introducing, radical reduction of cash payments, limited to small-volume transactions of a minimalized principal make it harder to transfer capital abroad illegally. In addition, new trends of sharing economy, development of cryptocurrency market is a growing competitor for tax havens.

States and Jurisdictions Considered as Tax Havens According to Gleeson (2018), Switzerland became the first real tax haven after World War I. This state tried to be neutral during the war. Switzerland´s aim was to preserve low tax rates, because high infrastructure costs were not incurred as in other countries. After World War I., many European states significantly increased their tax rates to support reconstruction after the devastation. This step led to the

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increase of capital inflows into Switzerland because of the more favorable taxation rules. Currently, there is no consensus on the number of tax havens around the world. Considering the latest estimation, approximately 150 countries offer favorable conditions to investors. Some tax havens are entire countries like Bermuda or just states or territories like Nevada. The list of countries considered as tax havens is constantly changing. The European Union distinguishes tax havens as EU black-listed and EU gray-listed countries. The black list countries have not adopted necessary tax evasion measures, also called EU list of non-cooperative jurisdictions for tax purposes. The gray list, or the EU list of the state of play of the cooperation with respect to commitments taken to implement tax good governance principles, was created for the more obedient countries. The European Union has identified three main criteria when it comes to assessing whether a state should be on the black list: •

• •

Transparency of tax system – Does the country or jurisdiction follow the instructions on the information exchange? The country is focused on the involvement of an international cooperation and participation in combatting tax fraud. Fair taxation – Fair Tax Competition - Does the country or jurisdiction have a harmful tax system? Does the country or jurisdiction use anti-BEPS measures? Real Economic Activity – Does the jurisdiction´s tax rates or tax system stimulate fake tax structures? (European Council, 2018).

Referring to these criteria, the European Union assessed 92 tax jurisdictions. The EU has opened a debate with these countries whose tax system creates conditions for tax evasion or tax fraud. It included requests and suggestions for remedial actions in the mentioned area. The black list contained states that have not taken any steps in this direction. (European Council, 2017). In January 2018, the EU ministers agreed on a list of non-cooperating countries to suppress the presence of tax havens. In the light of an expert assessment of those commitments, the Council decided to move three jurisdictions from annex I to annex II“, which means from the black list to the gray one. The European Council says that the implementation of the removed countries´ commitments will be carefully monitored. When the list was published in January, the Council agreed to postpone the Caribbean countries screening those impacted by hurricanes in September 2017. The process of screening was reopened in January 2018. The Bahamas, Saint Kitts and Nevis and the US Virgin Islands were added to the black list since these jurisdictions have failed to make commitments at a high political level. The actual black list includes the following countries: •

American Samoa

•

Saint Kitts and Nevis

•

Bahamas

•

Samoa

•

Guam

•

Trinidad and Tobago

•

Namibia

•

US Virgin Island

•

Palau

The gray list includes countries and jurisdictions in which the legislation should be improved in the criteria of transparency, taxation and Anti-BEPS Measures. According to the Table 2, the gray list consists of 59 countries: Albania

Andorra

Anguilla

Antigua and Barbuda

Armenia

Aruba

Barbados

Belize

Bermuda

Bosnia and Herzegovina

Botswana

Cabo Verde

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Cayman Islands

Cook Islands

Curacao

Dominica

Faroe Islands

Fiji

Former Yugoslav Republic of Macedonia

Greenland

Grenada

Guernsey

Hong Kong SAR

Isle of Man

Jamaica

Jersey

Jordan

Labuan Island

Liechtenstein

Macao SAR

Malaysia

Maldives

Mauritius

Mongolia

Montenegro

Morocco

Nauru

New Caledonia

Niue

Oman

Panama

Peru

Qatar

Republic of Korea

Saint Vincent and the Grenadines

San Marino

Serbia

Seychelles

Swaziland

Switzerland

Taiwan

Thailand

The United Arab Emirates

The British Virgin Islands

Tunisia

Turkey

Uruguay

Vanuatu

Vietnam

As it has already been mentioned, these countries are interesting for entrepreneurs due to low tax rates. The following table shows corporate tax rates, dividend taxes, interest and royalties for 2017 on the basis of available data for each EU blacklisted country. There are cases where the income of the legal entities, sole proprietors, partners or individuals is exempted entirely from taxation, or corporations are exempted from double taxation. Tax authorities on the multinational level are forced to act due to corporations’ effort to avoid taxation, to create legislation at least limiting the activity of tax havens. Advanced technology may assist to both counterpart parties. Technological progress and digitalization of society is spreading rapidly in each sphere of everyday life and it alters the way how business operate. The basic concepts underlying the existing international tax rules, created almost a century ago, are shaking at the roots, because of these changes. For instance, the “origin of wealth” principle – is questionable in some cases of a modern globalized world, because in the past economic factors contributing to the value created by multinational enterprises were relatively immobile and required intensive use of labor and tangible assets. The ongoing growth in the potential of digital technologies and the declined need for operational leverage (extensive physical presence) in order to continue doing business, combined with the strengthening role of network effects generated by customer interactions, can raise questions e.g. whether the current rules to determine nexus with a jurisdiction for tax purposes are appropriate. Today, the taxation of non-resident enterprise is dependent on the constituted rules requiring physical presence to determine nexus and allocate profits. The fundamental concentration of the existing tax framework has been to align the allocation of taxing rights with the location of the economic activities undertaken by the enterprise, including the people and property that it employs in that activity. (OECD, 2018). The 2015 Base Erosion Profit Shifting (BEPS) Project renovated the international tax rules substantially, supported by the principle that” the location of taxable profits should be aligned with the location where economic activities and value creation take place. However, the effectiveness of these rules may be challenged by the ongoing digitalization of the economy to the extent that value creation is becoming less dependent on the physical presence of people or property” (OECD, 2018).

Results and Discussion -Tax Havens Development in Selected Countries Tax Justice Network estimates the capital in amount of $21 – 32 trillion (USD) in tax havens. This amount represents from 24 to 32 percent of total global investments. Over one million organizations are

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registered in the British Virgin Islands. Cayman Islands are also famous; thanks to 40 of the world´s biggest banks that possess a license in this

country and they hold more than one trillion of American dollars as deposits. Goldman Sachs holds $31.24 billion offshore, but “reports having 905 subsidiaries in offshore tax havens, 537 of which are in the Cayman Islands despite not operating a single legitimate office in that country, according to its own website.” (Institute on Taxation and Economic Policy, 2017). Overall, if all the Fortune 500 companies paid taxes on their profits in the United States of America, the country would get an additional $752 billion. In 2016, the US budget deficit amounted to $585 billion. The Table 1 illustrates top 30 largest American (USA) corporations informing on the capital held offshore and on the number of their tax haven subsidiaries.

Tax Havens and Slovakia and Czech Republic’s Involvement Tax havens have attracted foreign companies for many years. The capital, not collected as tax revenues, could improve governments’ budgets and the governments could use this capital for many public projects. Slovakia is divided into regions; there are big differences in the economic development. There are regions, which are legging, and their GDP is below 75% of GDP of the EU’s GDP average values. The objective of the EU’s regional policy is strengthening convergence of economic and social development, and regional politics should be a driver of employment and competitiveness. The discrepancy in the growth of well-off being is an evidence that European policy in this area is not sufficiently efficient. (Delaneuville, 2017a, p.1863). The lack of capital for the development of regions not only in Slovakia is visible worldwide. The tax havens motivate companies to behave unethically and egoistically by attracting them with unusually preferential treatment. No doubt higher tax revenues have a positive impact on public finances volume offering even an opportunity of public debt reduction (Wefersova, 2017); but it would affect also regional development supported by strengthening their investment potential from domestic or attracted foreign investors’ capital resources. (Delaneville, 2017b)

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Table 2 shows the interest of Slovak and Czech corporations in tax havens from 2008 to 2017, the number of companies registered in the mentioned countries and the changes of their interests (expressed as year-to-year percentage changes).

The number of Slovak companies in tax havens, at the end of the year 2017 reached 4,796. It represents an increase of about 0.5% (19 companies). This number is the highest in the history of the Slovak Republic, despite the regulations to fight against tax evasion. The Slovak entrepreneurs´ interest in tax havens is continually rising, with a pace growth slowing down in 2017, though. The pace of growth achieved the lowest level - 0.4%, in the last decade. The number of Slovak companies increased. Last year, the biggest decline of the Slovak companies was in the USA (-39%) and the Seychelles (-38%). Last year winners - the top three increases in new tax havens for Slovaks in 2017 was Cyprus (an increase – new 40 companies) followed by the United Arab Emirates and Latvia. This island is the home for 1,106 parent companies of Slovak subsidiaries. in 2017. Nowadays, Slovak companies are managing more than 10.5 billion euros in tax havens. (www.bisnode.sk) . Slovak companies do not have owners in the countries from the EU´s black list, except the Bahamas, which are long term connections between the Bahamas and Slovak companies. The number of Slovak corporations in this country reached its maximum in 2013 (15 companies). Currently it is only 10. Slovak enterprises in the countries that are the EU’s gray-listed tax havens were also monitored. In 2017, 748 companies deferred their profits offshore in the above-mentioned countries. Referring to the analyzed data and countries, only 15.8% of the analyzed companies are present in tax havens that are registered by the EU. The number of Czech companies that book their profits in tax havens, at the end of the year 2017 reached 13,031. It represents a decrease about 1.2% (154 companies). The owners from tax havens control 2.7% of Czech entities and their investment represent more than 409 billion Czech korunas. The Czech entrepreneurs´ interest in tax havens reached its peak in 2015 and since 2015 it has decreased which is a proof that 2015 BEPS has driven certain success in Czech Republic unlike in Slovakia, where the growth continues but not in a such rapid pace as before 2015.

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Currently, the number of Czech subsidiaries with parent companies in tax havens is the lowest in the last five years. A decrease has been observed in more than 60% of the analyzed companies. Traditional destinations such as the Netherlands and the Republic of Seychelles lost the most. On the other hand, countries like Hong Kong and the United Arab Emirates were successful in attracting investors. (www.bisnode.cz) As evident from the table 4, Czech companies are not EU´s black listed enterprises, but the Bahamas. Czech entities in this country reached its maximum in 2014 (42 companies). The linkage of Czech enterprises to the countries that are on the EU´s tax havens gray was also monitored with 2 227 companies recorded in 2017, in these countries. Referring to analyzed data and countries, only 17.37% of the analyzed enterprises are present in tax havens that are registered by the EU. The period of analyzed sample covers 10 years (2008-2017). Since 2008, the interest of Slovak companies in the analyzed countries has grown by 145.45%, while in the Czech Republic only by 40.18%. On the other hand, comparing to Slovak enterprises the number of Czech companies in tax havens is 2.72 times higher. Table 4 presents the top 5 tax havens where the most remarkable growth in percentage was observed, related to the examined period of 2008-2017.

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Table 4: Slovak and Czech Enterprises in the Tax Havens - Top 5 percentual growth (2008 – 2017) Slovak entities

Czech entities

1.

Seychelles – 8 350%

1. Hongkong – 365.85%

2.

Lichtenstein – 2 000%

2. Malta – 277.5%

3.

United Arab Emirates – 823.53%

3. Seychelles – 256.89%

4.

Cayman Islands – 300%

4. Belize – 256.36%

5.

Jersey (Great Britain) – 275%

5. United Arab Emirates – 157.14%

Source: Own elaboration based on (www.bisnode.sk, www.bisnode.cz) The table 4 highlights the largest increase of Slovak companies in the Republic of Seychelles over the past 10 years. It was increase by 8 350% compared to the interest of our neighbors in Hongkong SAR that has increased by only 365.85%.The shortcomings of Slovak and Czech Republic is a disclosure of limited information related to the capital invested into individual representatives of tax havens, nor the entities which shifted the capital offshore. In the USA 58 countries of 500 Fortuna list discloses the information online, how much profit was shifted and how much of taxes could have been obtained otherwise. The companies that collect and record this information in Slovakia provide this information for a fee.

Conclusion Individual countries invest a big effort into capturing tax evasion and tax fraud. Nevertheless, it is almost impossible to determine their extent. There are various estimates of losses caused by fraudsters to countries every year, but exact numbers are not available. The only information disclosed in connection with tax evasion is the number of companies in tax havens. As the research shows, the interest of Slovak and Czech companies in these countries recently has a declining tendency unlike US companies. The number of Czech businesses in these countries is almost three times higher than the number of Slovak companies. On the other hand, the growth of Slovak entities in tax havens has taken off by 145.45%, compared to 40.18% rise of Czech entities. Lax reporting laws enable corporations to dictate how, when, and where they disclose foreign subsidiaries and abuse tax havens’ lenient tax rules for their own goals and allow them to take advantage of tax loopholes without attracting governmental or public scrutiny. Congress, EU Parliament or other national parliaments can and should act to prevent corporations from abusing offshore tax havens, which in turn would restore basic fairness to the tax system, bring finances for valuable public programs related to the security, health and education, possibly lower state deficits, and ultimately improve the market functioning.

References Delaneuville, F. (2017)a. "Influence of New Public Management on the development of regional government in Europe: Critical analysis of the process of regionalization in Slovakia", In the Proceedings of the international conference: Education excellence and innovation management through Vision 2020: From regional development sustainability and competitive economic growth, IBIMA, 2017. Vienna, 3.4.5.2017. pp. 1863-1875.

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Delaneuville, F. (2017)b. "Bratislava et le desert slovaque", In the Proceedings of the international conference: Vision 2020: sustainable economic development, innovation management, and global growth: IBIMA, 2017. Madrid, 8.-9.11.2017. pp. 3208-3217. DELOITTE. (2017). ‘Corporate Tax Rates 2013 - 2017’. [Online], [Retrieved February 27, 2018], https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-corporate-tax-rates2013-2017.pdf DELOITTE. (2018). ‘Corporate Tax Rates 2018’. [Online], [Retrieved February 20, 2018], https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-corporate-tax-rates.pdf European Council. (2017). ‘Taxation: Council publishes an EU list of non-cooperative jurisdictions’. [Online], [Retrieved February 20, 2018], http://www.consilium.europa.eu/en/press/pressreleases/2017/12/05/taxation-council-publishes-an-eu-list-of-non-cooperative-jurisdictions/ European Council. (2018). ‘Common EU list of third country jurisdictions for tax purposes’. [Online], [Retrieved March 14, 2018], https://ec.europa.eu/taxation_customs/tax-common-eu-list_en EY. (2017). ‘Worldwide Corporate Tax Guide 2017’. [Online], [Retrieved February 26, 2018], https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-corporate-tax-rates.pdf Gleeson, D. (2018) 103 Tax Haven Escapes, Vivid Publishing, Australia. Gupta, R. (2017) Recent Trends In Transfer Pricing – Intangibles, GAAR and BEPS, Bloomsbury, India. Kurdle, R.T., (2003). The Campaign Against Tax Havens: Will it Last? Will it Work? Standard Journal of Law, Business and Finance 9, Stan JL Bus&Fin (2003-2004) Miller A., Oats, L. 2016. Principles of International Taxation. 5th ed.Bloomsburry publishing. West Sussex, UK, pp. 543-590. Mittelman, A., Noskova M., Mucha B., and Perá ek T. (2017). Specific characteristics of contract on purchase of security under conditions in the Slovak republic. In Proceedings of 20th International scientific conference on economic and social development. [elektronický zdroj]. - Varazdin : Varazdin development and entrepreneurship agency, 2017. - ISSN 1849-7535. - pp 501-506 [online] http://www.esdconference.com/upload/book_of_proceedings/Book_of_Proceedings_esdPrague_2017_Online.pdfpdf OECD. (2009). ‘Countering Offshore Tax Evasion’. [Online], [Retrieved February 10, 2018], https://www.oecd.org/ctp/harmful/42469606.pdf Palan, R., et al. (2010) Tax havens: How Globalization Really Works, Cornell University Press, Ithaca and London. Saxunová, D. (2016). ‘Da ová politika na Slovensku a v Európskej únii’. In: Európska ekonomická integrácia v kontexte aktuálneho vývoja a výziev pre lenské štáty Európskej únie. Wolters Kluwer, Praha. TAX JUSTICE NETWORK. (2017). ‘Tax Havens & Financial Crisis’. [Online], [Retrieved February 20, 2018], http://www.taxjustice.net/topics/finance-sector/tax-havens-financial-crisis/ www.bisnode.cz, www.bisnode.sk

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Institute on Taxation and Economic Policy. (2017). ‘Offshore Shell Games 2017’. [Online], [Retrieved March 20, 2018], https://itep.org/wp-content/uploads/offshoreshellgames2017.pdf Wefersová, J. (2017) ‘Atypical employment‘. In: Sociálno-ekonomická revue. Vol. 15, no. 3, p. 21-27.

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Conception of Warning Signals in Organizational Monitoring Systems Bogdan wik, Military University of Technology in Warsaw, Warsaw, Poland, [email protected] Katarzyna wierszcz, Military University of Technology in Warsaw, Warsaw, Poland, [email protected]

Abstract Systems that warn an organization, facing the requirement of effectiveness and reliability of emitting warnings, must have sufficient theoretical and methodological resources to carry out the entrusted tasks. The effectiveness of current methods of emitting warnings is significantly limited in the so-called nondeterministic situations. One issue of warning systems is the phenomenon of “surprises”, which consists in failure to notice the symptoms of incoming events in time despite the presence of technologically and organizationally advanced warning systems. A lot in this area depends on the effectiveness of signal perception. The aim of this article is to propose a universal approach to the issue of perceiving threats, presenting author's own thoughts in the field of interpretation of what a warning signal really is and what can affect the effectiveness of this perception. This work uses the following scientific methods: analysis and criticism of literature, analysis and logical construction, as well as the heuristic method: “new look” method and the analogue transfer method. These methods are complemented by the method of deductive reasoning combined with the enumerative induction. The result of the work carried out is the presentation of the concept of threat interpretation as well as the warning signal model associated with this interpretation.

Keywords: threat, threat development, threat perception, threat monitoring, warning against threats, threat model, warning signal, perception of warning signals, signal recognisability. Introduction The processes of threat monitoring are the basic element of the security of organizations such as: enterprises, offices, institutions and others. As the experience shows, the basic problem of all types of threat monitoring systems is their limited effectiveness, appearing in two ways: or not timely detection of warning signals and, consequently, lack of response or delayed reaction to the arising threats; or too early preventive response unnecessarily launching resources. Particularly problematic is the phenomenon of “surprises” in negative situations when in spite of the presence of technologically and organizationally advanced monitoring systems as well as advanced analytical procedures, there are still sudden negative events, and then, after the case, there is information that the symptoms of what happened were visible earlier, but nobody paid enough attention to take preventive action in advance. Own studies carried out among the members of disposable groups, show that 80% of police officers, 85% of firemen and 67% of army officers indicate the problem of “surprises” in perceiving warning signals.1 Problem of warning signals perceiving is widely undertaken by researchers. In principle, one can identify two main research trends in this area. The first includes detailed problems in the area of functioning of the nervous system, brain functioning, clinical psychology, behavioral psychology, or cognitive psychology (Houghton 2018:45-52; Leichsenring and Steinert 2018: 400-416; Qiu, Han, Zhai and Jia 2018: 78-85; Spodenkiewicz and et al 2018: 107-114). Whereas the second area is interpretation of risk and decisionmaking under uncertainty, understanding of human decision-making in the face of risk, understanding the 1

The research was conducted in 2015-2017, among the members of the courses at the Military University of Technology and the Safety Department at the University of Technology and Economics in Warsaw.

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gap between risk interpretation and action (Eiser 2012: 5-16; Christiansen and Thrane 2014: 427-443; Wirtz and Rohrbeck 2018: 366-372; Grothmann and Reusswig 2008: 2-16; Paton 2008: 2-16; Ferrer and et al. 2018). The main goal of this study is to explore the essence of what a threat is, what a warning signal against this threat is, as well as presenting the concept of a universal approach to the perception of warning signals. It is assumed that the result of the undertaken work will be the extension of the theoretical approach to the problem of threat perception, creating the basis for deductive reasoning for perceiving threats in nondeterministic situations. To achieve the assumed goals, firstly, the author carries out the reflection over the concept of a threat for improving the effectiveness of its perceiving, and then presents a model of a warning signal, focusing on the problem of recognizing its individual components. This work uses the following research methods: analysis and criticism of literature, analysis and logical construction, as well as the heuristic methods: “new look” and the analogue transfer. In the course of own studies, while working on the topic regarding the perception of warning signals in nondeterministic situations there were revealed significant methodological and interpretational problems as well as the need for a deeper consideration in this area, inducing some theoretical assumptions and developing models in this area ( wik 2017:4-14).

Interpretation of a Threat The number of publications on threats is extensive, where many authors identify, classify or describe various threats. The authors share them differently, including military and non-military threats, natural and man-made ones, as well as other divisions, for example ecological, technical and civilization threats ( lachci ska and Kopczewski 2013:603-618; wierszcz 2017: 170-174). Some of these threats can be measured, i.e. their magnitude can be expressed on a quotient, interval or order scale, and some of them are unmeasurable and can only be expressed on a nominal scale. It also seems that the term threat is intuitively understood and commonly used. The most common definitions define this concept as: “a phenomenon triggered by the forces of nature or man, which causes the sense of security to diminish or totally disappear.” This interpretation refers basically to the conscious sphere of a given entity (man, social group, nation), identifying in general a specific state of mind of a single man or a group of people, caused by the perception of phenomena assessed as unfavorable or dangerous (Grenda and lachci ska and Majdan 2017: 1204-1213). Another issue is that there is a conviction in people's consciousness that the feature of the reality surrounding modern organizations, is their functioning with the threats constantly present (the society of risk) (Beck 2004). Therefore, a question arises how to warn against something that is common and present all the time. To sum up current considerations, it should be noted that threat is always related to the presence and probability of unfavorable interactions (impacts) in relation to the structures of a given organization, as well as in relation to the functions it performs (Petrova 2017: 335-360; Dimitrova 2017: 89-93). To order the problems, it was decided to propose a model of threat interpretation, the essence of which is to consider threats in two categories, namely in the category of causes and simultaneously in the category of effect. The first category includes characteristics associated with the cause that something negative may happen. These characteristics can be termed interactions (or impacts), where the interactions will be understood as any physical, chemical, mechanical, biological, psychological, economic, social or other forces which may have a negative impact on investigated organization. These forces can be measured and their value can be expressed on a certain scale (quotient, interval or order), and therefore they are quantitative. While the second category includes the characteristics related to effects of negative interactions expressed either in terms of the loss of the organization's ability to perform specific actions or

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the realization of negative scenarios of events or phenomena (collapse of a company, breaking contact by a customer, etc.). They are rather unmeasurable and can be expressed mainly on a nominal scale. Thus, when monitoring warning signals, it is suggested to divide threats into causal and consequential ones. At the same time, the causal threat should relate to the presence of certain interactions (impacts) and related (possibility, threat or probability of) exceeding limit values, beyond which significant qualitative changes may occur in the structure of the organization or its performed functions. While the consequential threat will mean (possibility, threat or probability of) an occurrence of a particular negative effect – a company collapse, loss of contract, financial losses and other as a result of the impact of a specific (real) causal threat. With such assumptions, the threat model can be presented as a set of ordered pairs in which the preceding element is the size (magnitude) of the threat and the following element is the probability of its realization (fulfillment). As a result, for any moment , where T is the lifetime of an organization, the instantaneous magnitude of the threat can be expressed as the following set:

where: are the values of the causal threats and associated consequential threats at the moment i , are values of probabilities of realization of the causal and consequential threats at the moment i. The values of probabilities included in the model can be called risk. In the case of warning systems, the basic problem is what and how to observe and what and how to measure to ensure effective warning against the realization of a particular consequential threat ( wierszcz 2012: 69-86). The recognition of the warning signals sufficiently in advance is the solution. In the further part of the study a deep reflection will be carried out on what exactly the warning signal is.

Warning Signal and Its Recognisability The basis for interpreting the concept of a warning signal will be the assumption that all items and objects in the surrounding of the organization send signals carrying information about their functioning and the interactions (impacts) generated by them (Dutton and Fahey 1983). The above statement is connected with the thesis that the surrounding of every organization includes some kind of information field in the form of various impulses, stimuli, values of characteristics (parameters), indicators, written developments, statements, reports and others from which warning signals can be read (Herbig and Milewicz 1996). In such a context it can be said that “everything signals something”. Elina Hiltunen, among others, refers to this by writing: “there are real signals behind the fog, you have to be able to read them, it is very often on the periphery, outside the mainstream of research or analysis” (Hiltunen 2010:30). In the further part of the study the author of this work will carry out an attempt to explore and present an approach to the interpretation of the concept of a warning signal. But the interpretation of the concept will be based on the concept of a sign. The notion of a sign was already used in ancient Greece, where the stoics treated it as a union of three things: the sign itself (word, sound of speech), content, that is the meaning of the sign and the object actually existing (Janik 2011:81). A similar approach was presented several centuries later by Sextus Empiric (II-III century AD), saying: “[…] three things are interrelated: the content of the sign, the sign

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and the thing that really exists” (D bska 1984:97). Charles S. Pierce built his own conception of the sign on these concepts, claiming that: “a sign is something that appears instead of something else. Each sign has its own object which it replaces, e.g. the word “house” replaces a house. In addition, the sign has its material quality, i.e. a certain sensual form in which we can observe it, e.g. letters or sounds. […]. Additionally, there must be a mind interpreting the sign” (Buczy ska 1966:58). And from this reasoning emerged the “triadic concept of a sign” (Theory of Signs) (Janik 2011:81-115), which is a relation of the following elements: a real object, its representation and interpretation connected with it. A more in-depth discussion in this area can be found in the work of analysts interpreting the works of Charles S. Peirce (Mats Bergman) (Bergman 2007:53-89), Carl R. Hausman (Hausman 2006:89-112), Christopher Hookway (Hookway 2012), Catherine Legg (Legg 2014:204-213), Aron B. Wilson (Wilson 2016) as well as practitioners Elina Hiltunen (Hiltunen 2010:76-79), Elina Hiltunen (Hiltunen 2008:247-260) Susanna Siegel (Siegel 2010). Considering the above, it is proposed to adopt a model of a sign carrying information (signal) about the threat, as a triadic structure formed by three components: interpretation, representation and interaction, being the equivalent of “the content of the sign” introduced by Peirce. In this model, “the content of the sign” will be expressed in the interaction shown on the appropriate scale. As a result, the dashes directly read by the observer on the thermometer will be a representation and the temperature will be an interaction (the content of the sign) correlated with this representation. However, it still requires interpretation, since, e.g. the read value of 40 Celsius degrees may present a significant risk if it relates to human body temperature or ambient temperature, but in a cooling system of an internal combustion engine or in a home heating system, it proves the proper operation of the devices. It will be similar when reading the representation of other physical, chemical, biological or social signs. To sum up, a vector with three components will be the model of sign Z: Z = where the individual components will mean the interpretation – I, representation - R and interaction (causal threat) - O. Each component will have a specific level of recognizability, which can be expressed, e.g., on an ordinal scale and can be considered on three levels: • • •

insignificant level; partially significant level; strongly significant level.

In the case of “interpretation”, these will be the levels of cognitive processes related to a given interaction, allowing for the interpretation of the quantities read and their values I < i1, i2, i3 > • i1 - insignificant level of cognitive processes realization, i.e. their lack in the area related to a given interaction, it most often results from the lack of knowledge or uncertainty of the second type (when the consequences or effects of specific events are unknown); • i2 - partial level of cognitive processes realization in the area related to a given interaction, this results from incomplete knowledge or uncertainty of the first type (the consequences or effects of events are known, and only their likelihood is unknown); i • 3 - strongly significant level of cognitive processes realization, i.e. a situation where the level of knowledge in the area related to a given interaction is full or sufficient. In the case of “representation” these will be the visibility levels of the values related to the given interaction, i.e. “representation”

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R < r1, r2, r3 > • r1 - the visibility level of “representation” is insignificant, i.e. either it is impossible to read the value associated with a given interaction or its reading is very difficult or inaccurate; • r2 - visibility level of “representation” is partial, it is possible to partially read the value associated with a given interaction, but it is incomplete for technological or organizational reasons; • r3 - the visibility level of “representation” is very significant, i.e. it is possible to read a full or satisfactory value related to a given interaction. In the case of the element “interaction”, these will be the levels of the interaction magnitude O < o 1, o 2, o 3 > • o1 - lack or insignificant level of the interaction, which does not pose a threat of causing significant quality changes, • o2 - partially significant level of the interaction, constituting a partial danger of causing significant quality changes, where it can be assumed that the object is in a state of danger (e.g. a crisis situation), • o3 - strongly significant level of the interaction, within this level there is a limit value, which, when exceeded, results in permanent quality changes. As a result, if we consider sign Z = for its recognizability, we may differentiate between 27 levels of this recognizability (Fig. 1).

Figure 1: Components of the warning signal model (Source: own work)

It should be noted that most analysts do not take into account different levels of recognisability of individual components of the sign, focusing on the identification of a highly significant area of interaction, a highly significant level of “representation” and sufficient level of cognitive processes, i.e. at the level of recognisability of the sign, which can be presented as follows:

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Z (3,3,3) = < i3 , r3 , o3 > However, in practice, when the interaction (causal threat) reaches limit values or values close to the limit values, it means that as soon as O component is at level 3, the other components may be at lower levels (darkened area in Figure 3): Z (1,1,3) – lack of knowledge and invisibility of “representation”; Z (1,2,3) – lack of knowledge and partial visibility of “representation”; Z (2,1,3) – partial knowledge and invisibility of “representation”; Z (2,2,3) – partial knowledge and partial visibility of “representation”; Z (3,1,3) – sufficient knowledge, but invisible “representation”; Z (1,3,3) – lack of knowledge and total visibility of “representation”; Z (3,2,3) – sufficient knowledge and partial visibility of “representation”; Z (2,3,3) – partial knowledge and total visibility of “representation”;

• • • • • • • •

The elements (components) presented in Fig. 1 determine the effectiveness of the recognition of the warning signal, i.e. its recognisability, while the component “representation” is directly related to the reading of the certain values, for example, by using measuring instruments and the effectiveness of perception depends mainly on technological factors and a deeper reflection in this area is the theory, practice and methodology of diagnostics. Therefore, this area will not be considered further in this study. However, for the other two components of the sign, more in-depth analyzes will be carried out and models for their development will be proposed.

Model of threat development - impact The model of threat development illustrates the course of a certain negative impact (of causal threat) which, when exceeded, will lead to negative and irreversible qualitative changes in the organization. This is shown in Figure 2, where “O” on the vertical axis represents the value of the observed impact (causal threat) on the given system and on the horizontal axis its duration.

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$

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Figure 2: Model of threat development in the organization (Source: own work)

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Under normal conditions, the organization almost always functions at a certain level of negative impact (interactions), which can be considered as a permissible level within applicable standards. After exceeding the permissible level of OAC (acceptable O), the level of the observed impact (interaction) becomes so significant that first changes in the ability to perform tasks begin to appear in the system (working characteristics deteriorate). In the first phase these are mostly quantitative changes and the organization may correct them. At this stage, the changes are identified as interruptions (disturbances) and they occur at the presence of conditions, forces, and capability to stop or change the unfavorable course of events. However, when the level of impact (interaction) exceeds the limit OLS, then permanent quantitative and qualitative changes in the system start and the resulting effects become irreversible. This moment is marked as LS (limit state) in Figure 2. It is a consequence related to the limit value of this impact (LVI), after which the processes of destruction begin, the properties change irreversibly and permanent qualitative changes appear. Two breakthrough points appear in Fig. 2; the limit value of LVI impact appears on the side of causal threats and the limit state of the LS system appears on the side of consequences. After exceeding the LS point, a particular consequential threat is realized – the company starts firing employees or sells the property, the water begins to overflow the flood embankment. Initially the implementation of the consequential threat is partially reversible as it is possible to re-hire fired employees or stop selling the property, or to raise the flood embankment with sandbags, but after some time the consequential threat is fully realized, that is, irreversible qualitative changes are implemented – the company collapses, the land is flooded. In warning systems, it is important to generate resources or structures that are responsible for and capable of determining with sufficient time in advance when to take preventive action. This moment has been marked in Figure 2 as perceiving the limit value of the impact (causal threat) PLI. Time to react, that is the time to generate a warning signal and take preventive actions, is equal then to PLI – LVI. The problem, however, is that in many cases it is not always possible to place the equal sign between LVI and LS. This is usually possible in technical systems, for example, when trying to stretch a sample of metal, exceeding the limit of tensile force is tantamount to breaking the sample, i.e. exceeding the limit state. Another example of the exceedance may be the flood wave level in the river, where the impact (causal threat) that is subject to observation, is the water level in the river, and the consequential threat is water overflowing the embankment, which results in significant quality changes in the organization. High correlations between the registered interaction (cause) and the effect can also be indicated in the medical diagnosis. On the other hand, in many social systems, where generated interactions are the result of human decisions and choices, correlations between LVI and LS are significantly greater. And this is the main reason for the limited effectiveness of warning systems, and above all this is the main reason for the appearance of “surprises”.

Model of Integrated Perceiving Of a Threat Interpretation The course of perceiving processes along the “interpretation” component is in principle related to the implementation of cognitive processes. The fundamental problem of these processes is the connection of what the senses perceive with what the observer's mind contains ( wik 2017). To illustrate this, Fig. 3 shows the proposal of a model for the way of perceiving of a warning signal. The presented model is integrated with other cognitive processes, namely attention, memory and thinking. This model is based on the confrontation of two oppositely directed streams of cognitive processes, i.e. bottom-up processes running from the external environment and top-down processes running from the mind. As a result of this confrontation “the signal is identified and recognised”.

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)

*

top-down processes

#

bottom-up processes

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Figure 3: The model of integrated perciving of a sign (Source: own work)

The process of integrated perceiving of the sign presented in Figure 3 and it can be understood as a deeper perception. It begins with sensory recording, which translates the recorded light or sound waves from the environment into the nerve impulses in the senses, resulting in impressions (experiences), i.e reflections of elementary sensory qualities recorded as a result of the reception of sensory data. Sensory data means stimuli, where stimulus is understood as an environmental factor containing energy and triggering a specific reaction of the body. These stimuli are transformed into impressions (experiences) in the form of graphic symbols or images that are perceived as representations of the signs, but there are socalled observations of these signs and this is done within the “bottom-up processes” (Figure 3). The recorded observations Philip G. Zimbardo (Zimbardo 1999: 264-307), Jerome S. Bruner (Bruner 1978:32-226) are confronted with parallel processes of selection and categorization, which are performed using memory and thinking within, resulting in recognition and identification of the sign content, behind which the interaction is concealed. Such perceiving is a process of active reception, analysis and interpretation of sensory phenomena. In this process, the incoming sensory information is processed in such a way to adjust it to one's knowledge about the surrounding world. During these processes the observer's mind resources are confronted with the signals registered by the senses. Therefore, it can be concluded that the identification and recognition of any object, phenomenon or event is nothing else but the interpretation of the perceived sign representations including: a) assigning the meaning to observations, b) conscious observation of the subject matter:

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• • • •

giving the perceived representation a name or defining what it is; issuing quantitative assessments of the sign content, i.e. how much it is; issuing quality assessments of the sign content, i.e. how it is; issuing pragmatic judgments, e.g. determination for which purpose the object serves, what impact it may cause.

In the case of warning signals, it will mean recognition of a specific reaction, reading its size, comparing it with limit values, risk assessment of exceeding limits taking into account the level of the stress in the environment, decision about sending a warning message to the management. Perceiving involves integration of a number of components of mental processes, in which the person reflects (creates cognitive representations of) the objects of reality currently affecting his receptors and recognizes the importance of these objects - decodes incoming information with the help of representations acquainted in his brain. The processes of perceiving performed in this way are supported by processes of attention, memory and thinking. Following Anna Grabowska and Wanda Budohoska (Grabowska and Budohoska 1995: 11-74), it can be concluded that: “mentioned processes of cognitive activity, are characterized by the active nature of their course, as a result, people seek information about the world, process this information, integrate data and integrate them into knowledge systems, and then use them to make choices, formulate assessments or judgments, to make decisions”. At this point you can also quote the words of Norbert Winer, who said: “A man lives in a world that he perceives through his organs of senses. The information received is organized by his brain and nervous system until, after an appropriate process of storage, comparison and selection, specific reactions and behaviors start to be expressed through the effectors (most often muscles). The effectors, in turn, affect the external world, as well as the central nervous system through such receptors as endings of kinesthetic organs. The information received through the kinesthetic organs is attached to the already accumulated information supply to affect further operation” (Wiener 1961:17-18).

Conclusions The presented model of interpretation of a threat is an initial proposal that can be further developed. It seems that it sorts out the problem, allows to consider the issue from the perspective of the system as well as allows to generalize the approach to understand the notion of a threat and creates the conditions to develop methodology, measurement and risk assessment. It allows to explain the causes of disturbances and distortions in threat perceiving. The presented concept of a threat model can be treated as the nucleus of a new research area that might be called the „theory of threat“. The division into causal, measurable, expressible on the measurement scale, and consequential, expressed only on a nominal scale threats provides the basis for more effective risk monitoring, better organization of early warning systems as well as more effective risk management systems. The presented concept is a preliminary approach to the problem that can be further developed. It seems that this concept sorts out the issue, allows to consider the problem from the perspective of the system, allows to generalize the approach to understand the notion of a threat, creates the conditions for the development of methodology, measurement and risk assessment. It tries to explain the causes of disruptions and distortions in threats perception.

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References Journal Articles Dutton, J.E. and Fahey, L. and Narayanan, V.K. (1983), Toward Understanding Strategic Issue Diagnosis, Strategic Management Journal, Vol. 4, No 4., 307-323. Eiser, J.R. (2012), Risk interpretation and action: A conceptual framework for responses to natural hazards, International Journal of Disaster Risk Reduction, Vol. 1, October 2012, 5-16. Ferrer, R.A., Klein, W.M.P., Avishai, A., Jones, K., Villegas, M. and Sheeran, P. (2018), When does risk perception predict protection motivation for health threats? A person-by-situation analysis, Plos One, 13(3), available: http://dx.doi.org/10.1371/journal.pone.0191994. Grothmann, T. and Reusswig, F. (2006), People at risk of flooding: Why some residents take precautionary action while others do not, Nature Hazards, 38 , 101-120. Herbig, P., Milewicz, J., 1996, Market Signaling - a review, Management Decision, Vol. 34 Issue: 1, 3545. Houghton, D. C.; et al. (2018), Abnormal perceptual sensitivity in body-focused repetitive behaviors, Comprehensive Psychiatry, Vol. 82, 45-52, available: http://dx.doi.org/10.1016/j.comppsych.2017.12.005. Leichsenring, F. and Steinert, C. (2018), Towards an evidence-based unified psychodynamic protocol for emotional disorders, Journal of Affective Disorders, 232, 400-416, available: http://dx.doi.org/10.1016/j.jad.2017.11.036. Qiu, F.H., Han, M.X., Zhai, Y. and Jia, S.W. (2018) 'Categorical perception of facial expressions in individuals with non-clinical social anxiety', Journal of Behavior Therapy and Experimental Psychiatry, 58, 78-85, available: http://dx.doi.org/10.1016/j.jbtep.2017.09.001. Paton, D. (2008), Risk communication and natural hazard mitigation: How trust influences its effectiveness, International Journal of Global Environmental, Issues 8, 2-16. Spodenkiewicz, M., Aigrain, J., Bourvis, N., Dubuisson, S., Chetouani, M. and Cohen, D. (2018), Distinguish self- and hetero-perceived stress through behavioral imaging and physiological features, Progress in Neuro-Psychopharmacology & Biological Psychiatry, 82, 107-114, available: http://dx.doi.org/10.1016/j.pnpbp.2017.11.023. wierszcz, K (2012), Poznanie naukowe wobec problemów rozwoju gospodarczo-cywilizacyjnego, Przedsi biorczo i Zarz dzanie, t.. XIII, z. 3, 69-86, SAN, Warszawa. Wirtz, P.W. and Rohrbeck, C.A. (2018), The dynamic role of perceived threat and self-efficacy in motivating terrorism preparedness behaviors, International Journal of Disaster Risk Reduction, 27, 366372, available: http://dx.doi.org/10.1016/].ijdrr.20l7.10.023.

Books Arrow, K.J. (1971), Essays in the theory of risk-bearing, Amsterdam, North-Holland Pub. Co, ISBN: 072043047X.

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Buczy ska, H. (1966), Peirce, Wiedza Powszechna, Warszawa. Grabowska, A. and Budohoska, W. (1995), Procesy percepcji. My lenie i rozwi zywanie problemów, PWN, Warszawa. wik, B. (2016), Skuteczno rozpoznania sygnałów o zagro eniach – aspekty teorii znaków, w: yli ska J., Przychocka I., Filipowska-Tuthill M., Współczesne wyzwania nauk społecznych i ekonomicznych, Uczelnia Techniczno- Handlowa im. Heleny Chodkowskiej w Warszawie, Warszawa. wik, B. (2017), Postrzeganie sygnałów ostrzegaj cych organizacj w sytuacjach niedeterministycznych, WAT, Warszawa. D bska I. (1984), Wprowadzenie do staro ytnej semiotyki greckiej, Zakład Narodowy im. Ossoli skich, Wrocław. Hiltunen, E. (2010), Weak Signals in Organizational Futures Learnig, Aalto University School of Economics, Aalto Print, Aalto. Jajuga, K. (2007), Zarz dzanie ryzykiem, PWN, Warszawa. Janik, P. (2011), Koncepcja przekonania w uj ciu semiotyczno-pragmatycznym: Charles S. Peirce, Wydawnictwo WAM, Kraków. Strelau, J. (2015), Ró nice indywidualne: historia, determinanty, zastosowania, Wydawnictwo Naukowe Scholar, Szkoła Wy sza Psychologii Społecznej, Warszawa. lachci ska, E. Kopczewski, M. (2013), Ochrona i odporno kluczowych zasobów infrastruktury krytycznej, w: M. Kopczewski, I. Grzelczak-Miło , M. Walachowska (red.), Paradygmaty bada nad bezpiecze stwem, Zarz dzanie krytyczne w teorii i praktyce”, Pozna . Wiener, N. (1954), The human use of human beings: cybernetics and society, Garden City, New York: Doubleday Zimbardo, P.G. (1996) Psychology and life, New York: Harper Collins College Publishers, ISBN: 0673990079.

Conference Paper Grenda, B. and lachci ska, E. and Majdan, P. (2017), Improving the critical infrastructure protection system, Proceedings of the 30th IBIMA Conference revolves around Vision 2020 adopted by Europe and many regions of the world, ISBN: 978-0-9860419-9-0, 8 - 9 November 2017, Madrid, Spain, 1204-1213. Petrova, E. (2017), Motivation for Education and Learners' Satisfaction with the Choice of Military Specialization or Civilian Specialty, Proceedings of the 23rd International conference Knowledge-Based Organization, ISBN: 978-973-153-274-5, ISSN: 1843-682X, , 15-17 June 2017, Sibiu, Romania, Vol. XXIII, No 2 2017, 355-360. Dimitrova, S. (2017), Challenges of the security environment before the correlation "resources-cabilities effects", Proceedings of the 23rd International conference Knowledge-Based Organization, ISBN: 978973-153-274-5, ISSN: 1843-682X, 15-17 June 2017, Sibiu, Romania, Vol. XXIII, No 2 2017, 89-93.

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wierszcz, K. (2017),The Impact of Energy Poverty on the Level of Social Security, Proceedings of 2017 International Conference on Management Science and Management Innovation (MSMI 2017), ISBN: 978-94-6252-369-2, ISSN: 2352-5428, June 23-25, 2017 Suzhou, China, volume 31, 170-174, DOI: 10.2991/msmi-17.2017.39. wik, B. (2017), Distortions in perception of warning signals about risks and threats to an organization, Proceedings of International Conference on Economics and Management Innovations (ICEMI 2017,ISBN: 978-1-948012-02-7, 15-16 July 2017, Bangkok, Thailand, 309-312, DOI: 10.26480/icemi.01.2017.309.312.

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Computational Security Models in Organizations: Bringing a Pedagogical User-Centered Perspective Carlos R. Cunha, Applied Management Research Unit (UNIAG), Polytechnic Institute of Bragança, Mirandela, Portugal, [email protected] João Pedro Gomes, Polytechnic Institute of Bragança, Mirandela, Portugal, [email protected] Elisabete Paulo Morais, Applied Management Research Unit (UNIAG), Polytechnic Institute of Bragança, Mirandela, Portugal, [email protected]

Abstract The security of systems and networks is a multidisciplinary challenge of increasingly importance which has stimulated the development of multiple solutions for an effective response to the requirements that are needed. In pursuing this demand much of the focus of security proposals has focused on ensuring mechanisms that prevent organizations from being attacked from outside their perimeter. However, the evolution of the tasks carried out by the internal organizations collaborators, which demand an increasing degree of use of computational resources and privileged access to multiple sources of information, emerge an increasing concern in the monitoring of the behaviours of the users. In addition to this problem, there is often an ill-defined borderline confusion over what internal workers should be able to do with the resources they have in organizations. The mix between strictly professional use and personal use can be problematic in organization's security context. Define organizations security policies, understand user’ behaviours, act effectively over security incidents and promote users’ organizational security culture, by a pedagogical approach seems to us to be a necessary advance in security frameworks nowadays. This paper presents a reflection on the aspects of internal security of Local Area Networks and proposes a conceptual security framework, which aims to contribute to an effective control and understanding of LANs user’ behaviour, to a real-time response to unwanted occurrences but, especially, to a pedagogical approach to help the development of users’ security culture.

Keywords: Security Models, User-centered systems, Computational Security, Conceptual Model Introduction In organizations, users’ compliance with security is crucial for minimizing information security incidents (Bauer et. al., 2017). Security solutions based on technical aspects alone are insufficient to protect corporate data. Studies show that successful information security only can be achieved through a combination of technical and socio-organizational perspective and when users are considered an active agent (Bulgurcu et al., 2010; Montesdioca & Maçada, 2015; Spears & Bakri, 2010). Involving users, differentiating assets within organizations, and that interact with information systems is an extremely important part of designing effective security models. However, the role of the user in the context of the definition of security models, policies and procedures is often relegated to the background. Security models that only include users as agents that can putatively counteract security or threaten their effectiveness are examples of approaches that do not understand the determining role of the human factor in the context of computational security. At the basis of the success of any attempt to ensure the security of information systems is the security culture that proliferates in an organization. The level of security culture always reflects the degree of

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commitment of the users in the pursuit of the security polities that the technical-administrative component has defined. In this way, in our opinion, creating mechanisms for participatory inclusion of users in a symbiotic relationship with the technical component of administration will only benefit the overall effectiveness of organizational security. However, the creation of models that support this symbiotic interaction emerges as a challenge. It is precisely to this challenge that this article proposes to respond, through a conceptual model of security. The proposed model is intended to be a pedagogical user-centered approach that support a partnership between the user and the security-administrator, contributing to an increase in security culture, improving the effectiveness of security policies and also increasing user awareness of the importance of their actions, when he uses the organization's computing resources.

Computer and Network Security Overview inside Organizations System security depends on several factors, and conscientious organizations must address all of them in order to guarantee the best system’s security. It’s not easy to quantify a system’s security state. Based on key characteristics of attack-defense interactions, (Pendleton et. al., 2016) proposed a security metric framework with four sub-metrics: system vulnerabilities, defense strength, attack (or threat) severity, and situation understanding, being user vulnerabilities, along with interface-induced and software vulnerabilities, the central elements of system vulnerabilities. While most of the factors that contributes to the overall measure of system security can be hardened and improved by automated and mandatory procedures, users have the “human factor” that makes them a challenge since their behavior has associated a bit of uncertainly. According to (Workman et. al., 2008), most of the research on information security focus on the technical side of security lapses, but it is personal behavior that makes the foundation of securing organizational systems and “security technology should be user-centered”. Also, the authors findings suggest that when users are aware of the severity of a threat then they tend more to implement security measures. (Hanus & Wu, 2016) findings also confirm the importance of security awareness on the perceived severity on the desktop users. It will not bring great opposition to say that human factor is the weak point in security. Desman (2003) says that “Information security is a people, rather than a technical, issue”. Therefore, it is critical to give to security culture the relevance that it deserves. This is not an easy task and it must be assumed as a permanent demand, with a constant interaction between users and the security team. Users should know not only what are the generic security best practices but also what are the requirements and expectations for their behavior in accordance with the organization security policies. The main suggestion in the literature to ensure compliance is by training and education (Puhakainen & Siponen, 2010). The importance of giving users security awareness training is not a recent trend, and many organizations are providing it. But even in those cases, there are doubts about the real effectiveness of the training (Caldwell, 2016). In fact, an informed user doesn’t necessarily mean a compliant user, and (Puhakainen & Siponen, 2010) realized that security compliance could be maximized if employees received continuous feedback about it. Despite the simplest and most generalized way of providing security awareness to user is an impersonalized and generic style, where every user gets the same training, a targeted approach, where each user has the training depending on his own behavior, is more desirable since is more likely to be accepted (Furnell & Vasileiou, 2017) and have a bigger positive impact in the organization security. Designing security models, that incorporate users, implies that human factors are identified in the context of safety. Ki-Aries & Faily (2017) presents an approach for identifying security related human factors by incorporating personas into information security awareness design and implementation. It is also referred that personas as user models can also help in the identification of threats, vulnerabilities and areas of risk in their work environment (Faily & Fléchais, 2010).

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Next, is presented a conceptual security model that, that based on a security proactive approach, incorporates a user-centered pedagogical component that intends to support a sym symbiosis biosis between the technical-administrative staff and users, in order to increase the security culture inside organizations.

A Pedagogical User-Centered red Conceptual Security Model In order to contribute to the development of securi security systems, designed not only in technical security itself, but also enhancing the role of computing resources users;; a conceptual model was developed tthat incorporates the pedagogical and educational dimension of the user security culture. This model is presented as a contribution to make available a fin final set of information about users behavior and how these behaviors are reflected in the organization's computational security. In this way we will educate the user and make him an active and participatory agent a in n the process of organizational-security organizational Polices and procedures definition definition. With this approach, users will tend to cooperate with the technical structure ructure and increase the level of security. Figure 1 presents the proposed conceptual model.

Figure 1 : Security Pedagogical User-Centered Conceptual Model The proposed model incorporates a security approach that interconnects the role of the security administrator and the role of the user. This model, mod incorporating classic security mechanisms, highlights the role of the user as an active agent, contributed, abovee all, to the increase of security culture. This model emphasizes the User Security Reports module which is a contribution contributio to a usercentered approach and the ability of the security system system to contribute to the formation of a security culture in the user. The contribution of each component is described below.

Model Components Description Management Interface: This component centers the management interface to which the security administrator has access. Through this, the administrator administrator can control all existing modules either to consult or to configure all the existing funct functionality. It is in this sense the management console that the administrator uses to manage the security system. In I particular, we must note that it will be the management interface of all the administrator and user relationship. Users Profile and Grants: In this component the profiles and permissions of tthe he users of the system are configured. These profiles and permissions cater cater the user as an agent that uses the organization's

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computer system and the role that its activity in the organization requires of these same resources. The risk profile of the user is also defined and mapped in the form of profiles. Policies Definition: This module is responsible for mapping the security policies defined by the administrator. Security policies concern the rules that must be developed and followed by users of an organization's information resources. They are in themselves the way to ensure security principles and should translate the organization's view of the security concept itself and the way the organization must guarantee it. Rules Engine: This component is of particular importance since it translates the dynamics of the whole proposed model. Based on rules and intelligence, this component takes as input all the data flows and mechanisms in the model to make proactive decisions. These decisions range from purely technical aspects (e.g. reconfiguring a firewall or using data from an intrusion detection system to generating an attack alert) to actions directed to the user and/or to the administrator. These last actions translate the ability to perceive whether user behavior is violating the defined policies. In this case, both the administrator and the user will be notified. It will be the responsibility of the administrator to act accordingly, always in a pedagogical way and in order to raise awareness of the importance of correcting the user-behavior, explaining the negative impact of bad behaviors on the organization security and the security of the user's own system. This component has the ability to manage all components in real-time. Actuators Mechanisms: This module translates the set of actuation mechanisms that operate on the computational resources (i.e. computers, network components, security equipment, etc.). Its real-time management by the "Rules Engine" module allows the actuation mechanism module to reconfigure all computer equipment. Resources Manager: In this component are mapped all the computational resources, existing an interface of manipulation of the same. This component is managed by the "actuation mechanisms" component and by the "Rules Engine" component, in case any real-time nonconformity is detected. User Security Reports: In security systems the human factor is of extreme importance for the security guarantee itself. However, the implementation of security media is often inimical to user usability and freedom. In this way, and when the user has not participated in the planning and definition of the security measures, will tend not to understand the importance and necessity of such policies. This scenario is especially true when a security culture does not exist. It is in this scenario that the "User Security Reports" component contributes to the creation of user-centered security models and pedagogical approaches to create a security culture that is, in our opinion, a key issue in the computational security context.

The Rules Engine component, as an aggregator, has the ability to record and act on events that are monitored by the security infrastructure. From this continuous action comes the ability to generate reports on user behaviors. Security report is designed to warn the users such as notify, inform and advice users about the consequence effect of is actions (Amran et. al., 2017). These reports are first sent to the administrator for analysis and to conclude what actions will be taken. In the next phase, the administrator will include the set of recommendations that should be included in the report that will be sent to the user. These recommendations should be guided by a view of the organization's impact on the user's negative behavior and, more importantly, a set of indications enabling the user to better understand the consequences of his behavior so that they can be corrected. These reports are also very important when designing training plans for users in the field of good security practice. They also provide the opportunity for the user to include their opinions and their own contribution to improving security. In this way, a symbiosis between the security administration and the users, the security culture will tend to improve and the user will tend to feel that it is an important piece in the definition of the security policies of the organization. Figure 2 shows the symbiosis between administrator and the user and the segments of identification of the wrong behaviors versus the set of recommendations and actions to be developed in partnership with the user.

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Figure 2 : User Security Reports module overview

The proposed model operates on the principles - monitoring, identification, reporting, action, awareness and self-improvement. improvement. This approach fills a gap in the classically classically presented models in the field of computational security context solutions that t are too focused ocused on data flow monitoring and control technologies and where the human / user factor fac is either relegated to second-importance importance or even non-exist. In our opinion, beyond the major contribute of solutions based on pure technological tools (e.g. (e firewall, IDS, honeypots), the key to many security security-problems will always begin with users who are the human resources of organizations. It is with this ppurpose that a user-centered centered model and a pedagogical approach towards the user are presented. Security, in many aspects spects can not be considered considere merely as technical problems, users who interact with technology must participate as equal partners to build systems that provides secure mechanisms (Akram et. al., 2018).

Discussion and Final Remarks The business world is increasingly a world filled with computer systems. Increasingly, there is a phenomenon of interconnection between systems and tthe he massive exchange of information flows. In a new Internet of Things (IoT) scenario, security pla plays a growing role. Thiss importance assumes the need for systems capable of dealing with the complexity of technological solutions available to organizations and their business. The evolution of purely technological security solu solutions tions has produced very promising results in combating ating the actions of putative attackers. However, most security models do not seem to play an active and important role for users. In particular, they do not present pedagogical approaches that allow al users to understand the importance of their actions as well as their consequences. In our opinion,, the creation of user user-centric centric security models and a symbiosis between a set s of purely technological solutions and a user-centered user pedagogical system should be the way to go.. The user will always be a differentiating ng agent. Its security culture will always make a difference in any technological model adopted by organizations. This paper proposes a conceptual model that present presents itself as a contribution to leveragee the potential of users' security culture and make them them into active and participatory agents. A symbiosis symbios between administering the organization's secrecy and the user user will, in our opinion, be the key to more efficient efficie

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security models. Strictly speaking, most organizations do not focus on segregation. However, all organizations deal with digital information and see, every now and again, in information a differentiating fact to be preserved. We would like to point out that the proposed model is currently in prototyping phase and the most appropriate mechanisms of interaction between the security administrator and the user are being studied; in order to specify the taxonomy of the Users Security Reports module.

Acknowledgments UNIAG, R&D unit funded by the FCT – Portuguese Foundation for the Development of Science and Technology, Ministry of Science, Technology and Higher Education. UID/GES/4752/2016

References Ammar Amran, Zarul Fitri Zaaba, Manmeet Mahinderjit Singh, Abdalla Wasef Marashdih, Usable Security: Revealing End-Users Comprehensions on Security Warnings (2017). Procedia Computer Science, Volume 124, pp. 624-631, ISSN 1877-0509 B. Bulgurcu, H. Cavusoglu, I. Benbasat Information security policy compliance: an empirical study of rationality based beliefs and information security awareness (2010). MIS Q, 34 (3), pp. 523-548 Caldwell, T. (2016). Making security awareness training work. Computer Fraud & Security, 2016(6), 8–14. Desman, M. B. (2003). The Ten Commandments of Information Security Awareness Training. Information Systems Security, 11(6), 39. Duncan Ki-Aries, Shamal Faily, Persona-centred information security awareness, Computers & Security (2017). Volume 70, 2017, pp. 663-674, ISSN 0167-4048 Furnell, S., & Vasileiou, I. (2017). Feature: Security education and awareness: just let them burn? Network Security, 2017, 5–9. Gustavo Percio Zimmermann Montesdioca, Antônio Carlos Gastaud Maçada, Measuring user satisfaction with information security practices, Computers & Security, Volume 48, 2015, Pages 267280, ISSN 0167-4048 Hanus, B., & Wu, Y. “Andy.” (2016). Impact of Users’ Security Awareness on Desktop Security Behavior: A Protection Motivation Theory Perspective. Information Systems Management, 33(1), 2– 16. Olusegun, O. J., & Ithnin, N. B. (2013). People Are the Answer to Security: Establishing a Sustainable Information Security Awareness Training (ISAT) Program in Organization. J. Spears, H. Barki. User participation in information systems security risk management (2010). MIS Q, 34 (3) (2010), pp. 503-522 Pendleton, M., Garcia-Lebron, R., Cho, J.-H., & Xu, S. (2016). A Survey on Systems Security Metrics. ACM Computing Surveys, 49(4), 1–35. Puhakainen, P., & Siponen, M. (2010). Improving Employees' Compliance Through Information Systems Security Training: An Action Research Study. MIS Quarterly, 34(4), 767-A4. Raja Naeem Akram, Hsiao-Hwa Chen, Javier Lopez, Damien Sauveron, Laurence T. Yang (2018). Security, privacy and trust of user-centric solutions, Future Generation Computer Systems, Volume 80, 2018, pp. 417-420, ISSN 0167-739X S. Faily, I. Fléchais Barry is not the weakest link: Eliciting secure system requirements with personas (2010). In Proceedings of the 24th BCS Interaction Specialist Group Conference, British Computer Society pp. 124–32

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Stefan Bauer, Edward W.N. Bernroider, Katharina Chudzikowski (2017). Prevention is better than cure! Designing information security awareness programs to overcome users' non-compliance with information security policies in banks, Computers & Security, Volume 68, 2017, pp. 145-159, ISSN 0167-404 Workman, M., Bommer, W. H., & Straub, D. (2008). Security lapses and the omission of information security measures: A threat control model and empirical test. Computers in Human Behavior, 24, 2799–2816.

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Impact of Capital Structure on Bank Performance; Evidence from Private Banks Listed In Tehran Stock Exchange Davoud Baghbanmelli,MA Student Department of Accounting and Finance, Faculty of Economics and Administrative Sciences Cyprus International University, TRNC, Turkey Email: [email protected] Assist. Prof. Dr. Husam Rjoub Department of Accounting and Finance, Faculty of Economics and Administrative Sciences Cyprus International University, TRNC. , Turkey. Email: [email protected] Dr. Ahmad Abu Alrub Department of Accounting and Finance, Faculty of Economics and Administrative Sciences Cyprus International University, TRNC. Turkey. Email: [email protected]

Abstract The current study aims to analyze the impact of capital structure on listed Iranian banks performance. In this study, financial information of 20 private banks has been used. The research will rely purely on accounting data of all banks for the period of 2012 to 2016 quarterly. Results of research shows, the amount of coefficient of determination of the model is obtained to 0.740; meaning that 74% of variances of dependent variable have been explained by independent and control variables. LTD and STD indices as independent variables of model are significant statistically and this means that the results obtained from the sample can be generalized to whole population. The report of fixed effects panel analysis shows that there are significantly positive relationships between short term debt (STD) and long term debt (LTD). Coefficients of STD, LTD, TTD and Firm size also have positive relationship in the model and this means that there is significant and positive correlation between STD, LTD, TTD and Firm size on performance of banks. This positive influence of STD, SLT, and TTD on profitability of private banks listed in Tehran Stock Exchange can be explained by the low cost for banks on debt fund.

Keywords: Short-term debt, Long-term debt, Total-term debt, Performance, Tehran Stock Exchange. Introduction All firms; whether privately owned or state owned; exist for special aims and goals and reasons. Sate owned firms are those which have been set up to supply the social service for the whole population. Due to the basic nature of these services, the government does not intend to leave the supply of such sort of services in the hands of private entrepreneurs. Both public and private firms which have been mentioned above have definite goals; however the lack of required basic funds to initiate the firm is the main obstacle to achieve their goals.

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The finance of firms can be via equity or debt or both of them. Noteworthy, each goal of financing has its own merits and demerits. The main question is that: ‘’ which one is better than the other to fund the firm? Borrowing fund or selling shares’’? In the condition that the consideration of the effect of these sorts of financing on the decision making of these firms to achieve organizational aims be considered in detail, the election of each of them or even both of the capital structure (debt and equity) for financing of the research can be justifiable. A proper capital structure can be described as the critical decisions for any business organization. It is worth to be considered here that the process of decision making is; virtually, important, due to the fact of both the strong need to maximize returns to different organizational sectors and the effect of these sorts of decisions on organizational power to challenge to handle the business operations in real competitive environment. In order to determine the impact of each firm’s selection of capital structure on profitability, this study has been carried out in the specific area of corporate finance. The determination of the effect of the structure of finance on the operations of the firms is confronted with some struggling areas like the significance of the crucial operations of the firm and the profitability of the firm which can be considered as the survival of the firm. With regard to capital structure decisions, the management has various options to apply and decide. Not surprisingly, the employed capital structure cannot be assumed to be worthy of the maximization of the firm and even for the protection of the management expectation, especially in kinds of organizations where corporate decision are; always dictated by mangers and be shred of the firm (Dimitris, and Psillaki, 2008). In the case that shares are not strongly integrated and held, business owners of equity are; usually, large in number and the majority of shareholders control even each second proportion of the shares of the firm. So, the tendency for these reluctant shareholders in the monitoring of the managements and pursuing different expectations from owners of equity can be enhanced and even reach to the peak. The main challenge of the Iranian’ firms are; definitely, related to the financing/funds. In the majority of cases, it sounds to be struggling to decide whether to raise debt or equity capital. In spite of plenty of wonderful opinions and perspectives about setting up a firm, the issue of finance is really vital for the identification of the direct cause of the failure of the firms to initiate or to improve after coming out. In previous context, the importance of the perception of how firms choose financing or how funds have effect on their profitability in the Iran economy was clarified in depth. Hence, the main point of this research is to measure and evaluate the effect of capital structure on the firm’s profitability in Islamic Republic of Iran. Noteworthy, the theoretical and empirical analysis would be carried out in this research. The major objects of this investigation are to find out the different sources of available funds for these Iranian banks and the effect of the source of funds on profitability. The research will specifically take into consideration the following aims:

Ascertain the relationship between debt and performance of the Iranian private banks during period of 2012-2016 quarterly. Determine the effect of debt to equity combinations of the Iranian private banks during period of 2012-2016 quarterly.

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Literature Review Theoretical Literature Review It sounds to be vital to attain the necessary items such as; name of the firm, logo for the firm and the location of the firm, after the identification of the individual or partners. The necessary fund for the individual or partners are vital to be prepared for the entire above mentioned list. In this way, the financial aspect of the firm will be more powerful and effective for the firm rather than other required affairs of one business idea. Funding can be considered as being so struggling; especially in setting up a firm. In another world, one firm cannot be successful without funding. Three main primary sources of finance which entails: cash surplus from operating activities, new equity funding and borrowing from bank and non-bank sources (Abor, 2005). The main sources of available funds of the firm have been taken into consideration. For example, capital structure struggles with how a firm can be financed by debt, equity, or the combination of debt and equity. Capital structural decisions have a crucial effect on the firm’s operations. The capital structure concept is generally categorized as the combination of debt and equity which will be resulted in the total capital of firms. The choice of capital components and the application of main components have essential roles in a firm’s financial strategy. Noteworthy, the proper balance of debt and equity can have significant influences on the outcome of the firm and its evaluation. In addition to these, the capital structure decision can have direct influences on the profitability of the firm.

Theories of Capital Structure The following theories are theories that some experts have propounded on the topic and below are some of the theories.

Modigliani Miller Irrelevance Theory Modigliani - Miller (1958) theorem is mulled over the best development in the theorem of optimal capital structure. The theorem indicates the most economical choices by means of associations which can be immaterial to the company's esteem. Modigliani-It has four propositions. In outline the theory principle states that the estimation of a firm won't be influenced with acknowledging to its leverage policy in an arbitrage free market place while there might be no corporate income tax and no insolvency cost; regardless of whether the firm is financed by debt or equity, its value remains indistinguishable.

Pecking Order Theory Pecking order theory of capital structure expresses that firms have an advocated chain of command for financing decisions. Firms will get an inclination to issuing equity while internal income isn't generally enough to finance capital consumption. The most elevated want is to utilize inward financing sooner than falling back on any type of outside funds. Internal assets bring about no flotation costs and require no additional divergence of monetary measurements that may cause a presumable loss of upper hand. In the event that a firm should utilize outside accounts, the decision is to watch a beyond any doubt, request of financing assets: debt, convertible securities, favored stocks, and common stock, Myers (1984).

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Free Cash Flow Theory Free cash flow theory is the measure of cash that a firm has left finished after it has paid the full of its expenses, including ventures. It is basic since it allows a firm to seek after the potential outcomes that improve investor value. This theory communicates that defense of detached cash flow by means of paying side interest of debt and spare to prevent a manager from manhandling firm's income for individual capacities. Because of law necessities, paying the major and enthusiasm on the debt is wanting to pay dividends to decrease the degree of free cash flow (Jensen, 1986).

Life Cycle Theory The theory kept up that firms utilize exceptional sorts of financing for diverse phases of development. Disiboshi (1989) recommended that corporate life cycle theory which suggests that firms get considered, develops into adulthood and kick the bucket newcomers search for the advantages of debt, most of them make losses. Businesspersons utilize non-public underwriters for the reason that no one is anxious to lend them. There's no division amongst possession and the control, they're entwined. In this degree choice adaptability might be extremely loved because of the reality predetermination possibilities are obscure.

Trade-Off Theory In this theory, the firm is seen as defining an objective of debt-equity and steadily moving towards it. The firms are looking for debt levels that soundness the tax advantages of additional debt towards the expenses of conceivable financial concerns. Specifically, capital structure moves towards focusing on that that reflect tax rates, asset type, business risk, and profitability and bankruptcy costs. The firm can be adjusting the expenses and advantages of borrowings, holding its benefits and its venture designs nonstop Myers, (1984). The theory anticipates that firms with more tangible assets and more taxable income must be more careful to have high debt ratios and firms with more intangible assets whose value will vanish if there should be an occurrence of the liquidation need to depend more noteworthy on equity financing.

Information Signaling Theory This theory endures the decision of firm's capital structure signal to out of entryways financial specialists the data of insiders. It included subsequent meet-ups that the issue of uneven or deficient data on firms makes it troublesome for money lenders to precisely evaluate the level of risk. Ross (1977) contends that the firm signal a development in the it’s benefit cost by method for raising its leverage (debt) even as Leland and Pyle (1977) notwithstanding, proposes that the firm signs that the expansion in its incentive by decreasing it leverage (debt). Emerging from the two signaling speculations above, the expansion in the debt will prompt increments in cost in view of the Ross the Ross (1977) form in the meantime, as construct absolutely with respect to Leland and Pyle (1977) development in the debt will prompt decreased costs.

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Empirical Literature Review An article on debt can have both positive and negative effects on the value of the firm (even in the absence of corporate taxes and bankruptcy cost) was conducted by Stulz (1990). Stulz (1990) brought up a model which resulted that the overinvestment and underinvestment can be relieved by the debt financing. The model established that, managers do not have or have no equity ownership in the firm and these managers have to get value by handling a larger firm. It was concluded in the article that the authority managers can or have to motivate the self-interested managers to undertake negative present value project. In order to solve such problems shareholders should put pressure on the firm to issue debt. Chowdhury, A., & Chowdhury, S. P. (2010), proposes in his study that managers will take debt or equity ratio as a signal, by the fact that high leverage implies higher bankruptcy risk (and cost) for low quality companies. In this, managers are always at the advantageous side since they have easy access to the information’s of the firm over the outsiders, which make the debt structure to be considered as a signal to the market. The Ross’s model suggested that the value of companies will rise with leverage, since increasing leverage increases the market’s view of a firm’s value. The manager will maximize firm value by choosing the optimal capital structure; highest possible debt ratio. The high-quality Companies needs to signal their quality to the market, while the low-quality companies’ managers will try and learn from them. Agreeing to this argument, Hatfield, et al (1994) said in the study that, the debt level should be positively related to the value of the firm, which the value of the firm is determined by the operations or profitability of the firm. A study conducted by Gleason, et al (2000) was on the relationship between Culture, capital structure and performance. They conducted the study on retailers from fourteen (14) European countries. They found out that capital structure vary from the cultural grouping of the retailers which strengthen to include control variables that influence capital structure. They also found out that retailer performance does not depend on the cultural influence whiles capital structure influence firm performance. Holz (2002) found that capital structure (debt ratio) relates positively with the performance of a firm, the result gave credit to the wailing of the firm’s managers to finance their operations by borrowing and then uses such money optimally to maximize the performance of the firm. According to this result, if banks want to lend money, it must have enough survey about the feasibility of the operations of the firm that want to finance it accurately before offering loans until that the firm can achieve required returns to meet their obligations. Arbor (2007) in the article noted that several capital structure measures which represent short-term debt, long-term debt and total debt associate negatively and statistically with the performance of the companies listed on the S&P 500 Stock Exchange. It was concluded that the companies depend on borrowing extremely because it will not achieve tax shields and then it leads to increase borrowing costs of which the firm disclosures to the bankruptcy risks and reduce the return. Akintoye (2008) also conducted a study on the performance of the capital structure of selected food and Beverage Firm in Nigeria. Some indicators that are earnings before interest and taxes, earnings per share, dividend per share, degree of operating leverage, degree of financial leverage and dividend per share. It was found that all these indicators are significantly sensitive to the performance of the firm. Ibrahim (2009) has conducted an article about the impact of capital structure choice on the firm performance in Egypt. He covered for the year 1997 and 2005 and also used a multiple regression analysis in assessing the link between the two variables he picked (that is leveraged and firm’s performance). The return on Equity, return on Assets and gross profit margin were the three based accounting procedures which he has used in measuring the performance of the companies. Ibrahim (2009) concluded that, in general decision on capital structure choice has a weakness to no impact on the performance of the firm.

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Referring to Ong et al (2011) studies, in the study to investigate the relationship of capital structure and corporate performance of a Malaysian firm (construction sector) before and during the 2007 crisis. Forty nine (49) construction companies were selected from the main board of Bursa Malaysia (2005 to 2008) for the study. Based on their paid-up capital, the companies were divided into sizes (big, medium and small). It was concluded that there is a good relationship between capital structure and the corporate performance of companies. Ogbulu, et al (2012), the study tried to seek out to provide evidence on the impact of capital structure on a firm’s value in Nigeria. One hundred and twenty four companies were selected from the Nigerian stock exchange for this study. They used the ordinary least squares method of regression to analyze the data to arrive at the needed result they researched for. Their result of the study exposes that the equity capital is irrelevant to the value of the companies in an emerging economy like Nigeria. They also found out that, the Long-term debt is the key determinant of the value of a firm. They followed up with a recommendation that financial decision makers should or must use more of the long-term debt to finance their operations than using equity financing. Iatridis, et al (2013), the article examined the connotation of leverage with the financial attributes of a firm such as size, asset tangibility, profitability and the growth of the firm Turkey and Morocco. Their study was focused on the market timing theory of capital structure and they also considered whether financial structure decisions are affected by the markets conditions. This market conditions includes issuing stock when the valuations are high and debt, when interest rates are low. Their study also went ahead to examines the relationship between firm performance, corporate governance and leverage. Their result proved that the size of both countries is a vital factor in financial decision making and positively related to leverage. Also, both countries' companies showed adverse links between asset tangibility, profitability and leverage. The Turkish companies showed a positive relationship between the growth and leverage whiles Moroccan companies showed an adverse relationship. Corporate performance is confidently connected to effective corporate governance and negatively to leverage. Ishaq et al (2016) evaluated the performance of commercial banks in Pakistan with the use of the CAMEL model. The study was based on ten commercial banks and it covered the period from 2007 to 2013. Descriptive statistics, Correlation and Multiple regression methods were used to analyze the relationship between the selected variables. The findings of the research indicate that The discoveries of the exploration show that there is a positive relationship with return on asset (ROA), return on equity (ROE) and bank execution while there is a negative connection between the performance of banks with Gross advances to total Deposits ratio, Administrative expenses to interest income ratio, non-performing loans to equity and non-performing loans to gross advances. Interest income to total assets ratio and Cash ratio has a significant relationship with the performance of Pakistan banks. Siddik et al (2017) studied the impact of capital structure on the bank’s performance in Bangladesh. The study used the panel data of 22 banks for the period of 2005–2014, It assessed by return on equity, return on assets and earnings per share. The results of the pooled ordinary least square analysis showed that capital structure inversely affects bank performance. The findings of this empirical study are of greater significance for the developing countries like Bangladesh. Nwude, E. C., & Anyalechi, K. C. (2018). Founded that while debt finance exert negative and significant impact on return on asset, the debt-equity ratio has positive and significant influence on return on equity, There was neither unidirectional nor the bidirectional relationship between capital structure and performance of commercial banks in Nigeria. The study evaluated the influence of the financing mix on the performance of commercial banks, and the causal link between debt-equity ratios. Data collated were analyzed using correlation analysis, pooled OLS regression analysis, fixed effects panel analysis, random effect panel analysis, granger causality analysis, as well as post estimation test such as restricted f-test of heterogeneity and Hausman test.

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Data and Methodology This basically refers to the overall plan for the research. A research design is the general plan of how one intends to go about answering the specified research questions. A detailed outline of how an investigation or a research will be done. A research design will typically include how data is to be collected, what instruments will be employed, how the instruments will be used and the intended means or ways for analyzing the data collected. The research will be carried out using a longitudinal research design, employing secondary quantitative data. “Cooper and Schindler (2003) describe longitudinal study as one that is carried out repeatedly over an extended period of time”. The research will rely purely on accounting data of all Iranian private banks for the period of 2012 to 2016 quarterly.

Sampling and Population Size Estimation It is impossible to take complete analysis of the population in form of census. Hence, the researchers make decision to obtain information through and using analysis of obtained data about the sample and attribute the information to the original population through generalization (Khaki, 2005). Population in this study consists of all Iranian private banks. The information and financial statements are available. In this study, financial information of 20 banks has been used.

Moodle Specification For purpose of collecting relevant data of literature, text mining and internet search have been used. The information has been extracted from books, articles. Moreover the relevant data of hypotheses and variables were obtained from financial statements, database of Tehran Stock Exchange, documented statistics of stock exchange and Rahavard Novin Software. The instrument used in this study includes financial statements and Eviews statistical software. In this research, to determine ideal model, between pool data model and panel data model, F-test was used. H0 of the test shows fitness of pool data model. If the pool model is fit, there would be no need to do Hausman test, although if panel data is fit, the model of fixed effects should be tested instead of random effects model, so that the best model for estimation is determined and this can be taken using Hausman test and H0 refers to fitness of random effects model (Pakravan, 2011). To do this research, descriptive and inferential statistics have been used. After data collection, the first step is estimation of descriptive statistics based on research variables. The statistics include mean value, variance, and standard deviation and so on. The instruments and statistical methods were processed after extraction of data from financial statements and using panel data model. At this study, the model presented by Scafarto (2016) has been used. To test research hypotheses, 3 panel data models have been used as follows (Scafarto, 2016):

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Results Descriptive Statistics For better identification of studied population and for more familiarity with research variables, before data analysis, it would be necessary to describe the data. Therefore, before testing research hypotheses, descriptive statistics of variables studied in the research have been studied. Mean value as a central parameter shows the gravity center of population and shows that if mean value is considered instead of all observations of the population, no change can be made in summation of data of population. Moreover, maximum shows the highest variable value in statistical population and minimum level refers to lowest value in statistical population. The results of descriptive statistics have been presented in table 1. Table 1: Descriptive Statistics

Description STD LTD TTD FSIZE Performance

Mean 2.997 0.193 0.202 3.061 0.228

Median 3.023 0.191 0.200 3.083 0.230

Max 4.476 0.339 0.299 4.992 0.327

Min 1.513 0.041 0.101 1.040 0.131

SD 0.881 0.085 0.056 0.996 0.057

Skew -0.004 0.012 -0.054 0.054 0.039

Kurt 1.721 1.802 1.925 1.825 1.802

Short-term debt (STD), long-term debt (LTD), total time debt (TTD) and firm size (Fsize) are considered as independent variables and performance is considered as dependent variable. For STD mean of 2.997 and median of 3.023 indicate where the center of the data is located in the sample population and results shows Max of 4.476 and Min 1.513. On the other hand, for LTD mean of 0.193 and median of 0.191 also indicate the center of the data in the sample population with Max of 0.339 and Min 0.041. In sum of STD and LTD, TTD mean is 0.202 and median 0.2 with Max of 0.299 and Min 0.101.

Testing Normality of Variables In order to test normality of variables used in this study, Jarque-Bera test has been used. Table 2: Normality Test of Research Variables

Description STD LTD TTD FSIZE Performance

Jarque-Bera test 19.550 17.167 13.963 16.660 17.236

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Sig 0.000 0.000 0.001 0.000 0.000


According to table 2, in which sig level is lower than 0.05 for all variables, it could be mentioned that all variables have not normal distribution. A note here is that when number of data is considerable, normality of variables loses its significance (Feld, 2009).

Correlation between Research Variables Before testing research hypotheses, correlation between variables has been analyzed. Table 3: Correlation Coefficient between Variables in Overall Model

STD LTD TTD Fsize Performance

STD

LTD

TTD

Fsize

Performance

1.000 0.750 0.753 0.739 0.757

. 1.000 0.754 0.762 0.777

. . 1.000 0.737 0.749

. . . 1.000 0.789

. . . . 1.000

Table 3 shows the correlation between variables. The correlation level includes values in range -1 to 1. When the value is equal to 1, it could be found that two variables are directly correlated and vice versa.

Hypotheses Testing 1. 2. 3. 4.

Short-term debts have significant effect on performance of private banks. Long-term debts have significant effect on performance of private banks Total time debts have significant effect on performance of private banks. Firm size has significant and effect on performance of private banks.

According to outputs of research model, following model can be obtained: In this model, each variable can be defined as follows: STD: short-term debt LTD: long-term debt TTD: total time debt Size: firm and market size Performance: bank performance 4.5 DETERMINING THE MODEL OF STUDIED DATA Before estimation of model to find that which model of pooled and panel data models is fit to estimate regressive models; F-Limer test has been used. Statistical hypotheses of this test are as follows: H0: pooled data is fit H1: panel data is fit Overall statistical rule of decision making in Limer test (Chu) is as follows:

Pooled: all intercepts are equal, Panel: at least, one intercept is different from others

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Table 4: Fixed Effects Test to Estimate Research Model

Fisher test Chi-squared test

Test stat 0.981 6.141

Df (6.272) 6

Sig 0.439 0.408

If H0 based on fitness of pooled model is confirmed, all data should be combined and parameters should be estimated by a classic regression; otherwise, the data should be considered as panel data. The results obtained from this test have been presented in Table 4. As sig level of F-Limer test for model is higher than 0.05, H0 has been confirmed. Therefore, this test shows that pooled model is fit to estimate initial model.

Testing Stationarity of The Variables Stationary test is mainly taken to prevent false regressions. To prevent false regressions, variable should be stationary; otherwise, differentiation of stationary variables should be used. Stationary or nonstationary nature of a time series can leave significant effect on behavior and relevant features. If the variables used for model estimation are non-stationary and no logical correlation is existed between independent and dependent variables, obtained determinant coefficient can be very high and can make author have inaccurate inferences of correlation between variables. Therefore, using non-stationary data can lead to false regressions. In this test, H0 is based on existence of unit root and alternative hypothesis is based on reliability of at least a panel member. The results of testing stationary nature of variables are presented in Table 5. Table 5: Results of Stationary Test (LLC) At the Level with Intercept and Process

Variable STD LTD TTD FSIZE Performance

ADF -15.234 -16.703 -15.710 -17.226 -16.015

MacKinnon critical values 1% 5% -3.453 -2.872 -3.453 -2.872 -3.453 -2.872 -3.453 -2.872 -3.453 -2.872

10% -2.572 -2.572 -2.572 -2.572 -2.572

According to obtained values, it could be observed that the absolute value of ADF for all variables is more than the absolute value for MacKinnon critical values and there is no unit root, which shows that variables are stationary.

Heteroskedasticity Of Variance In regard with combination of cross section and time series data, the problems associated with Heteroskedasticity of variances and serial autocorrelation can be met to high extent. However, when the research data are in kind of pooled data and the aim is analysis of classic hypotheses, the Heteroskedasticity of variance and serial autocorrelation can be confirmed.

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Table 6: Heteroskedasticity of Variances of Research Model

Test stat 0.548 26.026

Df 44.239 44

Sig 0.990 0.985

According to Table 6, the results of F test (0.548) and results of Lagrange coefficient test (26.026) show that H0 based on homogeneity of variances can be confirmed at the level of 5%. Therefore, there is no Heteroskedasticity of variances. Table 7: Results of Fitted Model of Research Variable Constant STD LTD TTD FSIZE R2 Adj. R2 F F significance

Coefficient

-0.649218 0.928 2.021 0.072 1.700 0.748 0.740 103.228 0.000

S.E

t-value

0.241162 -2.692041 0.594 1.562247 0.870 2.323859 0.029 2.469708 0.897 1.894 SD of dependent variable Mena value of dependent variable Model S.E Durbin-Watson

Sig

0.0075 0.0194 0.0209 0.0141 0.029 0.881 2.996 0.448 1.960

Table 7 indicates that short-term debts can have significant and positive effect on performance of private banks. According to regression model fitness table, regression coefficient of STD variable is equal to 0.928. Moreover, significance level of the coefficient is equal to 0.0194, which shows that STD variable is significant at the level of 5%. Also, long-term debts can have significant and positive effect on performance of private banks. The regression coefficient of LTD is equal to 2.021. Moreover, significance level of the variable is equal to 0.0209, which shows that LTD is significant at the level of 5%. Moreover, total time debts can have significant and positive effect on performance of private banks. The coefficient of TTD is equal to 0.072. Moreover, significance level of the variable is equal to 0.0144, which shows that TTD is significant at the level of 5%. Finally, firm size can have significant and positive effect on performance of private banks. The coefficient of firm size variable is equal to 1.7. Moreover, significance level of the variable is equal to 0.0292, which shows that Fsize variable can be significant at the level of 10%. The results of hypotheses testing can be observed in the following table in summary. Table 10: Summary of results obtained from testing hypotheses

Hypotheses Result STD can have significant and positive effect on performance of private Confirmed banks. LTD can have significant and positive effect on performance of private Confirmed banks. TTD can have significant and positive effect on performance of private Confirmed

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banks. Firm size can have significant and positive effect on performance of Confirmed private banks. Conclusion The main aim of this study was to test the impact of capital structure on the performance of private banks listed in Tehran stock exchange. In general, the results obtained from the study show conformation of the hypothesis in this study, it means that there is significant and positive correlation between STD, LTD, TTD and Fsize on performance of private banks. The results of this study show direct and significant correlation between bank performance and debt policies. The results are in consistence with financial theories and findings of Barber and Odin. The reason for this can be probably encountering loss as a result of taking transactions. The results obtained by Jati et al (2016) show that macroeconomic factors can affect debt policies in financial products; microeconomic factors can affect long-term debt in financial products and noneconomic factors can affect overall investment risk in financial products and the result is supporting the findings of the present study. The results documented in our study is inconsistent with Yazdanfar et al (2015) on the effect of debt policies on efficiency of Iranian banking system showed that there is significant correlation between different debt policies and efficiency in Iranian banking system. The findings of this study are in line with Bali T et al (2014) whom found in a study that debt policies can affect output of investment funds. It was fo1und in the study that STD and Fsize are positively correlated to performance of banks.

References 1.

Margaritis, D., & Psillaki, M. (2007). Capital structure and firm efficiency. Journal of Business Finance & Accounting, 34(9 10), 1447-1469. 2. Abor, J. (2005). The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana. The journal of risk finance, 6(5), 438-445. 3. Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American economic review, 48(3), 261-297. 4. Myers, S. C. (1984). The capital structure puzzle. The journal of finance, 39(3), 574-592. 5. Ross, S. A. (1977). The determination of financial structure: the incentive-signalling approach. The bell journal of economics, 23-40. 6. Brealey, R., Leland, H. E., & Pyle, D. H. (1977). Informational asymmetries, financial structure, and financial intermediation. The journal of Finance, 32(2), 371-387. 7. Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American economic review, 76(2), 323-329. 8. Stulz, R. (1990). Managerial discretion and capital structure. Journal of Financial Economics, 26, 3-28. 9. Chowdhury, A., & Chowdhury, S. P. (2010). Impact of capital structure on firm's value: Evidence from Bangladesh. Business & Economic Horizons, 3(3). 10. Hatfield, G. B., Cheng, L. T., & Davidson, W. N. (1994). The determination of optimal capital structure: The effect of firm and industry debt ratios on market value. Journal of Financial and

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Strategic Decisions, 7(3), 1-14. 11. Gleason, K. C., Mathur, L. K., & Mathur, I. (2000). The interrelationship between culture, capital structure, and performance: evidence from European retailers. Journal of business research, 50(2), 185-191. 12. Holz, Carsten A. (2002). The Impact of The Liability-Asset Ratio on Profitability in China's Industrial State-Owned Enterprises, China Economic Review, 13: 1-26. 13. Abor, J. (2007). Corporate governance and financing decisions of Ghanaian listed firms. Corporate Governance: The international journal of business in society, 7(1), 8392. 14. Akintoye, I. R. (2008). Effect of capital structure on firms’ performance: the Nigerian experience. European Journal of Economics, Finance and Administrative Sciences, 10, 233-243. 15. El-Sayed Ebaid, I. (2009). The impact of capital-structure choice on firm performance: empirical evidence from Egypt. The Journal of Risk Finance, 10(5), 477-487. 16. Ogbulu, O. M., & Torbira, L. L. (2012). Monetary policy and the transmission mechanism: evidence from Nigeria. International Journal of Economics and Finance, 4(11), 122. 17. Iatridis, G., & Dimitras, A. I. (2013). Financial crisis and accounting quality: evidence from five European countries. Advances in Accounting, 29(1), 154-160. 18. Ishaq, A., Karim, A., Zaheer, A., & Ahmed, S. (2016). Evaluating Performance of Commercial Banks in Pakistan:'An Application of Camel Model'. 19. Siddik, M. N. A., Kabiraj, S., & Joghee, S. (2017). Impacts of capital structure on performance of banks in a developing economy: Evidence from Bangladesh. International journal of financial studies, 5(2), 13. 20. Nwude, E. C., & Anyalechi, K. C. (2018). Impact of Capital Structure on Performance of Commercial Banks in Nigeria. International Journal of Economics and Financial Issues, 8(2), 298-303. 21. Cooper, D. R., & Schindler, P. S. (2003). Research methods. Boston, MA: Irwin. 22. Khaki, J. (2005). Exploring the beliefs and behaviors of effective headteachers in the government and non-government schools in Pakistan. 23. Pakravan, M., Heuzey, M. C., & Ajji, A. (2011). A fundamental study of chitosan/PEO electrospinning. Polymer, 52(21), 4813-4824. 24. Scafarto, V., Ricci, F., & Scafarto, F. (2016). Intellectual capital and firm performance in the global agribusiness industry: The moderating role of human capital. Journal of Intellectual Capital, 17(3), 530-552. 25. Field, N. P., & Filanosky, C. (2009). Continuing bonds, risk factors for complicated grief, and adjustment to bereavement. Death Studies, 34(1), 1-29. 26. Jati, A. K., & Sudaryanto, B. (2016). PENGARUH HUTANG JANGKA PENDEK, HUTANG JANGKA PANJANG, DAN TOTAL HUTANG TERHADAP ROA DAN ROE PERUSAHAAN YANG TERDAFTAR DALAM INDEKS LQ-45 DI BEI PERIODE 20112014. Diponegoro Journal of Management, 5(4), 172-182. 27. Yazdanfar, D., & Öhman, P. (2015). Debt financing and firm performance: an empirical study based on Swedish data. The Journal of Risk Finance, 16(1), 102-118. 28. Bali, T. G., Brown, S. J., & Caglayan, M. O. (2014). Macroeconomic risk and hedge fund returns. Journal of Financial Economics, 114(1), 1-19.

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Perception of Food Quality by Czech Consumers – Literature Review Tomáš Sadílek, University of Economics, Prague, Czech Republic, [email protected]

Abstract This study aims to analyse the elements which contribute most to defining the quality of a food product. Geographical provenance, age, propensity to read the label on products, scientific knowledge and selfassessment of knowledge on food safety-related issues emerged as the main differences between the two groups. The perception of quality appears to affect purchase decisions and dietary patterns. The description of the consumer groups who use the same elements to define quality provided a useful insight into consumer choices and potential risk-exposure behaviours. The study of these aspects is therefore relevant for designing effective and targeted communication actions, not only for companies but also for public institutions in charge of safeguarding public health.

Keywords: Food quality perception, Consumers’ perception, Quality label Introduction Several studies have highlighted the fact that definition of quality is not unified but depends, rather, on the different perspective from which it is assessed: a definition in technical and production terms may differ from the consumers’ perception (Steenkamp, 1990). From the consumers’ point of view, in fact, several aspects contribute to defining the quality of a food product: these are not only intrinsic qualities such as taste and other organoleptic properties, but also external factors such as origin and labelling (Bernués, Olaizola, & Corcoran, 2003; Grunert, 2002; Verdú Jover, Lloréns Montes, & Fuentes, 2004). One theoretical model that seeks to combine these aspects with a view to understanding the motives and values that drive consumer satisfaction and hence consumer purchasing choices is the Total Food Quality Model developed by Grunert, Larsen, Madsen, and Baadsgaard (1996). The model consists of a horizontal dimension based on the element of time which distinguishes between quality perception before and after the purchase (expected quality and experienced quality) and a vertical dimension which describes intention to buy based on consumers’ perception of quality. Intention to buy derives from a compromise between three factors: expected quality, based on the perception of the product’s intrinsic and extrinsic indicators, the expectation of satisfaction at the time of purchase and the product’s perceived cost. There is therefore a strongly subjective component in the concept of quality that is linked to the consumer’s perception and is influenced by the various characteristics of the product. Quality assessment plays a key role in the model, not as an end but to the extent that it satisfies purchase motives and the values associated with them. Perception of the product’s attributes has important repercussions on consumer expectations and conversely the values sought and expected by consumers have an impact on the most desired dimensions of quality and the way in which the various attributes are perceived and assessed. The process which starting from the product’s attributes and via expected quality eventually leads to purchase motives brings into play increasingly abstract cognitive categories. The Total Food Quality Model considers quality as an abstract and multidimensional construction, characterised by four fundamental and closely interrelated dimensions: the hedonic characteristics of food, health, convenience and the production process. Differences in quality assessment have many consequences, both in terms of behaviours, beliefs and attitudes on the part of consumers, and about the use and search for information when choosing a product. Expectation of quality ultimately affects dietary patterns, the ways in which food is prepared, as well as current and future purchase decisions (Brunsø, Fjord, & Grunert, 2002; Grunert, 2005).

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Literature Review Over the past few decades there has been a growing demand for safe and high-quality food. Rapid economic development and recent changes in the food supply chain have contributed to increased interest in the issue of quality in the food sector. In the mind of consumers, the concept of a food product’s quality appears to be closely related to the perception of its being safe. A recent study, investigating the relationship between food quality and food safety, has highlighted that people seem more prone to regard a food product as safe if they consider it as being high quality rather than the opposite (Van Rijswijk & Frewer, 2008). Concern regarding the safety and quality of food products involves every stage of the production chain. The debate around these topics has focused on several aspects of the product: from organoleptic characteristics to health and hygiene safety, from healthiness and nutritional qualities to place of production and the ethical aspects associated therewith. Faced with requests for reassurance and information by increasingly demanding consumers, European and domestic public entities have responded by passing legislation such as the standards pertaining to product traceability and labelling (Savov & Kouzmanov, 2009). In order to guarantee the quality and safety of products, a variety of international regulations have been introduced, including ISO 9001 (International Organization for Standardization) standards, defining the requirements which a quality system needs to have in place in order to ensure control throughout the production process and prevent or detect any non-conformities; as regards operational tools there is the HACCP (Hazard Analysis Critical Control Points) system, whose purpose is to achieve self-checking objectives (Pham, Jones, Sargeant, Marshall, & Dewey, 2010; Ramphal & Simelane, 2010). Quality has become a key element on which the Italian food market has strongly invested to differentiate itself and face the challenges from new international markets. Certification and brand provide consumers with a set of indications regarding not only the product origin, but also the relevant production processes and other aspects, including safety, environmental and ethical aspects, all of which constitute the core of the quality concept (Marino & Nobile, 2007). A Eurobarometer survey conducted in 2012 has shown that Czech consumers are the most attentive to quality labels in Europe, with 35% of Czech respondents stating that at the time of purchase they always check whether the product has quality labels guaranteeing specific characteristics. This percentage is substantially higher than the European average figure of 22% (EU, 2012). Through communication and advertising, food companies have encouraged the association between traditional certified and organic. products on the one hand and greater quality and safety on the other. The certified brand seems to provide consumers with a user-friendly way to choose a reliable product, especially during a time of economic recession and food scares, where consumers apparently show less trust in production processes, imported products and the effectiveness of controls (Ferretti & Magaudda, 2006). It should be noted, however, that consumers appear to be extremely diffident regarding food quality. Discussions about new technologies applied in the food sector, especially with regards to genetic modification, have brought into focus the consumers’ newly awakened interest in food productions and the general lack of knowledge about it (Grunert, 2002). The several food hazards encountered since the beginning of the 90s, have shaken consumers and drew their attention to the importance of food's traceability. Food safety issues often result from the asymmetric information between consumers and suppliers, with regards to product specific attributes (Ortega et al. 2011). Consumers seek for high quality food products and they infer this quality based on a certain group of indicators, or attributes, that are classified according to the degree of visibility, namely: search, experience, and credence attributes. More particularly, credence attributes are those that consumers can't ever evaluate with confidence, but basing on consumers' opinions with regards to the product itself or the producer, even after consumption (Verbeke et al., 2006). Nowadays, to define food products' quality, consumers evaluate both intrinsic features of the product and external features, such as traceability, origin (COO), geographical indications

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and certification (Mascarello et al., 2015; Jover et al., 2004), and then choose foodstuffs according to elements that may characterize the product itself. The food label encloses a set of information that conveys to consumers the product's characteristics, this information can influence consumer' purchase behaviour. Several studies point to the existence of a strong relationship between the food label and consumer reactions (Hoogland et al., 2007). The evolution of society, over the last forty years, has led to a radical change of needs and consumer behaviours. Through the purchase and the consumption, individuals express their own culture, they relate to the society, define their identity and show more and more attention to social and environmental aspects linked to agriculture. The consumption processes evolve, and food products are evaluated both for their material values and for their symbolic and communicative value; the food product becomes a mean of communication and socialization. Most consumers say they are willing to pay more for a product they perceive as respectful of health, environment, innovation, quality, or considered ethically superior (Bialkova and Van Trijp, 2010; Grunert, 2011). Some details, therefore, may be sufficient to increase the perceived value of the product, such as new technologies for product traceability or product innovations. Under this scenario, the label is the most powerful tool for suppliers to convey information to the consumer (Banterle et al., 2013). The will to protect and promote food production, in the European Union, has allowed the development of an efficient traceability system. With this system of rules, it is possible to improve food safety and enhance consumer confidence, in addition to giving a higher value to foods, through the label which provides search, experience and credence information (Louriero et al., 2007). However, the copious legislation in the Union, has not simplified the consumer ability to understand, easily, the quality credence attributes of foodstuffs. In addition, it is now ascertained that consumers perceive traceability as a further quality attribute to be considered at the time of purchase. It seems clear that traceability of food products falls among credence attributes. The Grunert's Total Food Quality Model (Grunert, 2002), considers food quality as a multidimensional construction characterized by four fundamental interrelated dimensions that are: hedonic characteristics of food, health, convenience and production process. Particularly, the dimension that relates to production processes uses food attributes that are typically credence attributes, because it is impossible for the consumer be aware of all the production process, through the agro-food production chain. Nevertheless, so far, what consumers look behind the word traceability was little investigated. The asymmetry between the comprehension of traceability by consumers and producers may need the adoption of certifications that easily communicate to the consumer information on agricultural practices beneficial for the climate and the environment. Indeed, the consumer has increasingly used the criterion of personal trust to a specific certification. For example, in Italy, the quality features of a product are often connected to local productions or local foodstuffs (Aprile et al., 2016). Local food is perceived as characterized by a large variety of benefits, that range from the satisfaction of enjoying a homemade authentic food product, to the local-food intrinsic ability to enhance the sustainability of the food system, reducing the carbon footprint and providing new market opportunities for local farms (Guerrero et al., 2009). The labelling of food products, therefore, becomes more and more a strategic element for product differentiation in the entire supply chain, since it affects the strategic behaviour of producers, of those who become part of the supply chain and the label's evolution itself. This, compared to the past, relates to agricultural firms and to agro-food industries: the label role is crucial to provide correct information about food products, and do not incur in conflicts of interest among different stakeholders (i.e. researchers, manufacturers, public authorities, and others). Since no studies, so far, in the Czech Republic, about consumer insight, regarding their preferences about information provided on foodstuffs labelling, and the meaning that they give to the concept of traceability, consumers' preferences were studied about a set of quality attributes of food products. To ascertain the existence of the asymmetric information between producers and consumers, with regards to traceability, the objective of this study is to gain insight in how

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the consumer recognizes the traceability and the links among food attributes shown in the label, when he/she evaluates the quality of foodstuffs. Nevertheless, some generalizations are valid for other labels as well: The primary information source for all relevant topics with respect to food labelling seem to be the Internet (but not for food in general). It is by far the most important source where consumers will look for information. Not all of them can be motivated to get more information about food in general and quality labels. But there is a core group of consumers which is especially eager to acquire information. The size of it might differ and depend on the overall publicity, actual developments in the food sector like food scares, and their severity as discussed by Böcker and Hanf (2000), technological developments in food processing, general trends in food consumption, or related factors. For other quality labels the size of the group might differ, but in general, some important characteristics of the group members could be identified: They are using multiple information platforms, discuss with family and friends, but new forms of communication (social media, mobile apps) are – up to now – of only minor importance for this core group. The group seems to be more interested in all food related topics and its members are a little bit Consumers usually are unable to evaluate the quality of food products before purchase, they use quality cues like brands, prices or labels (Steenkamp, 1990; Grunert and Aachmann, 2016). For helping consumers within their evaluation of quality, the EU introduced important quality (origin) labels, namely PDO (Protected Designation of Origin) or PGI (Protected Geographical Identification) and TSG (Traditional Specialty Guaranteed). In addition, each country is using national quality labels. EU food labelling has different aspects, e.g., to fulfil traceability requirements, nutrition labelling, serving promotional goals, etc. (Cheftel, 2005). As Cheftel (2005) points out the “diversity and complexity [of food labels and regulations] is due to the different objectives and requests from the various stakeholders”. Some of the food labels try to inform consumers about certain aspects (e.g. GMO free), contain nutritional information, trade-related information, or quality grading, just to name a few (Cheftel, 2005). This led, intended or unintended, to a huge variety of different EU and national labels officially in use – not to name all other private based labels – more and more confusing consumers. Consumption, individuals express their own culture, they relate to the society, define their identity and show more and more attention to social and environmental aspects linked to agriculture. The consumption processes evolve, and food products are evaluated both for their material values and for their symbolic and communicative value; the food product becomes a mean of communication and socialization. Most consumers say they are willing to pay more for a product they perceive as respectful of health, environment, innovation, quality, or considered ethically superior (Bialkova and Van Trijp, 2010; Grunert, 2011). Some details, therefore, may be sufficient to increase the perceived value of the product, such as new technologies for product traceability or product innovations. Under this scenario, the label is the most powerful tool for suppliers to convey information to the consumer (Banterle et al., 2013). The will to protect and promote food production, in the European Union, has allowed the development of an efficient traceability system. With this system of rules, it is possible to improve food safety and enhance consumer confidence, in addition to giving a higher value to foods, through the label which provides search, experience and credence information (Louriero et al., 2007). However, the copious legislation in the Union, has not simplified the consumer ability to understand, easily, the quality credence attributes of foodstuffs. In addition, it is now ascertained that consumers perceive traceability as a further quality attribute to be considered at the time of purchase. It seems clear that traceability of food products falls among credence attributes. Nevertheless, so far, what consumers look behind the word traceability was little investigated. The asymmetry between the comprehension of traceability by consumers and producers may need the adoption of certifications that easily communicate

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to the consumer information on agricultural practices beneficial for the climate and the environment. Indeed, the consumer has increasingly used the criterion of personal trust to a specific certification. For example, in Italy, the quality features of a product are often connected to local productions or local foodstuffs (Aprile et al., 2016). Local food is perceived as characterized by a large variety of benefits, that range from the satisfaction of enjoying a homemade authentic food product, to the local-food intrinsic ability to enhance the sustainability of the food system, reducing the carbon footprint and providing new market opportunities for local farms (Guerrero et al., 2009). The labelling of food products, therefore, becomes more and more a strategic element for product differentiation in the entire supply chain, since it affects the strategic behaviour of producers, of those who become part of the supply chain and the label's evolution itself. This, compared to the past, relates to agricultural firms and to agrofood industries: the label role is crucial to provide correct information about food products, and do not incur in conflicts of interest among different stakeholders (i.e. researchers, manufacturers, public authorities, and others). Since no studies, so far, in the Czech Republic, about consumer insight, about their preferences about information provided on foodstuffs labelling, and the meaning that they give to the concept of traceability, consumers' preferences were studied about a set of quality attributes of food products. To assess the quality of a food product every consumer considers a variety of aspects (including, for example, freshness, price, origin, brand, etc.) and attributes a specific degree of importance to each.

Discussion and Conclusion Based on earlier researches (Asmalovskji & Sadílek, 2016), Czech consumers consider the most important aspects to be the product’s sensorial characteristics (taste, appearance and freshness of the product). It is interesting to note that other studies conducted internationally have identified those same sensorial characteristics as the main drivers of food choices (Honkanen & Frewer, 2009). These results appear to confirm the connection between expected quality cues and the intention to buy proposed by the Total Food Quality Model. Moreover, they seem to be in line with the results of other research which identified a close relationship between the quality of a food product and the reason for its purchase (Keningham, Aksoy, Perkins-Munn, & Vavra, 2005). In recent years consumers have started to appreciate typical products and to see this aspect as a distinctive feature associated with an assurance of higher quality (Mattiacci & Vignali, 2004). Moreover, the interest shown by consumers in the origin and place of production of food has grown (Dimara & Skuras, 2003), especially about European Quality Food Certification (Aprile, Caputo, & Nayga, 2012) products. Quality assessment is a complex process and the consumer often experiences a feeling of uncertainty because some aspects of the product are difficult to appraise because of the lack of information at the time of purchase (Grunert et al., 1996). International studies have shown that quality brands and certifications of origin are important indicators which, by guaranteeing some of the product characteristics, make it easier for consumers to judge and strengthen their perception of its quality (Grunert, 2002; Ilbery, Morris, Buller, Maye, & Kneafsey, 2005; Verbeke, Vermeir, & Brunsø, 2007). Certification and brand provide the consumer with product information concerning not only provenance, but also – according to a more complex and general model – some social and ethical aspects. Many surveys have shown that, especially when there are food emergencies caused by food scares, the brand emerges as a guarantee for product safety (Yeung & Yee, 2010). The perception of safety in food is in fact closely associated with the concept of quality (Van Rijswijk & Frewer, 2008). However, the recent scandals involving the food industry and diffidence towards the industrial production system of the globalised market may have exacerbated the distrust felt by consumers of food produced by large corporations. Assessment of food products and being able to characterise the consumers influenced by them is a fundamental step, firstly for the companies dealing with market analysis and product positioning. In an

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age of strong market competition not only at the European level, a competitive policy emphasising product differentiation could provide a major opportunity for the Czech market. The hedonic aspect associated with food and the pleasure of eating well is still a crucial aspect for Czech consumers, for whom culinary traditions are still very important. Another central aspect shown by the study, however, is the importance of the production processes and place of production of food products. It is thus essential for the various stages of the food production chain to be efficiently coordinated to create, maintain and enhance the elements of differentiation on which the consumers’ perception of quality is based. Today the competition in the food business involves not only safety control and efficiency but also the ability to adding value. The concept of adding value is strictly customer oriented: the effort to enhance the value of a food product is aimed at increasing consumers’ perception of the product’s quality. It is therefore important to ensure that, along with the food product itself, customers should be offered an appropriate flow of related services, and particularly information, to help them develop a clearer perception of the product’s material and immaterial characteristics. Communication makes a key contribution to building, sustaining and enhancing over time the reputation and appreciation of a food product and of the processes, services and other features that consumers look for and seek assurances on. To be effective, however, communication strategies must consider always the different target audiences to which their communication is aimed and consider their characteristics, behaviours and preferences. The sensitivity of older people on products’ origin and production process could be an interesting point, such as the geographical differences emerged in this study. An understanding of the expected quality of a product is also important for the institutions in charge of public policy on food safety and consumer protection. This paper has highlighted some important trends in Czech consumers’ definition of food quality taken as a general and multi-dimensional concept. The subjective perception of quality is in fact related to a complex system of cultural codes and value systems which are nevertheless integrated in the consumers’ daily choices (Holm & Kildevang, 1996). The goal of the institutions concerned with public health protection is to provide consumers with the appropriate tools to be able to assess the safety and quality of food products based on knowledge of scientific evidence and the real risks associated with food products alongside their subjective perceptions. Communication once again plays a crucial role in this respect, and the segmentation into groups of consumers showing different perceptions and habits is therefore fundamentally important when designing effective and targeted actions aimed at reducing uncertainty and promoting healthy behaviours (Verbeke, Frewer, et al., 2007; Verbeke, Vermeir, et al., 2007).

Acknowledgment The article has been supported by project IGA No. F3/34/2018 "Consumer Behaviour on the Market of Foodstuffs Assigned by Quality Labels Market in the Czech Republic ".

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Creation and Evaluation of Didactic Text in Vocational Education Daniel Ku erka, The Institute of Technology and Business in eské Bud jovice, Faculty of Corporate Strategy, Department of Field Didactics, St. Okružní 571/10, 370 01 eské Bud jovice, Czech republic, [email protected] Eva Ružinská, The Institute of Technology and Business in eské Bud jovice, Faculty of Corporate Strategy, Department of Economics, St. Okružní 571/10, 370 01 eské Bud jovice, Czech republic, [email protected] Gabriela Ru ková, The Institute of Technology and Business in eské Bud jovice, Faculty of Corporate Strategy, Department of Subject Specific Didactics, St. Okružní 571/10, 370 01 eské Bud jovice, Czech republic, [email protected] Monika Ku erková, The Institute of Technology and Business in eské Bud jovice, Faculty of Corporate Strategy, Department of Field Didactics, St. Okružní 571/10, 370 01 eské Bud jovice, Czech republic, [email protected]

Abstract The authors are concerned with the creation of a teaching text in this paper. They describe its place in material didactic means. They take into account the components, functions, structure, difficulty as well as the creation of the text, its writing and its structure in the textbook. In the end, the authors show their own approach to writing a textbook and evaluating it with pupils using the Close test. The whole research was done on a sample of 150 pupils whose results showed that the didactic text is manageable by students of the 4th year of engineering departments.

Keywords: didactic text, material didactic means, teaching aids, methodology, empirical research. Introduction The upgrading of basic pedagogical documents of secondary schools has brought some changes, for example that the curricula of foreign languages is the same. This fact led me to make the subject in the field of technical communication from the English language for the engineering departments in a suitable way and as well as the most acceptable way to study the subject and with which the graduates of the secondary technical schools of the mechanical engineering and secondary industrial engineering schools will meet in practice. Based on the above, students who have a didactic text can gain knowledge in any place and need neither a resource nor an internet network, etc. This contribution deals with the creation of learning texts. We describe the training text as a part of the material lessons and at the same time we show the possibility of evaluating its readability.

Professional Text as a Part of Material Teaching Aids and Its Production The didactic text is most closely associated with the term textbook at our schools. The term textbook is also understood to be a learning text (vocational learning text) that presents the curriculum for the purpose of its acquisition by students.

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The textbook should be based on the curriculum, to specify what the curriculum prescribes and to play a decisive role in the teaching process as it is the most important learning aid for pupils and the support for the work of the teacher. Learning aid is a material means of direct information. We can also define it as a "set of signals of didactically adjusted information". The learning aid can deliver content directly (e.g., a model) or through a technical means (e.g., slides through a data projector). It has a primary relation to the content of education (Driensky-Hrmo, 2004). Teaching aids are divided into additive, visual, audiovisual and cybernetic. The way they work depends on their role and role in teaching. Functions can be information, transformation, activation, regulation, etc. Tasks can be divided into motivational, descriptive, application, demonstration, simulation, repetitive, examinations, etc.

Production of Teaching Text According to Turek (2010) the textbook can be understood as a didactic text. Didactic text by Pr cha et al. (2013) is any text (commune) that is designed to be a carrier of didactic information. The most widespread species is a textbook. The textbook is a kind of a book publication adapted to didactic communication with its content and structure. It has a number of types, the most popular of which is a school textbook. For the textbook research abroad there were set up specialized scientific working places (textbook research). The analysis of textbooks focuses on the structure of the didactic text, its content, scope, difficulty, didactic facilities, selection of textbooks by teachers and schools, and others.

Structural Components and Functions of a Textbook There are various taxonomies of structural textbook components (e.g Mikk, 2000, Zujev, 1986). According to one taxonomy (Pr cha, 1998), which has been verified by a series of empirical studies, the general model of textbook structure (fig. 1) can be represented as follows: Structure of text book Verbal component

Visual component

Figure 2: Structure of textbook (Pr cha, 2009) In the texture structure, 36 components are typically distinguished (in specific textbooks there may be more), which are classified into three categories according to the function in Pr cha , 2009).

Structure, Difficulty and Writing of a Textbook The structure of textbooks must provide for pupils, students, understandable content of the subject, which is also affected by the structure. Structuring a textbook is divided into sections. According to Turek (2010), a textbook should fulfill all the functions and should have the following structure: content, introduction, chapters and subchapters, self-test solution and evaluation of self-test results, overview of used variables and their units, selected tables, register and literature.

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Methodology and Empirical Research The main objective of the research is to elaborate and evaluate the didactic text on the subject of English in Mechanical Engineering for the 4th year of study fields in the field of mechanical engineering, for the branch mechanic setter. The subject of the research is: creation of a didactic text, evaluation of the didactic text quality, assessment of the extent of the didactic text, determination of the readability of the didactic text. The research was attended by teachers and pupils of SOŠA Trnava, SOŠ Senec and SOŠE Trnava, SOŠSaEVelešín, VOŠ, SPŠ and SOŠ aS Strakonice for whom the didactic text is intended. SOŠA Trnava, SOŠ Senec, SOŠSaEVelešín, VŠŠ, SPŠ and SOŠ aS Strakonice are schools with engineering focus and SOŠE Trnava is a school whose branches are electrotechnical.

Research Methodology Research methods will be used for research. By statistical methods, we can examine various learning parameters obtained by measuring certain curriculum attributes in the textbook. This parameter includes readability of the text, the average texture range of the textbook's difficulty. For the purposes of this paper, we will consider the readability of the didactic text.

Empirical Research The experiment was carried out in two phases: the preparatory part of the experiment and the evaluation part of the experiment. In the preparatory part of the experiment, we worked out the preparation and processing of the appropriate content of the individual chapters of the text and the Close test for pupils. In the preparation and processing of the appropriate contents of individual didactic texts, we made a selection of appropriate literature and elaboration of a suitable didactic text for the 4th year of study fields in the field of mechanical engineering. As a part of the preparatory part of the experiment, the Cloze test for pupils was prepared for the e-learning course. These pupils had to fill in the missing words. If they do not fill the bottom line and do not fill at least 13 correct words then the text is difficult. The Cloze test is based on the fact that a text with a length of approximately 250 words is selected by random selection, i.e. the word 46, 56, 66, 76, 86, ......... 216, 236, 246. The test was distributed and filled by 150 pupils (20 SOŠA Trnava, 20 SOŠ Senec, 30 SOŠSaEVelešín, 30VŠŠ, SPŠ a SOŠ aS Strakonice and 50 SOŠE Trnava). The pupils' task was to add missing words in randomly selected text in the didactic textbook. If the student completes 13 words (59%), then the didactic teaching text is for the students 4th year of study branches in the field of mechanical engineering, for the mechanic drive adjustable, manageable and comprehensible. The Cloze test results are shown in table 1. All pupils fulfilled the minimum condition of 13 correct words t. j. 59% of all missing words. On average, the most correct words (14,43) were supplemented by pupils with SOŠSaE Velešín and at least the correct words (13,45) were supplemented by pupils from SOŠ Senec. At the same time, the table also shows the percentage of the number of the number of tests completed by the pupils.

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Table 1: Overall assessment of Cloze test Number of correct words

13

14

15

16

SOŠA TT

11

6

1

1

SOŠ SC

13

3

SOŠE TT

31

14

2

SOŠSaEVelešín VOŠ, SPŠ a SOŠ aS Strakonice

12

11

3

14

8

Number of tests

81

42

6

%

54

28

1

17

18

19

20

21

22

1 1

1

1 2

ø 13,90

1

13,45

1

1

13,76

1

1

14,43

5

1

1

1

14,36

7

3

2

2

3

2

2

150

4 4,68

2

1,33

1,33

2

1,33

1,33

100

Graph 1 : Graphical evaluation of the average number of correctly filled words per school Chart 1 shows the average number of words completed by individual schools. The best score was reached by SOSSaE Velešín from 14.43 correct words. On the other hand, the weakest score was reached by SOŠ Senec from 13.45 correctly worded words.

Conclusion Education is attracting more and more young people but also people of advanced age. Their interest is mainly in the quality control of computer technology, the Internet and communication through education technologies is constantly rising. In order to obtain these competencies, it is necessary to process different manuals, procedures, etc. In order for this documentation to be published, it is necessary to process a certain didactic text and publish it through a brochure, manual, textbook, etc. Writing texts has certain principles that need to be followed. The didactic text supports the development of information literacy, including reading literacy. Slovakia is not in the best position in comprehensive reading through the European ranking. The results of the Close test show that the didactic text is manageable in the fourth year of the engineering and electrotechnical departments. The minimum number of 13 words was completed by 81 pupils, i.e. 54%, one more word

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added by 42 pupils, i.e. 28%. On the contrary, 18 - 22 words have always been supplemented by 2-3 pupils, i.e. about 1.5%. It turned out that the didactic text is difficult but manageable by pupils of the 4th year of SOŠ.

Acknowledgement The article was created as a result of the solution of the internal grant project No. 8110IGS201818 "Creating professional studies as a tool for innovation and development of pedagogical activities" at the The Institute of Technology and Business in eské Bud jovice, Czech Republic.

References Driensky, D.,Hrmo, R., 2004. Materiálne didaktické prostriedky. Bratislava: Vydavate stvo STU, 2004. 185 s. ISBN 80-227-2159-X. Hitka, M., Lizbetinova, L., Caha, Z., Xu, Y. (2016) Facility management - Instrument for the management of support processes for hrm outsourcing Communications - Scientific Letters of the University of Zilina, 18 (2), pp. 38-44. Cited 3 times. https://www.scopus.com/inward/record.uri?eid=2-s2.084965081980&partnerID=40&md5=d62f08de50cd0ca58b6255ff64e3cea0Hrmo, R. a kol. Didaktika technických predmetov. Bratislava: STU, 2005. ISBN 80-227-2191-3. Hrmo, R. a kol., (2009). Informa né a komunika né technologie vo výu be. Bratislava: STU, 2009. ISBN 978-80-8096-101-5. Hrmo, R., Ku erka, D., Rusnáková, S., (2014). Tvorba odborných u ebných textov a ich vyhodnotenie. 8. Didaktická konferencia. Dubnica n/V.:DTI, 2014. ISBN 978-80-89732-01-2. Kozík T., Noga H., Depešová J., The symptoms of post modernism in mediaand multimedia, European Journal of Science and Theology, 2015, Vol.11, No.6, Pages 119-125. Ku erka, D., 2011. Rozvoj informa nej kompetencie prostredníctvom e-learningu.[Dizerta ná práca]. Trnava: MTF,2011. 137s. MTF-10901-52863. Školite : doc. Ing. Roman Hrmo, PhD., ING-PAED IGIP. Migo, P., Noga, H., (2015) Start-upof SSTC semi conduct or tesla coil – an example of aneducational project, Przegl d Elektrotechniczny, Volume 1, Issue 12, 2015, Pages 167-169. Olszewska, D., Prauzner, T., Ptak, P., Noga H., (2016) Analysis and simulation of the impact of electromagnetic fields on the vital functions of microbes, Przeglad Elektrotechniczny, Volume 92, Issue 12, 2016, Pages 191-193. Petlák, E., (2004). Všeobecná didaktika. Bratislava, IRIS, 2004. ISBN 80-89018-64-5. Pr cha, J., (2009). Pedagogická encyklopédia. Praha: Portál, s. r. o., 209. ISBN 978-80-7367-546-2. Sobczyk W., Sternik K., Sobczyk E.J., Noga H., Rating of yielding of willow fertilized with sewage sludge. Rocznik Ochrona rodowiska,, Vol. 17, Issue 2, 2015, Pages. 1113-1124. Turek, I., (2010). Didaktika. Bratislava: IuraEdition, spol. s r.o., 2010. ISBN 978-80-8078-322-8.

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Dr. Piotr Chojnacki Faculty of Economics and Agribusiness University of Life Sciences in Lublin, Poland [email protected] Anna Budzy ska Master of Sciences Faculty of Economics and Agribusiness University of Life Sciences in Lublin, Poland

Summary The aim of this article is to assess the effectiveness of functioning companies listed on the Warsaw Stock Exchange. The subject of the analysis were three companies present in the Warsaw floor. The need to attract capital for new investments and development in many areas, including the expansion of the raw materials base, was the main reason why companies were listed on the Warsaw Stock Exchange.Their market value in examined period was subject to multidirectional changes, which were more connected with changes of macroeconomic situation than with current economic condition of the companies.

Keywords: effectiveness, market value, companies of meat industry, ratio analysis Introduction The meat industry in Poland is a sector of activity of many small and medium-sized enterprises and not too numerous large entities. Production and processing industry include some main types of meat, among which pork, beef and poultry have basic importance. In recent years, general tendency, including also forecast tendency, is decrease of pork and beef production and increase of poultry production. Situation of enterprises of this sector is to large extent dependent on agricultural production [Meat market 2016, 3-4] To other unfavourable conditions for functioning entities of the sector belong growing supply on world markets, the deteriorating relation of production to net exports or threats connected with African Swine Fever (ASF). Furthermore increasingly part of distribution margin is captured by large commercial chains. possessing their own storage centres. Nevertheless meat industry is assessed as attractive sector of activity. In the survey conducted in 2013 by ISI Emerging Markets it obtained final score of 4 on 5degree scale as well for current situation and forecast situation [Processing....2013]. Forecasts for poultry sector are particularly favourable. The majority of several thousand enterprises in meat industry are small and medium-sized enterprises, there are only a few dozen large enterprises. The part of them operates within capital groups, including also international capital groups. The largest of them is Animex (brands Krakus, Morliny, Berlinki), and the second largest capital group is Sokołów. Both of them are groups with participation of foreign capital, for many years belonging to international groups (Smithfield Foods and Danish Crown respectively). The third largest group of the sector in terms of revenues is PKM Duda, whose business strategy is significantly different from market leaders, because it does not have its own brand, but deals mainly with low-margin raw material processing and the trade of meat products of other producers. Also the branch is characterized by largest dispersion, each of the largest players has only few percent of market share, but simultaneously their market position grows stronger quickly. [Kondrakiewicz T , 2014 p.73]. National capital groups of meat sector are in the majority entities established in the 1990s, partly on the basis of restructured public enterprises, but there are among them also companies with only

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private capital. Their development occurred mainly thanks to numerous mergers and acquisitions [see wider Janiuk, 2012, pp. 83-84]. The quantitative share of entities of the sector among public companies is small, although in the case of some of them stock market listing on the stock turned out to be an effective way of raising capital and strengthening market position. The necessity of raising capital for the increase of production capacity was the main reason for the listing companies Indykpol S.A. Gobarto S.A. and Tarczy ski S.A. on the Warsaw Stock Exchange.

Selected Companies of Meat Branch Listed On the Stock Exchange in Warsaw The first of them is currently functioning Indykpol Group, the largest producer of turkey meat and turkey products in Poland. It specializes in breeding and industrial fattening turkeys, wholesale sale and retail sale of carcasses, poultry cuts, turkey meat and turkey meat products. Indykpol SA integrates and coordinates the cooperation between particular companies and plants comprising the group. Contrary to Gobarto S.A. or Tarczy ski S.A. Indykpol Group is derived from state-owned enterprise. Its origins date back to the mid of 20th century and the process of construction in its present form is closely connected with privatisation and restructuring initiated in the 1990s, when Indykpol, the current parent entity of the group, was established. In 1994, Indykpol S.A obtained status of public company, initially listed in single price system and since 2004 in the continuous trading system. [Kodrakiewicz T 2014 p. 75]. Capital raised in connection with entering the stock exchange market allowed the company to make new investments and development in many areas, including the expansion of raw material base, sales network and the commencement of process of building capital group, carried out through the acquisition of blocks of shares in the companies Eldbrob S.A. and Lubdrob S.A., what initiated the process of consolidation of poultry enterprises in Poland and enabled the company to gain dominant position on meat market and turkey products market. Table 1 : Largest shareholders of Indykpol S.A. LARGEST SHAREHOLDERS OF INDYKPOL S.A. Rolmex

57,74%

Warmi sko-Mazurski Handel Mi dzynarodowy Sp. z o.o

4,94%

Nationale-Nederlanden OFE

12,71%

Others

24,61%

Source: Own elaboration on the basis of documents of company

Table 2: Consolidated annual reports SKONSOLIDOWANE RAPORTY ROCZNY INDYKPOL S.A 2013

2016

1.006.330

1.327.039

Profit (loss) on operating activities (thousand zloty)

14.483

15.916

Gross profit (loss) (thousand zloty)

104.591

309.207

Net revenues from sales (thousand zloty)

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SKONSOLIDOWANE RAPORTY ROCZNY INDYKPOL S.A Net profit (loss) (thousand zloty)

2171

9546

Assets (thousand zloty)

442191

552018

Own capital (thousand zloty)

163998

208826

Number of shares (thousand items)

3124500

3124500

0,7

3,06

52,49

66,84

Earnings per share (zloty) Book value per share (zloty) Source: Own elaboration on the basis of reports of company

The second of them is the group functioning currently as Gebarto S.A., arising from PKM Duda and dealing with slaughtering and purchasing pork and beef meat, as well as freezing goods in modern chamber, storing them in refrigerator room and trading. Original PKM Duda is derived from small family business established in 1990 and growing quickly in next years. In January 2003 Zakłady Mi sne Duda SA entered the Warsaw Stock Exchange. The company was not known then, but already six months after its debut, the turnover of the company exceeded the turnover of competing public companies from the branch and price of its shares increased by several dozen percent. High dynamics of development allowed to issue next series of shares just after less than a year, [Kodrakiewicz T. p. 74]. Receivers of products of the group are above all plants of meat industry and commercial chains running their own meat cutting. [http//relacje-inwestorskie access 2018.03.21]. Gobarto S.A. became currently the largest Polish company dealing with slaughtering, cutting and distribution of red pork meat, beef meat and game. Table 3 LARGEST SHAREHOLDERS OF GOBARTO S.A. CEDROB S.A.

84,06%

Others

15,94%

Source: Own elaboration on the basis of reports of company

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Table 4 CONSOLIDATED ANNUAL REPORTS OF GOBARTO S.A 2013

2016

1.903.592

1.454.296


38.448

35.391

Gross profit (loss) (thousand zloty)

24.885

26.952

Net profit(loss) (thousand zloty)

22.922

24.672


704.403

767.327

Own capital (thousand zloty.)

345.607

399.872

27.800.229

27.800.229

Earnings per share (zloty)

0,83

0,89

Book value per share (zloty)

12,43

14,38




Tarczy ski Group is producer of cold cuts, offering products under brands of Tarczy ski, Dobrosław and Starpeck. Producer of cold cuts, focused on processing pork meat and poultry meat (leading producer of dry smoked pork sausages and dry cold cuts). The group has three production plants: in Uje dziec Mały, Sława and Bielsko-Biała. produces in total approximately 500 meat and cold cuts products. It also deals with agricultural activity in the field of agricultural crops, animal breeding and also wholesale and retail sale of manufactured products and other food products (among others bread, cakes, beverages). The origin of the group is – just as in the case of previous company - related to the establishment of small family business, initially functioning in the form of partnership. Its development was connected among others with acquisition of assets of other plants of meat processing plants and the construction of new plants, changes of organizational and legal form (transformation into limited liability company, then into joint-stock company) and also with the establishment of new company (Dobrosława sp. z o.o.) and acquisition of other entities. In 2010 company Tarczy ski acquired all shares in Starpeck sp. z o.o. and shares in TC Nieruchomo ci sp. z o.o. (currently Tarczy ski Marketing sp. z o.o.). In next year the merger of three of them took place (acquisition of Starpeck sp. z o.o. and Dobrosław sp. z o.o. by Tarczy ski SA), what increased economic strength of parent company to such an extent that in 2013 it became possible for it to be listed on the stock exchange. Currently Tarczy ski Group is important entity on the market, focusing on the processing pork meat and poultry meat. Its trading partners are as well retail receivers as wholesale receivers.

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Table 5 LARGEST SHAREHOLDERS OF TARCZY SKI S.A. EJT Inwestment

51,62%

Aviva OFE BZ WBK

14,37%

Nationale-Nederlanden OFE

14,37%

Pozostali

25,20%


Table 6 CONSOLIDATED ANNUAL REPORTS OF GOBARTO S.A 2013

2016

1.903.592

1.454.296


38.448

35.391

Gross profit(loss) (thousand zloty)

24.885

26.952

Net profit(loss) (thousand zloty)

22.922

24.672


704.403

767.327

Own capital (thousand zloty.)

345.607

399.872

27.800.229

27.800.229

Earnings per share (zloty)

0,83

0,89

Book value per share (zloty)

12,43

14,38




Analysis of companies of meat branch listed on the Warsaw Stock Exchange indicates that they are very diversified. Their origin, length of period of functioning as public companies, also the size, as well measured by number of the companies being parts of it, as number of employees, value of assets and turnover, financial condition or effectiveness of functioning. Decidedly the largest of them is Gebarto Group S.A. Simultaneously it is one of the fastest developing entities of meat industry, consistently implementing strategy of strengthening its market position. The group with much smaller number of companies and smaller share in entire meat market and meat products market is Indykpol. Simultaneously the largest entity in the segment of poultry meat. The third analyzed groups - Tarczy ski - is against a background of remaining groups the entity with relatively the least importance measured by market share.

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Analysis of Effectiveness of Selected Companies of Meat Industry Listed On the Warsaw Stock Exchange Economic efficiency is activity that is aimed at achieving given effect using as little available resources as possible, or achieving the best result using specific amount of resources [ Black J : Dictionary of Economics...]. Economic efficiency in this approach manifests itself in achieving specific objective using for it possessed resources in the most effective way the least wasteful way. This term refers as well to individual entities, for example enterprise and to larger aggregates, for example enterprise sector or economy of the whole country. Economic efficiency is ambiguous concept which is depicted from different perspectives in economic sciences and management sciences. Therefore there are many definitions of this term. In economic sciences economic efficiency is defined as simultaneous achievement of technological efficiency and allocation efficiency [D.Rutherford: Routledge dictionary …, London, Taylor & Francis Group, 2002]. This issue is above all related to optimizing allocation of resources. Efficiency in literature is most often expressed in traditional depiction as mathematical ratio of outlays to obtained results, in depiction of resources as the most efficient allocation of available resources. Analysis of viability (profitability) concerns various resources of the company. Within this group, many indicators can be created, in which profit (in various forms) refers to assets of the company or its components, capital or revenues from sales [Grzenkowicz et al. 2007]. Table 7: Indicators of viability COMPARISON OF VIABILITY name

ROE

ROA

Operating margin

Margin of Productivity Share of KP profit

Indykpol S.A.

1,24%

1,24%

0,60%

0,60%

2,32

23,44%

Gobarto S.A.

10,39%

5,99%

3,34%

2,42%

2,48

0,12%

Tarczy ski S.A.

9,96%

3,24%

3,60%

1,99%

1,62

-6,12%

Production of food

11,15%

6,83%

6,16%

4,29%

1,25

14,01%

WIG

8,31%

3,90%

5,97%

4,38%

0,90

12,74%

indicator of company better than indicator of branch and market indicator of company neutral to indicator of branch and market indicator of company worse than indicator of branch and market Source: Own elaboration on the basis of reports of company Return on equity (ROE) (net profit/equity(own capital)) × 100% is information, which margin of profit is generated by equity capitals of enterprise. Therefore this indicator is dependent on financial result and value of equity. It is ne of the most popular indicator of fundamental analysis. It is used by Warren Buffet himself. This indicator examines how well the company can use its capital for earning money. Gobarto and Tarczy ski have neutral value of this indicator in relation to the market and the branch, poultry company goes the worst in this comparison. The ROE multiplier is influenced among others by structure of financing company and leverage ratio, for this reason the ratio cannot be interpreted without comparing its level with ROA multiplier, financial leverage of the company etc. Return on assets (ROA). Very similar indicator to ROE. Difference consists in it that in ROE we check, how well each zloty(clear of debt) belonging to the company can earn, while ROA measures, how well each zloty invested in the company can earn (regardless of it, if it is clear of debt or if it comes from a loan). ROA (if it is positive) is lower than ROE, because assets are always greater than

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equity. Gobarto is the leader, contrary to Indykpol and Tarczynski, for which value is below the level of branch and market. Operating margin measures the ratio of operating profit to revenues. Operating profit is revenue decreased with various kinds of costs, such as: costs of manufacturing products, costs of management, costs of sales, operating costs. In other words operating margin informs us, what percentage of revenues remains in the cash after deducting the above costs. High margin is usually characteristic for companies with well-established brand, which can sell their products significantly above costs of production. Net margin of profit measures the ratio of net profit to revenues. Net profit is nothing else than revenues decreased with all possible costs and taxes. In other words net margin of profit informs us, what percentage of revenues company gets as pure profit. Important factor influencing both factors of production cycle is it that products with shorter period of production have usually lower margin (but it is compensated by higher asset turnover) and therefore companies from the same branch, producing homogeneous products should be compared using this indicator. Productivity of assets shows, how well the company uses its assets to generate revenue. More valuable company of two companies is always this company, which possessing the same capital can earn more. The company with larger assets will be more valuable of two companies with the same indicator of productivity. All examined companies have better indicators than indicator of food branch or wide indicator of market. Next aspect is the comparison of examined companies by means of indicators connected with market value and capital value. Table 8 COMPARISON OF MARKET VALUE P/E

P/BV

P/BV of Graham

EV/P

EV/EBIT

EV/P

EV/EBIT

Indykpol S.A.

98,96

1,20

-4,65

0,45

74,61

0,20

33,49

Gobarto S.A.

6,34

0,59

-8,76

0,31

9,32

0,15

4,59

Tarczy ski S.A.

10,87

1,03

-0,87

0,66

18,41

0,22

6,02

Production of food

10,25

1,02

-0,13

0,85

15,45

0,39

6,68

WIG

15,19

1,11

-20,51

1,28

20,55

0,68

11,03

name

indicator of company better than indicator of branch and market indicator of company neutral to indicator of branch and market indicator of company worse than indicator of branch and market Source: Own elaboration on the basis of reports of company P/E indicator is the ratio of market price of share to net profit of company. Low level of indicator may suggest that the investment is beneficial, because the company achieves considerable profits with relatively low market valuation. Its too low level signals that shares of the company are undervalued and encourages to cheap acquisition of them. In practice too high P/E value may be a sign of high enthusiasm of investors or speculation of large investors. P/E indicator should be comparable to branch indicator and indicator set for other companies or to indicator of the same company in the past. P/BV indicator informing about current valuation of value of assets by the market (assets without liabilities) of given listed company. P/BV indicator is calculated by dividing current capitalization of

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listed company by book value of its equity, which is given in the balance sheet of the company. Alternatively this indicator may be obtained by dividing share price by book value per share. This indicator does not have absolute value and should not be considered in isolation from the average for given branch. P/ BV Graham indicator, contrary to P/ BV indicator only takes account of current assets, excluding fixed assets. Data concerning these indicators are presented in Table 8. Table 9 COMPARISON OF SOLVENCY AND CASH FLOWS name

CR

DEBT

CG

UKW

UZN

WFI

Indykpol S.A.

1,80

62,35%

1,66

79,53

3,23%

-0,36

Gobarto S.A.

1,00

42,61%

0,74

93,70

80,59%

0,62

Tarczy ski S.A.

0,84

68,67%

2,19

45,77

24,04%

0,91

Production of food

2,16

44,75%

5,52

103,28

5739,03%

0,85

WIG

1,41

51,29%

1,02

93,20

49,20%

0,80

indicator of company better than indicator of branch and market indicator of company neutral to indicator of branch and market indicator of company worse than indicator of branch and market Source: Own elaboration on the basis of reports of company Solvency informs about the possibility of repaying all debts of the company. The evaluation of solvency of the company may be made on the basis of relevant indicators. Overall debt ratio (total liabilities/total assets) × 100% informs about the share of foreign capital in financing of assets of the company. Some authors [G siorkiewicz 2011; Sierpi ska, Jachna 2005; Stulich 2003] think that the optimal range for this indicator is 57-67%. Higher values are signs of difficulties in repaying liabilities and larger dependence of the company on creditors. The above analyses show that it is difficult to assess unambiguously situation of the company on the basis of indicators of viability, liquidity and debt. In respect of viability Gobarto S.A. was the best enterprise. It achieved the highest values of indicators among analyzed companies.

Conclusion Examined groups operate in difficult market conditions, what includes, among others rising prices of raw material and also barriers on the demand side and intensifying competition.The economic efficiency of the companies surveyed is determined by determining specific indicators, such as: financial return, economic profitability, solvency rates, liquidity. The results highlight the differences between the three companies analyzed. The outcome of the study highlights the fact that the companies surveyed are operating under difficult market conditions, including, among other things, the rise in commodity prices as well as demand barriers and increased competition. Adaptation to market conditions and market requirements permanently require the adaptation and implementation of new strategies, as well as the creation of modern distribution channels, focusing on improving the efficiency of management and on intensifying the cooperation between the companies involved and the conclusion of new partnerships. Mergers and acquisitions have played an important role in the development strategy of all the groups analyzed. The measurable effect of these actions is to improve the viability and other economic and financial outcomes.

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Adapting to market conditions and market requirements, the groups implement new strategies, create modern channels of distribution and service centres (including transport service centres) and focus on improvement of efficiency of management and enhancing cooperation between their companies and with their regular business partners. Mergers and acquisitions played important role in the strategy of development of all analyzed groups. Measurable effect of these actions is improvement of viability and other economic and financial results.

Literature Black, J. (2008), Dictionary of Economics. Warsaw: PWN Scientific Publishing House G siorkiewicz, L. (2011), Economic and financial analysis of enterprises, Warsaw University of Technology Publishing House, pp. 123-124. Grzenkowicz, N., Kowalczul, J., Kusak, A., (2007), Economic analysis of the enterprise, Faculty of Management of Warsaw University Publishing House, UW, pp. 207, 237. Kondrakiewicz, T., (2014), Capital groups in the meat industry listed on the Warsaw Stock Exchange. Annales Sectio H, UMCS Publishing House in Lublin, pp. 73 Rutherford, D., Routledge dictionary of economics. London: Taylor & Francis Group, 2002. Sierpi ska, M., Jachyna, T., (2005), Evaluation of enterprise according to worldwide standards, PWN Publishing House, Warsaw, p. 145, pp. 161-168 Szudy, M. (2013), Economic efficiency in dynamic depiction and efficiency of economic system. in: 'Economic studies'. 176, pp. 22-29, 2013. University of Economics in Katowice Tyburcy, A., Jaworowski, M., Evaluation of selected meat plants on the basis of some financial indicators and discriminatory model of Hołda SGGW Publishing House, pp. 89- 94 http://gobarto.pl/relacje-inwestorskie 21.03.2018 https://www.indykpol.pl 21.03.2018 http://tarczynski.pl/ 21.03.2018

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How to Measure Values Based Leadership Ivana Blahunková and Zuzana Kotuliaková Faculty of Management at the Comenius University in Bratislava [email protected], [email protected]

Abstract The article provides a brief theoretical overview of the major streams of thought on the topic of values based leadership as well as a new methodological approach to creating a measurement tool to determine the presence and extent of this style of leadership in corporate practice. The first part of the article focuses on defining values based leadership, the presentation of individual styles falling under the values based leadership concept as well as authors' own definition of the values based leadership as a specific style based on cyclical process of leading others, with elements of this process arranged according to logical and temporal continuity. The second part of the article presents methodological approach for creating a new measurement tool to determine the extent of values based leadership in corporate practice. The basic aim of this article is to describe the individual stages within the respective methodological approach.

Keywords: Leader, Leadership, Values-based leadership, Ethical leadership Introduction According to Remišová and Lašáková (2013), seven styles of leadership fall under the concept of values-based leadership, namely ethical leadership, spiritual leadership, servant leadership, trusted leadership, prosocial charismatic leadership, authentic leadership and at alst but not least responsible leadership. According to these authors, the values-based leadership represents a roof concept, put differently an individual stream of theoretical thought in the leadership theory. It brings in a gradual shift in the focus of a strong leader who freely subjugates his subordinates towards a leader, who forms relationships in team in such a way, that people "lead" each other. It is a direction towards a more thorough understanding of the process of leadership in the sense of increasing the complexity of elements and processes that are related to leadership. There is a significant shift towards an axiological understanding of the leadership process, with an emphasis on the nature and importance of values in leadership. There is a tendency to expand the field of action and responsibility of the leader beyond the boundary of the working team. Leader becomes an active bearer of corporate social responsibility.

A new approach to values-based leadership To some extent contrary to prior literature, according to the authors of this article, values-based leadership can be considered as a distinctive style that combines the elements of the above-mentioned seven leadership styles. Unlike the above-mentioned styles of values-based leadership, the authors conceive the new concept of values-based leadership as a cyclical process. In our understanding, it can be defined based on the following characteristics, i. e. pillars: •

Self-reflection of own values is necessary to ensure that the manager is capable of ethical actions and decisions. The ability of introspection and the will to learn more, or to learn about himself, about his place in society and life, about his abilities and skills, how to interact with others, and how this interaction affects others (we have derived or definition of self-reflection based on critical analysis of works Hupková, Petlák, 2004; Nezvalová, 2000; Prucha, 1995; Kalhoust, Obst, 2009).

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•

•

•

•

Authenticity is the he ability of leader to be himself and at the same time to allow others to be themselves and to be free to express their opinion. Respecting individual differences among people, accepting different individuals and their diverse needs or life li goals, and promotion of the value of truth, trut truthfulness and honesty in interpersonal relations (e.g., e.g., Avolio, Gardner, Walumbwa,, 2005 2005). Role-modelling means that leader leader is a role model for others, and he can influence influe them significantly to follow him. At the same time, he iimpersonates the values of the business and the team, in which he operates. Others want to be like like the leader. They identify with him. They mimic his behavior. Under his lead leadership, people are successful. He is a good example for others on how to behave and how to solve workplace probl problems (e.g., Nauta, Nauta Kokaly, 2001; Basow, Howe, 1979; 1979 Betz, Hackett, 1981). Development - Values-based based leader takes care of his own personal and professional growth, gro constantly educates and actively acquires new knowledge knowledge that leads to his personal and organizational progress. He strives to keep up with the current issues. At the same time, he tries to induce the same attitude with his subordinates, or colleagues. colleagues. He is not the obstacle to the personal and professional growth of the people peop he works with. Quite the contrary, he personally encourages them to progress and creates conditions, in which they can develop dev and gain new experiences. He closely follows the progress progress of his people and helps them to develop their abilities and skills (e.g., Belcourt, Wright, 1998; Koubek, 2007). Altruism regards being kind to other people. Trying for the best conditionss and the wellbeing of others and respect espect for others. Leader eader does not reduce the ability of others to achi achieve their own goals. Leader is selfless and willing to sacrifice his interests for interests or the good of others. He likes people, is humane. He is willing willing to help others if they face difficulties. In hiss behavior, he goes beyond the limits of the heartless calculation in his favor (e.g., Havard, 2007; Comte in Sillamy, 2001; Slezá ková, 2012; Batson, 2014). In the context of the following scheme (Figure 1),, it is a connecting element that manifests in ea each phase of the cyclic process of the values-based leadership.

Since the authors understand the values values-based leadership style as a cyclical process, its individual components have been arranged in logical and temporal continuity continui (see Figure 1).

Based Leadership Process (Source: own research and design) Fig. 1: Values-Based

Methodological Approach for Creating a New Measurem Measurement Tool It decribes the design of an optimal content of a new measurement tool to determine determine the extent of a leader's values-based based leadership and how to verify it. The measurement tool was created on the basis

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of an analysis of the theoretical knowledge and the subsequent definition of the conceptual orientation of the values-based leadership, through the operationalization of the concept of valuesbased leadership and its individual parts (i.e. five pillars, namely self-reflection, authenticity, role modelling, development and self-development and altruism). Furthermore, this section includes also recommendations for assessing the reliability and validity of the new research instrument in relation to selected constructs that are widely used in management research. The individual stages in the creation of a measurement tool to determine the level of values-based leadership are: •

•

•

•

Stage 1 – Acquiring a theoretical basis and defining the basic pillars of values-based leadership. Careful operationalization of the respective five pillars into an initial set of statements. Stage 2 – Process of evaluation of the construct face validity of the statements related to the five pillars of values-based leadership. Intake of new statements and reduction of the former set, with duplicate statements being excluded from further analysis. Stage 3 – Process of evaluation of convergent and discriminant validity using one opposing concept to values-based leadership and one convergent concept to values-based leadership. Consequent reduction of the set of statements, excluding those which do not connote clearly with the five pillars of values-based leadership. Stage 4 – Process of evaluation of hypothesized outcomes of values-based leadership in practice with the use of seven theorized outcomes with either positive or negative relationship to the examined concept, namely the self-efficacy, work effort, meaningfulness of work, optimism, stress, organizational citizenship behavior, trust in the leader.

Stage 1 First, it was necessary to precisely define the individual values-based leadership’s pillars, which we will continue to examine and verify. The authors specified the values-based leadership’s pillars on the theoretical level based on the descriptions and analysis of the existing concepts of values based leadership, and took over some elements from the values-based leadership concept, which characterize her view of the values-based leadership concept. These were predominantly elements that were common in each of the analyzed concepts, and the authors also enriched them with new elements based on experience from business practice. The aim of the first phase was to create the so-called initial set of values-based leadership’s questionnaire statements that saturated each of the values-based leadership’s pillars. In the first phase, 10 (min.) and up to 19 (max) test statements were created for each of the five values-based leadership’s pillars. We have formulated the statements based on an in-depth analysis of the essence of each of the values-based leadership’s pillars using basic logical methods, especially abstractions and deductions (Ritsvej, Kampová, 2010). Since the values-based leadership’s questionnaire should serve for a comprehensive diagnosis of leadership in organizations, we have generated statements in two forms for the operationalization of individual values-based leadership’s pillars; for the purpose of self-assessing leaders and for assessing leadership by subordinates.

Stage 2 We have decided to verify the Stage 1 statements in the second step with the help of five top managers. This was a validation process for construct validity. As Gavora (2010) states, a construct is a property or a human feature. In pedagogy, constructs are for example, knowledge, skill, ability, interest, attitude, literacy, creativity, social intelligence, social intelligence, school culture, and so on. For instance, if the researcher is creating a test of English language skills, he has to ask what will be understood as knowledge and whether his test well represents this property. Will this be a

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reproduction of certain lessons or facts, or will it be the application of rules and principles or interpretation of phenomena There are also more complex constructs such as knowledge. For example, the quality of work life in the surveyed organization, and it consists of several characteristics that meet this concept. It is, for example, satisfaction with life in the organization, satisfaction with the style of leadership, etc. The researcher creates his research tool according to the theory that fills the given construct. At the same time, he should consider its proximity to other constructs, or contradictions to them. In simple terms, this determines the degree to which the test measures a certain characteristic or attribute of the employee (Bajzíková et al., 2011). Validity is determined in several ways. In our case, it was a review of the initial research tool by a group of managers and they expressed their views with respect to the individual principles (dimensions) that are part of the values based leadership of people, i.e. the face validity. The main aim was to find out what experienced managers envision as values-based leadership and how they define the five pillars of values-based leadership. The aim of this first phase was to supplement the initial set of statements with new, additional statements not included in the original draft. The senior managers involved in this phase provided valuable viewpoints and insights into the different principles of the values based leadership concept. Collection of their opinions took two weeks. Managers attended personal meetings with the first author of theis article, which took place in the form of a semi-structured interview. It contained two basic questions without providing definitions of the five values-based leadership’s pillars. Only the way in which these pillars were chosen, and not the others, was explained. Questions for managers were as follows: In your opinion, is the principle (important) part of the concept of values-based leadership? Does it belong there? What does this principle mean in practice? How does it influence the management practice?

Stage 3 After the finalization of the introductory statements, which were reduced on the basis of semistructured interviews with top managers and at the same time cleared of those who duplicated some of the statements, or contained a very similar ideas, we have validated the statements by a twelvemember panel of experts. The aim of the third phase was to identify those statements from our list that repeatedly appeared outside the five pillars of values based leadership in expert assessments. The questionnaire contained statements related to values based leadership (i.e. self-reflection, authenticity, role model, development and self-development and altruism); it also contained statements related to transformation leadership (related concept) and statements about toxic leadership (opposing concept). The group of experts consisted of a diverse group consisting of experts in the field of work psychology (3 respondents), researchers (3 respondents), PhD students (2 respondents) and practicing managers (4 respondents). The group of experts received a questionnaire with statements through Google forms as an electronic questionnaire. In the introductory part of the questionnaire, the basic principles of values-based leadership were defined, as well as the related concept of transformation leadership and opposing concept of toxic leadership. Subsequently, all statements were arranged in random order, with the experts being instructed to assign these statements to the relevant constructs after their own consideration. The questionnaire contained 54 statements in total, including 39 values based leadership statements (self-reflection - 7 statements, authenticity - 8 statements, role model - 7 statements, development and self-development - 10 statements, altruism - 7 statements), 8 transformational leadership statements and 7 toxic leadership statements. The expert opinions was collected during December 2017 and took three weeks.

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Stage 4 In this phase we have hypothesized on connections of the values-based leadership to various outcomes in the work environment. This phase was focused on evaluation of the theorized linkages. For this purpose we have chosen seven outcomes of values-based leadership, namely the selfefficacy, work effort, meaningfulness of work, optimism, stress, organizational citizenship behavior, trust in the leader. According to Beda, Alpasan, Green (2014) ethical leadership of people affects the following areas: - The nature of the subordinate's work: Self-efficacy, Work effort, Meaningfulness of work, - Psychological state: Optimism, Stress - Organization as a whole: Organizational citizenship behavior, - Subordinate to Leader Relationship: Trust in the Leader Based on these areas, we have selected several measurement tools with statements that can be used to measure whether values-based leadership contributes or does not contribute, for example, to trust in employees’ own abilities. The final measurement tool that was afterwards subject of quantitative analysis entailed 100 statements (see Table 1). Concept Values-based leadership Values-based leadership Values-based leadership Values-based leadership Values-based leadership Toxic leadership

Related component Self-reflection

Number of statements 5

Examples of related questionnaire statements My leader is self-critical.

Authenticity

7

(Self) Development Role-modelling

8 5

My leader always tells me truth about everything that's going on. I think my leader likes learning and learning new things. My leader is my authority, I respect him.

Altruism

7

NA

7

NA

7

Transformational leadership Ethical leadership Outcomes

NA

10

Self-efficacy

6

Outcomes

Work effort

6

Outcomes

7

Outcomes

Meaningfulness of work Optimism

6

Outcomes

Stress

5

Outcomes Outcomes

OCB Trust in leader

9 5

I can say about my leader that he likes to work with people. My leader will only provide assistance to the people who will enable him to progress. My leader helps me focus my attention on things that are important. My leader behaves in his personal life ethically. I will be able to achieve most of the goals that I have set for myself. I do not give up quickly when something does not work well. I have found a meaningful career. In uncertain times, I usually expect the best. I could usually do a much better job if I were given more time.) My attendance at work is above the norm. I feel quite confident that my leader will always try to treat me fairly.)

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Conclusion Literature refers to several individual styles of leadership that fall under the values-based concept of leadership. These are spiritual leadership, servant leadership, trusted leadership, prosocial charismatic leadership, authentic leadership, responsible leadership, and ethical leadership. It is the ethical leadership that presents a connection between these styles of leadership. The main focus of the values-based concept is the ethical behavior of leaders, so ethical leadership can be considered as the core of values-based leadership. According to the authors, and based on the comparison of the above mentioned styles of leadership, it is clear that the individual styles share the fact that they are ethically and morally grounded, so ethical leadership can be considered the core of the concept of values-based leadership. Contrary to prior theory, authors of this article believe the values-based leadership can be conceived as a separate, individual style of leading others. The authors then devise their own concept of the values-based style of leadership as a cyclical process, in which the individual characteristics have been arranged in logical and temporal continuity (what is reasonable and important to do earlier, etc.). By applying the cyclical approach to leadership, the values-based leadership style entails following principles: selfreflection, authenticity, role modeling, self-development together with development of others and altruism. Besides theoretical analysis of values-based leadership style, this article introduces also a novel methodological approach to the creation of a new measurement tool that can be utilized by companies to raise ethicality fo leaders in daily operations. .Applying a mindful style of leadership in the form of values-based style can prevent social scandals, regain customer trust and enable the company to follow the principles of sustainability. Values-based leadership represents a new challenge for both the theoretical reflection and current managerial practice.

Acknowledgement This article entails preliminary partial results from dissertation thesis that is currently being developed under the tutorship of Anna Lašáková, Department of Management, Faculty of Management at Comenius University in Bratislava.

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Is There Individual Bankruptcy without Abuse? Vadim Yurievich Soldatenkov, Ph.D. in Economics, Associate Professor, Financial University under the Government of the Russian Federation, Moscow, Russia, [email protected]

Abstract The aim of the research is to develop a rationale for the need to preserve (to exclude) the possibility of a citizen's non-exemption from debts based on the results of the bankruptcy procedure in the presence of abuses in the economic behavior of such a debtor. To achieve the research goal, the author applied the methods of observation, generalization, deduction, as well as comparative and system analysis. In addition, he used the methodology of Douglass North's institutional analysis, Tolcott Parsons' AGIL model, the methodology of Robert Merton's explicit and latent functions and dysfunctions, as well as the concept of institutional traps by Victor Polterovhich. The author of the research analyzes the current state of the bankruptcy institute of a debtor citizen; discusses the dynamics of application and the key improvements of a debtor citizen's bankruptcy institute throughout its functioning, and studies materials of case laws of citizens' bankruptcy regarding the issues of the application (non-application) of the rule on the exemption from debt payments following the results of a bankruptcy procedure. The author of the research found that since October 1, 2015, the institute of a debtor citizen's bankruptcy has affected tens of thousands of individuals. However, there exist a number of institutional barriers that prevent the most effective application of bankruptcy procedures against citizens. These barriers include attempts of unscrupulous debtors to use bankruptcy procedures to evade fulfillment of their obligations. The final conclusion of the research is formulated as follows: based on the results of the bankruptcy procedure, a citizen should not be exempted from debts in the event that obvious abuses are revealed on the part of such a debtor. Moreover, the significance lies not only in the application of the rule of non-exemption from debts based on the results of a bankruptcy procedure but also in the possibility of applying this rule in the event of abuse on the part of a debtor. This is what urges for citizens' conscientious application of the bankruptcy procedure.

Keywords: insolvency; bankruptcy; individual; citizen; creditor; debtor; abuse. Relevance The size of consumer and mortgage loans keeps increasing in the Russian Federation, which constitutes a significant factor in the development of a number of sectors of the national economy (housing construction, retail trade and service areas, motor-vehicle construction, etc.). The growth of expiration for such loans is an objective consequence of the increase in the volume of consumer and mortgage loans. The foregoing circumstances formed the expediency and necessity of proper economic and legal regulation of relations in the event of citizens' of bankruptcy. The data presented in Table 1 shows that the volume of loans extended to individuals in Russia for a period of time from January 2013 to January 2018 increased significantly from 7.7 to 12.1 trillion rubles (by 57%). At the same time, overdue debts on loans extended to individuals increased 2.7 times.

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Table 1: Data of Debts on Loans of Credit Organizations Extended to Individual Borrowers1

Reporting date 01.01.2013 01.01.2014 01.01.2015 01.01.2016 01.01.2017 01.01.2018

Debts on loans extended to individual borrowers, million rubles 7,711,631 9,925,922 11,294,766 10,634,035 10,773,733 12,135,449

Overdue debts on loans extended to individual borrowers, million rubles 312,508 439,161 665,643 861,427 856,139 846,618

Debt conflicts with debtor citizens' overdue (''toxic'') debts on loans need to be resolved taking into account the rights and legitimate interests of both debtors and creditors. Otherwise, a significant number of individuals will not be able to develop normally from the economic point of view, to work in the ''white'' zone of the national economy, to fulfill their constitutional obligation to pay taxes, and to form their future pension.

Research Purpose and Methodology According to Douglass North, the institutional system can be a key factor in the long-term development of society. Technological and institutional changes are important determinants of social and economic development. Moreover, dependence on the past is manifested in both cases (North, 1997). Therefore, it is important to investigate economic relations in the field of individuals' bankruptcy based on institutional analysis. The aim of the research is to develop a rationale for the need to preserve (exclude) the possibility of non-exemption of a citizen from debts following the results of the bankruptcy procedure in the presence of abuses in the economic behavior of such a debtor. To achieve the research goal, the author: 1) analyzed the current state of the bankruptcy institute of a debtor citizen and examined the data of the Supreme Court of the Russian Federation and the Supreme Arbitration Court of the Russian Federation; 2) discussed the dynamics of the application and the key improvements of a debtor citizen's bankruptcy institute throughout its functioning; 3) examined materials of case laws of citizens' bankruptcy regarding the issues of the application (non-application) of the rule on the exemption from debt payments following the results of a bankruptcy procedure. The authors referred to the works of Russian and foreign representatives of scientific and expert communy (Evenko, Soldatenkov, 2016; Kuzminov, Radaev, Yakovlev, Yasin, 2005; Biswas, 2011; Gissel, Giacomino, Akers, 2007; Jones, Reed, Marks, 2008; Skeel, 2009; Xi, 2011) on insolvency (bankruptcy) issues.

1

The table was compiled according to the following sources: Information on housing loans provided by credit organizations to resident individuals in rubles. Retrieved from Website of the Central Bank of the Russian Federation http://cbr.ru/statistics/UDStat.aspx?TblID=41&pid=ipoteka&sid=ITM_2357/ (Accessed on February 17, 2018); Loans Extended to Individuals. Retrieved from the Central Bank of the Russian Federation http://cbr.ru/statistics/?PrtId=sors (Accessed on February 17, 2018).

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To achieve the research goal, the author applied the methods of observation, generalization, deduction, as well as comparative and system analysis. In addition, he used the methodology of Douglass North's institutional analysis (North, 1997; Davis, North, 1970), Tolcott Parsons' AGIL model (Parsons, 2002; Parsons, 1945, 1951, 1996), the methodology of Robert Merton's explicit and latent functions and dysfunctions (Merton, 2006; Merton, 1936, 1938), as well as the concept of institutional traps by Victor Polterovhich (Polterovich, 2014).

The Importance of the Insolvency (Bankruptcy) Institute for the State and Economy The relations in the field of insolvency (bankruptcy) are among the most complicated ones among economic institutes, which is due to the fact that in addition to economic components, they contain elements of civil and tax law, as well as of an arbitration process. The content of the insolvency institute is, first of all, economic and social. In terms of form, the peculiarity of this institute is related to the sufficiently high degree of its legislative regulation and the high degree of its participation in these relations in the court. The current realities of the modern economic life and international experience in the corresponding sphere indicate that the main functions of the bankruptcy institute include: 1) the formation of conditions for the survival of potentially profitable competitive business that has periodic financial difficulties; 2) fair discharge of the claims (debts) presented to a debtor in a civilized way; 3) exclusion of any possibilities for abuse due to a debtor's failure to fulfill their financial obligations to creditors and the state. Relationships related to the bankruptcy of individuals also perform the above functions since like an ordinary citizen, an individual entrepreneur can go through a bankruptcy procedure.

Establishment and Development of the Bankruptcy Institute of a Debtor Citizen Expert and scientific discourse on the expediency of the development of individuals' insolvency institute in the Russian Federation has a long history (Soldatenkov, 2012). Federal Law No. 154-FZ of June 29, 2015 introduced additions and changes into Federal Law No. 127-FZ of October 26, 2002 "On Insolvency (Bankruptcy)" (hereinafter, the Law on Bankruptcy). These additions and changes define the procedure, terms and conditions of conducting a bankruptcy procedure against an individual who is not able to fulfill their financial obligations. In a bankruptcy case of a debtor individual, the following procedures can be applied: •

• •

restructuring of a citizen's debts (a rehabilitation procedure for the restoration of solvency and financial stability, as well as a debtor citizen's fulfillment of obligations in accordance with his debt restructuring plan); realization of a citizens property (a rehabilitation procedure for fair and proportionate discharge of claims against a debtor); a settlement agreement (a rehabilitation procedure, in which a debtor and a creditor achieve agreement on debt discharge terms, as a result of which the bankruptcy procedure is terminated).

Thus, the Law on Bankruptcy refers, as shown above, the restructuring of debts and the realization of a citizen's property to procedures that restore a citizen's solvency.

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As evidenced by the statistics, the practice in the application of the institute of a debtor citizen's bankruptcy is expanding. According to the data of the Judicial Department under the Supreme Court of the Russian Federation, for the first half of 2017, arbitration courts received 16,227 bankruptcy petitions against citizens and 1,692 similar petitions against individual entrepreneurs (Table 2)2. According to the information analysis system ''Electronic Justice'', from October 1, 2015 to March 8, 2018, arbitration courts received more than 87 thousand bankruptcy petitions against citizens3. Arbitration courts are already considering bankruptcy cases of well-known public citizens, in particular, big businessmen and public figures (for example, the following cases: cases A56-71378 / 2015, A41-94274 / 2015, A05-1077 / 2017). Table 2: Information on the Number of Bankruptcy Petitions Submitted to Arbitration Courts Against Debtor Individuals in the Period from the First Half of 1014 to the First Half of 2017 (According to the Data of the Supreme Court of the Russian Federation)4 Year \ Indicator name 2014 2015 2016 1st half-year of 2017

Arbitration courts received bankruptcy petitions against: Citizens individual entrepreneurs 90 4,062 6,082 4,422 28,911 3,419 16,227 1,692

During the time of its operation, the bankruptcy institute consistently developed, and the practice of its application expanded. On October 13, 2015, The Plenum of the Supreme Court approved resolution No. 45, which clarifies the current issues of the bankruptcy procedure against individual debtors. Data on bankruptcy cases of individuals is posted: in the the Unified Federal Register of Legally Significant Data about the Activity of Legal Entities, Individual Entrepreneurs and Other Subjects of Economic Activity (http://www.fedresurs.ru/); the Unified Federal Register of Data on Bankruptcy (http://bankrot.fedresurs.ru/); in the official printed edition (http://bankruptcy.kommersant.ru/); on the website of the federal arbitration courts of the Russian Federation (http://kad.arbitr.ru/ ). The publicity of the information on bankruptcy cases of debtor citizens enables creditors and other individuals to conduct an analysis of a bankruptcy cases and (or) a bankruptcy (insolvency) petition against an individual.

2

Report on the Work of Arbitration Courts of the Subjects of the Russian Federation on Bankruptcy Cases for 6 Months of 2017. Website of the Judicial Department under the Supreme Court of the Russian Federation.Retrieved from http://www.cdep.ru/index.php?id=79 (Accessed on February 17, 2018). 3 Retrieved from http://eslibankrot.ru/ (Accessed on August 6, 2017). 4 The table is based on the following sources: Report on the Work of Arbitration Courts of the Subjects of the Russian Federation on Bankruptcy Cases for 6 Months of 2017, 2016, 2015, and 2014. Website of the Judicial Department under the Supreme Court of the Russian Federation. Retrieved from http://www.cdep.ru/index.php?id=79 (Accessed on February 17, 2018).

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It is important to note that in recent years, there has been a significant improvement in the quality of information resources, which help to assess a borrower's (an economic agent's) scrupulosity and simultaneously simplifies the assessment process. Such resources include, among others: the Unified State Register of Legal Entities, the Unified State Register of Individual Entrepreneurs (https://egrul.nalog.ru/); the Enforcement Proceedings Database (http://fssprus.ru/iss/ip); the Register of Notices on Pledges of Movable Property (https://www.reestr-zalogov.ru/#/); the Register of Unscrupulous Suppliers (http://zakupki.gov.ru/); service information resources of system creditors; private information resources aggregating information on economic agents (for example, SPARK, Kartoteka.Ru, Bureau van Dijk and others). The availability of the above-listed information resources allows creditors to regulate their activities and approaches to presenting their interests in bankruptcy cases.

The Inadmissibility of the Application of the Bankruptcy Institute by Unscrupulous Economic Agents to Evade Fulfillment of Their Obligations It is inadmissible that the mechanism of bankruptcy be used by debtors, including citizens, for wrongful evasion from fulfilling their financial obligations to creditors. The use of bankruptcy procedures by unscrupulous economic agents to evade fulfillment of their obligations negates the value of the insolvency institute for the national economy. Therefore, it is important to institutionally minimize the possibilities for abuse in the field of bankruptcy. Possible outcomes of bankruptcy proceedings for an individual are as follows: 1) the debt is paid off; 2) the debt is written off; 3) the debt is not written off; 4) part of the debt is not written off. Based on the results of a bankruptcy procedure, a citizen may not be exempted from the fulfillment of all obligations or is not exempted from the fulfillment of individual obligations created in connection with an individual’s unscrupulous (unlawful) economic behavior. The conditions under which a citizen’s exemption from obligations is inadmissible are defined by paragraphs 4-6 of Article 213.28 of the Bankruptcy Law. In the event of a debtor citizen’s unlawful actions (inactivity), the debtor shall not be exempted from debts upon bankruptcy. Such actions include the following: the bankruptcy of a debtor citizen is intentional or fictitious; the citizen did not provide the court with information about their financial status and property; the creditor’s claims are based on obligations that arose due to fraudulent actions by the debtor. In addition, based on the results of the bankruptcy procedure, a citizen cannot be exempted from corporate damage compensation as a result of: attracting a citizen to subsidiary liability as a controlling person; losses caused by a citizen to an organization he managed – deliberately or by gross negligence; having caused losses as a court-appointed manager.

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Similarly, liabilities related to payroll, alimony payments, and damage caused to someone else’s health cannot be written off. In Judicial Practice Review No. 2 (2017) approved on April 26, 2017, the Supreme Court of Russia noted that the rules on unscrupulous citizens’ non-exemption from obligations are aimed at eliminating the possibility of the obtainment of unjust advantages by a debtor and at protecting the interests of debtors. A judicial practice of non-application of the rule on the exemption from obligations is being formed against unscrupulous debtors. Within the framework of Case No. A45-24580/2015, on March 24, 2016 the arbitration court made a decision on the non-exemption of a debtor citizen's debts in connection with the debtor's unscrupulous behavior when obtaining loans. A borrower hid from credit institutions data regarding their financial status and property. In addition, in the case under investigation, the absence of utility payment debts of the debtor citizen in the presence of an apartment (i.e. the citizen did not fulfill their obligations under the loan agreements but fulfilled their obligations to pay utility bills), in conjunction with other circumstances of the bankruptcy case became the basis for the arbitration court's decision on the non-application of the rule on a debtor's exemption from obligations. The validity of the court's decision is affirmed by Ruling No. 304of the Russian Federation of February 02, 2017.

16-19557 of the Supreme Court

Within the framework of Case No A26-687/2016, following the results of the procedure of property realization against a debtor citizen, the arbitration court did not apply the rule on a citizen’s exemption from obligations. The validity of the decision was affirmed by the fact that the debtor debt was formed due to tax evasion during the period of entrepreneurial activity. This circumstance was affirmed by the decision of the Court of General Jurisdiction, which entered into legal force and affirmed that criminal prosecution against a debtor citizen was terminated on non-rehabilitating grounds (expiry of the period of limitation of criminal prosecution). At the same time, the court found that the debtor intentionally evaded payment of taxes from an individual. The legality of a citizen’s non-exemption from debts following the results of the bankruptcy procedure was affirmed by Ruling No. 307- 17-8698 of the Supreme Court of Russia of July 11, 2017. Ruling No. 304- 17-76 of the Supreme Court of the Russian Federation of June 15, 2017 indicated that the refusal to exempt from obligations shall be conditioned by a debtor’s unlawful behavior aimed at willfully evading the fulfillment of their obligations to creditors (concealment of property, hindering the activity of a financial manager, etc.). As part of Bankruptcy Case No A03-23386/2015, the analysis of the debtor’s financial status indicates the absence of deliberate and fictitious bankruptcy. The case materials did not affirm, neither did the courts found any concealment or destruction of the debtor’s property, as well as the report of unreliable information by the debtor to the financial manager or creditor. In contrast, contrary to the findings of the courts of the first, appeal, and cassation instances, the necessary documents and information were provided to conduct bankruptcy procedures against the debtor. These materials include circumstances that led to the debtor’s insolvency (receipt of a consumer loan in the period of having a stable income and impossibility of repaying it after dismissal), data on the sources of subsistence (parents’ pension), as well as statements about taking measures to find a job and spend the salaries received on court costs for the bankruptcy case.

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Taking into account the circumstances of Case No. 03-23386/2015 and the presented proofs, the Supreme Court of Russia released the debtor from further fulfillment of obligations. By the ruling of the arbitration court of November 30, 2016 on Case No. 38-7406/2015, the arbitration court did not exempt the citizen, who owes more than 3.2 million rubles to the Russian Federation and initiated her own bankruptcy procedure was not released, from the fulfillment of obligations on mandatory payments. The arbitration court pointed out that the debtor’s initiation of her own bankruptcy procedure pursued only the goal of releasing herself from obligations. At the same time, the debtor did not take any meaningful actions towards restoring her solvency. The court’s decision on the debtor’s non-exemption from obligations was based on the following relevant circumstances of the bankruptcy case: lack of documentary affirmation of the expenditure of the funds received by the debtor prior the initiation of the bankruptcy procedure; the proceeds received by the debtor prior to bankruptcy were not spent on the coherent fulfillment of obligations to the budget system of the Russian Federation; the long period of time, during which the debtor did not take measures for their own employment, in particular, was not registered with the employment service as a jobseeker; the absence of cash inflows to the bankruptcy estate according to the results of the bankruptcy procedure. In Case No. A48-7405 / 2015, the court found several grounds for not exempting the unscrupulous citizen from debts. First, while carrying out entrepreneurial activities, the debtor deliberately evaded taxes. According to the verdict by the court of general jurisdiction, the citizen was found guilty of the specified crime. Secondly, when receiving the borrowed funds, the debtor misappropriated the credit organization with respect to the actual purpose of receiving the funds. Thirdly, during the procedure of his bankruptcy, the debtor did not fully disclose the information about his incomes to the creditors and the court, despite the fact the he headed two organizations. The legality of the debtor’s non-exemption from debts was established by Ruling No. 31014013 of the Supreme Court of Russia of January 25, 2018.

17-

It is noted in the above-mentioned ruling that debt write-off is an extraordinary mechanism for releasing an individual who is in a difficult financial situation from paying off creditors’ claims. Therefore, strict requirements with respect of scrupulousness are presented to the debtor citizen, which call for fair and transparent cooperation with creditors and financial managers and open communication with the court.

Conclusion The institute of a debtor citizen’s bankruptcy in Russia needs constant improvement with a consideration of the rights and legitimate interests of a debtor and creditors, as well as maintenance of a balance of interests between the indicated persons. Otherwise, the Russian bankruptcy institute will not stand the competition with the bankruptcy institutes of countries with developed law and order. Despite the fact that since October 1, 2015 the intitute of a debtor citizen's bankruptcy affected over 80 thousand individuals, there are a number of institutional barriers that prevent the most effective application of bankruptcy procedures against citizens. Practice evidences that these barriers include attempts of unscrupulous debtors to use bankruptcy procedures to evade fulfillment of their obligations.

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According to the results of this research, based on the results of the bankruptcy procedure, a citizen should not be exempted from debts in the event that obvious abuses are revealed on the part of such a debtor. Moreover, the significance lies not only in the application of the rule of non-exemption from debts based on the results of a bankruptcy procedure but also in the possibility of applying this rule in the event of abuse on the part of a debtor. This is what urges for citizens' conscientious application of the bankruptcy procedure.

References North, D. (1997). Institutions, Institutional Change and Economic Performance. Moscow: Fund of the economic book ''The Elements''. Yevenko, V.V., Soldatenkov, V.Y. (2016). Economic Institutions – an Anchor or a Tug for the Economy? Newsletter of Bryansk State Technical University. 3(51): 270-276. Kuzminov Y., Radaev V., Yakovlev A., Yasin, E.. (2005). Institutions: From Loans to Cultivation. Questions of Economy. 5: 5-27. Biswas, L.C. (2011). Approach of the UK Court in Piercing Corporate Veil. SSRN Electronic Journal. DOI: 10.2139/ssrn.2438217. Gissel, J.L., Giacomino, D., Akers, M.D. (2007). A Review of Bankruptcy Prediction Studies: 1930Present. Journal of Financial Education. 33: 1-42. Jones, G.M., Reed, C., Marks, D. (2008). The Cross-Border Insolvency Regulations 2006: Some Practical Considerations and a Case for Reform Already? Bankruptcy & Restructuring Update. Squire, Sanders & Dempsey L.L.P. Winter 2008/2009: 8-15. Skeel, D.A. Jr. (2009). Bankruptcy Phobia. Temple Law Review. 2(82): 333-351. Xi, C. (2011). Piercing the Corporate Veil in China: How Did We Get There? Journal of Business Law. 5: 413-430. Davis, L., North, D. (1970). Institutional Change and American Economic Growth: A First Step towards a Theory of Institutional Innovation. Journal of Economic History. 30(1): 131-149. DOI: 10.1017/S0022050700078633. Parsons, T. (2002). The Structure of Social Action. 2nd edition. Moscow: Academic Project. Parsons, T. (1945). The Problem of Controlled Institutional Change: An Essay in Applied Social Science. Psychiatry. 8: 79-101. Parsons, T. (1951). The Social System. New York: The Free Press. Parsons, T. (1996). A Behavioristic Concept of the Nature of Morals. The American Sociologist. 4(27): 24-37. Merton, R. (2006). Social Theory and Social Structure. Moscow: AST: AST MOSCOW: Khranitel. Merton, R. (1936). The Unanticipated Consequences of Purposive Social Action. American Sociological Review. 1(6): 894-904. DOI: 10.2307/2084615. Merton, R. (1938). Social Structure and Anomie. American Sociological Review. 3(5): 672-682. DOI: 10.2307/2084686. Polterovich, V.M. (2014). Industrial Policy: Recipes or Institutes? Journal of the New Economic Association. 2(22): 190-195. Soldatenkov, V.Y. (2012). Bankruptcy of Individuals: Realities of the Near Future. Tax Policy and Practice. 8(116): 28-31.

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The Relationship between CO2emissions and Military Effort Ben Afia Neila 1 Faculté des sciences économiques et de Gestion de Sousse (Tunisie) Harbi Sana 2 Institut Supérieur de Fiscalité et de Finance de Sousse (Tunisie)

Abstract In this paper, we study the relationship between pollution and military expenditure. A distinction is drawn between the indirect and direct impact of military expenditure on pollution which operates through the impact of military expenditure on income and the resultant impact of income on pollution. Using data of 120 countries covering the period 1980–2015, both indirect and direct effects of military expenditure on air pollution emissions are estimated. The results show that the military expenditure is estimated to have a positive direct effect on per capita emissions. Indirect effect is found to be positive, the total effect of military expenditure on emissions is positive.

Keywords: pollution, military effort, income and panel data. Introduction The relationship between environment and growth is a conventional theme in economics ,Stern (2004) ; Dinda (2004) and Dasgupta et al (2002) so is the relationship between military effort and growth, Dunne and Birdi, (2001); Dimitraki and Menla (2015); Dunne (2010). However, there is almost no study that addresses the possible interactions between military effort , environment and growth. Although remarkable are the merits of the contributions proposed within these separate lines of studies, we argue that they don’t get grip on all the aspects of military effort. This lack of connection in research leaves many empty spaces between these different aspects, yet closely interacted. This article intends to contribute to fill this gap. The purpose of this paper is to provide a rigorous examination of the links between pollution, military effort and growth. From this perspective, we argue that there are two mechanisms through which military effort, measured here through military expenditure, may impact pollution. The first is a direct mechanism through which military expenditure directly impacts the pollution. The second is the "indirect" mechanism by which military expenditure affects income which in turn impacts pollution. We assert that the total effect of military expenditure on pollution is the result of these two effects. As far as we know, prior contributions have neglected this indirect effect, which might significantly affect pollution. To empirically investigate these direct and indirect effects of military expenditure on pollution, we use a sample of 120 countries covering the period 1981 to 2015. The remainder of the paper is organized as follows; section 2 examines the previous, literature, section 3 outlines the methodology used within this paper. Section 4 provides the results, and section 5 provides the conclusion.

Email: [email protected]

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The Literature Review While the empirical studies on the relationship between environment and military effort are very limited, studies on the relationship between economic growth and military effort abound. Table 1 provides the main contributions related to the relationship between military effort and economic growth. Table 1: Effects of military expenditure on economic growth authors

Research question

Results

Aamer S. Abu-Qarn and Suleiman Abu Bader (2003)

Government spending causes economic growth or economic growth causes government spending in Israel, Syria and Egypt?

Existence of a bi-directional causality from government expenditure and economic growth with a negative long-term relationship between the variables .

Faek Menla Ali and Ourania Dimitraki and (2015)

military spending causes economic growth or economic growth causes military spending in China over the period 1952– 2010?

The economic power represented by the GDP drives any increases in military spending and not vice versa. A possible explanation for the result is that the increase in the military spending has been rapid primarily as a result of the country’s economic development.

Luca Pieroni (2007)

The relationship between military spending and economic growth?

For the first group (high military expenditure level) the author find a negative relationship between the share of military spending and economic growth. By contrast, countries with lower military burden show an insignificant relationship between economic growth and military burden.

J. Paul Dunne (2010)

Military expenditure causes economic growth or economic growth causes military expenditure in Sub Saharan Africa (SSA) (1988-2006)?

An unequivocal negative impacts of military expenditure on economic growth for SSA.

The Effects of Economic Growth on Environment A large body of literature posits a link between pollution and economic growth. The seminal work of Krueger’s and Grossman (1991) detected the relationship known as the Environmental Kuznets Curve (EKC). Table 2 examines the relation between pollution and economic growth.

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Table 2: Effects of growth on pollution authors

Research question

Results

Dipankor Coondoo Soumyananda Dinda(2002)

Does Economic growth causes the emission of CO2 or emission of CO2 causes economic growth from 1960 to 1990)?

The existence of a bi-directional causal relationship between CO2 emissions and GDP for America, Africa and Europe.

CO2 emissions causes economic growth or economic growth causes the emission of CO2?

The economic growth has a negative effect on emissions of CO2.

James B and Ang (2008)

Emissions of CO2 cause economic growth or economic growth cause the emission of CO2 in Malaysia?

Emissions of CO2 cause economic growth in long-term.

Hsiao-Tien Tsai(2010)

The type of causality between economic growth, emissions of CO2 and consumption of energy in BRIC countries over the period 1971-2005 ?

The panel causality results indicate there are emissions- energy consumption bidirectional strong causality and output -energy consumption bidirectional long-run causality, along with unidirectional both strong and short-run causalities from emissions of CO2 and consumption of energy, respectively, to output.

The type of causality between economic growth and emission of CO2 in the world?

Three different types of causality for different country groups. For the developed country groups of Western Europe and North America, the causality is found to run from emission of CO2 to income. For the country groups of South and Central America, Japan and Oceania causality from income to CO2emissions is obtained. Finally, for the country groups of Africa and Asia, the relationship of causality is bi-directional.

Nguyen Van Phu Azomahou (2001)

and

Théophile

Pao and Chung-Ming

Coondoo and Dinda (2002)

Methodology and data Econometrically, the use of the multivariate cointegration is much recommended since it offers the opportunity to verify the existence of the relationship and the sense of causality among variables. It presents an extremely powerful empirical framework to deal with the issue raised in this paper. In this study we will study the relationship between military expenditure and CO2emissions and to specify the direct and indirect effect of military expenditure on the emissions of CO2.

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Data The data sample includes 4200 observations describing 120 different countries covering 35 years (from 1981 to 2015). We have used these countries because they have a complete data for military expenditure variable and CO2emissions. The indicator of military endeavour is used in this paper is the military expenditure per capita ( MILexp). Biswas and Ram (1986); Deger and Sen (1983); Faini Annez and Taylor (1984) and Leontief and Duchin (1983) used the military expenditure variable to study the link between military effort and economic growth .

The Empirical Strategy Presentation of the Model To handle both the indirect and direct effects of the military expenditure on pollution, we use the joint estimation of two equations. Estimation equations are defined as:

ECO 2 it = γ i + κ t + α1 Yit + α 2 (Yit ) 2 + α 3 MIL + α 4 Z it + µ it

Yit = λ i + τ t + β1 X it + β 2 MIL + ε it

(1)

(2)

Where subscripts i and t denote country and year. In eq (1) emissions of CO2 per capita (ECO2) as a function of per capita income (GDP) and a quadratic income. Equation (1) also includes Z, a vector of additional explanatory variables. These include the share of exportation in GDP and the share of industry in GDP. Finally, i and t represent country and year specific effects, and it and it denote error terms. Eq. (2) expresses per capita income as a function of year and country specific effects ( t and i), military expenditure (MILexp) and X, a vector of other explanatory variables.

Instrumental variables In equation (2) income is a function of military expenditure is itself likely to be a function of income; consequently this equation may suffer from a problem of endogeneity. To deal with this potential endogeneity, in this equation MILexp is instrumented. The instrumental variable solution is to find another variable, this variable is highly correlated with MILexp ,and not correlated with the error term .We use the Human Development Index. Table 3: presents the descriptive statistics of these variables

Table3: Definition of the variables and descriptive statistics Variable (abbreviation) Mean Std. Dev Min CO2 emissions per capita(ECO2) 0.900 1.505 -3.218 Military expenditure per capita in armed conflict 4.039 1.699 0.120 (MILexp) Gross Domestic Product per capita (GDP) 8.016 1.555 5.225 Gross capital formation (GCF) 23.226 2.079 18.561 exports of goods and services (EXP) 3.536 0.574 1.638 Inflation rate (INF) 1.562 1.309 -3.912 Annual growth of population (POPgr) 1.340 1.269 -3.820 share of industry in GDP (ind sh) 3.420 0.314 2.197 Human Development Index(HDI) -0.403 0.282 -2.134

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Max 3.529 10.084 10.940 28.621 5.455 10.102 13.180 4.343 -0.030


Identifying the effect of the military expenditure on pollution The total effect of military expenditure per capita on emissions of CO2 (dECO2/ dMILexp) decomposes into a direct and an indirect effect. The direct effect is defined as the impact of military expenditure on emissions of CO2. The indirect effect is expressed as the product of the impact of military expenditure on income ( Y/ MILexp) and the impact of income on emissions of CO2 ( ECO2/ Y). These effects can be expressed as: (3) Where ECO2, Y and MILexp denote emissions of CO2, income and military expenditure, respectively

Empirical Results Estimation Results Table 4 provides estimates of per capita income equation. Table 4: The impact of military expenditure per capita on per capita income. exogenous MILexp 0.116* (0.0079) -0.022* (0.001) 0.231* (0.001) -0.004** (0.017) 0.191* (0.011) within = 0.660 between = 0.857

MILexp POP gr GCF INFL EXP R²

(Y1)

(Y2)

(Y3)

(Y4)

0.900* (0.057) -0.166* (0.569) -0.032 (0.360) 0.016 (0.329) 0.0962 (0.080) within = 0.028 between = 0.864

1.012* (0.496) -0.159* (0.057) -0.050 (0.033) 0.0109 (0.033)

0.890* (0.042) -0.166* (0.050) -0.029 (0.025)

0.893* (0.027) -0.160* (0.046)

within = 0.011 between=0.857

within = 0.0540 between = 0.899

within = 0.070 between = 0.866

F-test on IVs

1439.200 1320.09 1589.20 1739.00 (0.000) (0.000) (0.000) (0.000) endog 618.00 588.01 706.12 1395.98 (0.000) (0.000) (0.000) (0.000) In the first column military expenditure is treated as being exogenous with regard to income and is therefore not instrumented. In models Y1 to Y4 Military expenditure is instrumented using 2SLS. All models use a random effects specification.* and ** denote significance at 5% and 10% respectively.

Table 4 provides estimates of per capita income equation. In the first column, MIL is treated as being exogenous with regard to income is not instrumented, but in all subsequent columns MIL is instrumented. Model (Y4) begins by expressing per capita income simply as a function of population growth and militaryexpenditure . Models (Y1) to (Y3) include explanatory variables used by many studies (Levine and Zervos (1993); Mankiw et al (1992) and Levine and Renelt (1992)).These variables are the population growth rate (POPgr), the rate of inflation (INFL), and the share of exports in GDP.

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In Table 4, Military expenditure is found to have a statistically positive impact on income in all models. This result is justified by (Benoit,1973) but contradicts with other contributions (Leontief and Dutchin(1983); Deger and Sen (1983) and Taylor et al (1984)). The correlation between MILexp and the instrument (IDH) is high whereas the correlation between the residuals of the model (Y1) and the instrument is very low (See table A2). The first stage regression results validate the use of variables “IDH” as instruments(See table A3) . The obtained F value is high and the first stage estimates are significant (see Table A3). This gives extra support to the validity of the instrument (IDH). Table 5: Estimates of per capita pollution emissions based on model (Y1) (Y1a) (Y1b) 0.446* 0.521* MILexp (0.027) (0.025) 0.401* 0.523* GDP (0.025) (0.024) -0.003 -0.006 GDP² (0.008) (0.024) 0.189* Pind sh (0.039) 0.137* EXP (0.024) within =0.2401 within 0.2031 R² between=0.763 between=0.713 103.33 150.81 Hausman FE.v.RE (0.000) (0.000) Standard errors in parentheses.* denotes significance at 5% respectively. All models use a fixed effect. Table 5 provides estimates of per capita CO2 emissions, utilizing the results of the ‘full’ income models (Y1) (see table3). A ‘basic’ equation is estimated (models Y1b) where pollution is expressed simply as a function of per capita income and military expenditure . In all models MILexp has a positive and statistically significant effect on emissions of CO2. Industry share (INDsh) and export of goods and services (EXP) are found to be positive, significant determinants of pollutant emission. In this direction, Managi (2004) shows that trade liberalization causes the increase emissions of CO2. In the same context, Tubb and Magnani (2007) and Cole (2004) argue that trade affects negatively emissions of many pollutants (CO2, SO2, NO2 etc...) in OECD countries. It is now possible to quantify the impact of military expenditure on emissions of CO2. Firstly, Table 6 provides the indirect, direct and total effect of military expenditure on pollution for each of the two models presented in Table 5.

Pollutant Model dECO2/dMILexp

Table 6:The impact of military expenditure on pollution ECO2/ MILexp ECO2/ Y Y/ MILexp

Direct effect

Indirect effect

(Y1a)

0.446

0.360

Total effect 0.8069

(Y1b)

0.521

0.4707

0.9917

Table 6 indicates a positive direct impact of military expenditure on emissions of CO2. For emissions of CO2, the indirect effect is positive, providing a positive total effect.

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This positive sign of indirect effect reflects the same sign of the relationship between income and emissions of CO2 income ( ECO2/ Y) and the relationship between income and military expenditure ( Y/ MILexp). Consequently, a military expenditure - induced reduction in income leads to a reduction in emissions of CO2 and vice versa.

Discussions and conclusions The aim of this paper is to study the relationship between emissions of CO2 and military endeavor with a detailed empirical examination. Empirical results show that military expenditure has a positive indirect and direct effect on per capita CO2emissions. This positive linkage between the two variables was found to increase statistical significance when military endeavor was instrumented as a determinant of income. A direct consequence of our results is that a reduction of military endeavor entails a reduction of emissions of CO2 and vice versa.

Appendix Table A1 : Data Information VARIABLE

DEFINITION

SOURCE

GCF

Gross capital formation (% of GDP).

World Bank

GDP

Gross Domestic Product per capita ($US constant 2000.

World Bank

ECO2

CO2 emissions per capita,.

World Bank

MILexp

Military expenditures per capita .

World Bank

IND sh

share of industry in GDP.

World bank

INFL

Inflation rate (annual%),.

World Bank

EXP

The share of exports of goods and services in GDP. Annual growth of population (% of total population)

World Bank

Human Development Index.

World Bank

POPgr

Human Development Index

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World Bank


MILexp Eco2 GDP EXP IND sh GCF POPgr INFL HDI LE

MILexp 1.00 0.82 0.91 0.22 0.13 0.63 -0.31 -0.43 0.77 0.70

Eco2

GDP

EXP

IND sh

GCF

POPgr

INFL

HDI

LE

1.00 0.84 0.36 0.27 0.62 -0.50 -0.27 0.82 0.74

1.00 0.25 0.03 0.66 -0.36 -0.45 0.82 0.74

1.00 0.31 -0.10 -0.10 -0.05 0.22 0.17

1.00 0.13 -0.04 0.09 0.11 0.03

1.00 -0.31 -0.33 0.60 0.62

1.00 0.04 -0.50 -0.51

1.00 -0.38 -0.38

1.00 0.85

1.00

Table A3: First stage estimations of military expenditure

(Y1) 3.700* (0.325)

(Y2) 4.606* (0. 235)

(Y3) 4.340 * (0.186)

(Y4) 4.479 * (0.169)

EXP

0. 09O * (0.103)

0.105* (0.033)

-0.130 (0.101)

-0.080 (0.093)

INF

-0.080 * (0.050) -0.016** (0.007)

-0.023* (0.007) -0.0079 (0.0081)

-0.104 * (0.040)

669 (0.000)

673 (0.000)

HDI

POP gr

GCF

0.152 (0.040)*

F

670 (0.000)

775 (0.000)

Standard errors in parentheses. *and **denote significance at 5% and 10%, respectively.

References [1] Abu-Bader, S and Abu-Qarn A.S. (2003) ‘Government Expenditures, Military Spending and Economic Growth: Causality Evidence from Egypt, Israel and Syria,’ Policy Modeling 25 (6-7),567583. [2] Ang, James.B. (2008) ‘What are the mechanisms linking financial development and economic growth in Malaysia,’ Economic Modelling, 25(1), 38-53. [3] Azomahou, T ; Laisney, F and Van Phu, N. (2006) ‘ Economic Development and CO2 emissions: a nonparametric panel approach,’ Journal of Public Economics, 90,1347-1363. [4] Azomahou, T and Nguyen, V.Ph. (2001) ‘Economic growth and CO2 emissions: A non parametric approach’, CORE Discussion Papers Series No.2001012, Université Catholique de Louvain, Center for Operations Research and Econometrics (CORE). [5] Benoit, E. (1973) Defense Spending and Economic Growth in Developing Countries, Lexington: Lexington Books . [6] Benoit, E. (1978) ‘Growth and Defense Spending in Developing Countries,’ Economic Development and Cultural Change, 26 (2), 271-280.

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[7] Birdi, A and Dunne, P. (2001) ‘An Econometric Analysis of Military Spending and Economic Growth in South Africa,’ Middlesex University Business School (2001). [8] Biswas, B. and Ram, R. (1986) ‘Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence,’ Economic Development and Cultural Change, 34(2), 361–372. [9] Cole, MA. (2004) ‘Trade, the pollution haven hypothesis and the environmental Kuznets curve: examining the linkages,’ Ecological Economics, 48(1),71-81. [10] Cole, MA. (2007) ‘Corruption, Income and the Environment: An Empirical Analysis,’ Ecological Economics, 62(3),637-647. [11] Coondoo, D and Dinda, S. (2002) ‘Causality between income and emission: a country groupspecific econometric analysis,’ Ecological Economics, 40(3), 351-367. [12] Coondoo, D and Dinda, S. ‘2006) ‘Income and emission: A panel data-based cointegration analysis,’Ecological Economics, Elsevier, 57(2), 167-181. [13] Dasgupta, S ; Laplante, B ;Wang, H and Wheeler, D. (2002) ‘Confronting the environmental Kuznets curve,’ Economic Perspectives,16(1) ,147-168. [14] Deger, S and Sen S. (1983) ‘Military Expenditure, Spin-off and Economic Development,’ Development Economics, 13(1-2), 67-83. [15] Dimitrakiand,O and Menla Ali, F. (2015) ‘The Long-run Causal Relationship Between Military Expenditure and Economic Growth in China,’ Defence and Peace Economics,26(3), 311-326. [16] Dinda, S and Coondoo, D. (2002) ‘Income and Emission: A Panel Data based Cointegration Analysis,’ Ecological Economics, 57 (2), 167-181. [17] Dinda, S. (2004) ‘Environmental Kuznets curve hypothesis: a survey,’ Ecological Economics, 49(4), 431–455. [18] Dunne , J.P. (2010) ‘Military Spending and Economic Growth in Sub Saharan Africa’ School of Economics, University of the West of England, Bristol BS16 1QY, UK and SALDRU, University of Cape Town(2010). [19] Fiani, R ; Annez, P and Taylor, L. (1984) ‘Defense Spending, Economic Structure and Growth: Evidence among Countries and Over Time,’ Economic Development and Cultural Change, 32(3), 487-498. [20] Grossman, G.M and Krueger ,A.B . (1991) ‘ Environmental Impacts of North American Free Trade Agreement’, Working Paper Series No. 3914, national Bureau of Economic Research,USA . [21] Leontief, W and Duchin, F. (1983) ‘Military Spending: Facts and Figures, Worldwide Implications and Future Outlook’, New York: Oxford University Press. [22] Levine, R and Renelt, D. (1992) ‘A sensitivity analysis of cross-country growth regressions,’ American Economic Review, 82(4), 942 -963. [23] Levine, R and Zervos, S.J. (1993) ‘What we have learned about policy and growth from crosscountry regressions?’ American Economic Review Papers and Proceedings, 83(2), 426- 430 [24] Magnani, E and Tubb, A. (2007) ‘ The Link Between Economic Growth and Environmental Quality: Does Population Ageing Matter?’, Discussion Paper No. 12 , School of Economics, Australia (2007). [25] Managi, S. (2004) ‘Trade Liberalization and the Environment: Carbon Dioxide for 19601999,’Economics Bulletin, 17 (1), 1-5. [26] Mankiw, N.G, Romer, D and Weil, D.N. (1992) ‘A contribution to the empirics of economic growth,’Quarterly Journal of Economics, 107(2), 407-437. [27] Pao, H and Tsai, C. (2010) ‘CO2 emissions, energy consumption and economic growth in BRIC countries,’ Energy Policy, 38(12), 7850-7860. [28] Pieroni ,L. (2007) ‘Military Spending and Economic Growth’, Working Papers Series No. 0708, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol [29] Stern, D. (2007) ‘The rise and fall of the environmental kuznets curve,’ World Development, 32(8), 1419-1439. [30] Welsch, H. (2004) ‘Corruption, growth and the environment: a cross-country analysis,’ Environment and Development Economics, 9(5), 663–693.

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La Confiance Initiale, Variable D’internationalisation De La Marque De La Coopérative Marocaine Ghilane Hind Université Mohammed V de Rabat, Maroc, [email protected] Aomari Amina Université Mohammed V de Rabat, Maroc, [email protected]

Résumé La coopérative joue un rôle économique et social important aussi bien sur le marché local qu’international. Cependant, le volet marketing ou encore le volet marque de la coopérative demeure peu discuté. Ainsi donc, à travers le présent travail, nous menons une étude exploratoire spécifique au secteur des produits de terroir pour comprendre le raisonnement de la coopérative marocaine quant à l’internationalisation de sa marque. L’étude a porté sur un échantillon de trente coopératives répartis sur les douze régions du Maroc en se basant sur la méthode des quotas. Deux grands axes ont été développés lors de l’exploration à savoir le marketing mix et les valeurs de marque liées à la coopérative dans un contexte d’internationalisation. Les résultats ont montré que les variables développées dans le cadre de la stratégie de marque de la coopérative par la littérature et celles relevées de l’étude exploratoire convergent vers la notion de la confiance et plus particulièrement la confiance initiale. Cette dernière es donc considérée comme un facteur clé de l’internationalisation de la marque de la coopérative marocaine spécialisée dans les produits de terroir.

Mots clés : Marque coopérative, marketing de coopérative, confiance initiale, internationalisation de marque.

Introduction « Les coopératives, des entreprises pour un monde meilleur », telle était la déclaration des Nations Unies dans leur vision de faire de l’année 2012, l’année internationale des coopératives selon l'organisation des nations unies (2012). La coopérative selon l’Alliance Coopérative Internationale (ACI), est définie comme: , « une association autonome de personnes volontairement réunies pour satisfaire leurs aspirations et besoins économiques, sociaux et culturels communs au moyen d’une entreprise dont la propriété est collective et où le pouvoir est exercé démocratiquement ». La combinaison entre le volet ‘association’ et ‘entreprise’ renvoie vers la notion de la coopérative hybride (Prévost, 2001). Les coopératives sont des acteurs aussi dynamiques que les entreprises et les autres structures. Elles interagissent dans un même environnement. Autrement dit, ce qui impacte l’entreprise impactera également la coopérative et ce aussi bien sur le marché local qu’international. Selon Errasti, Heras, Bakaikoa & Elgoibar (2003), les coopératives ne sont pas séparées du phénomène de mondialisation des marchés et de la concurrence. La coopérative devra donc s’orienter vers une approche mercatique et développer un avantage concurrentiel inimitable tel que la marque pour assurer un bon positionnement et se distinguer sur le marché. La culture de la consommation de sens commence à devenir de plus en plus étendue, Ghilane, Elyamani, et Aomari (2017). Dans ce contexte, les consommateurs s’orientent vers la consommation de sens pour satisfaire leurs besoins physiologiques, psychologiques et sociologiques, Ghilane & Aomari (2016) et ce en puisant des valeurs et messages de marque.

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Ainsi, dans le cadre des relations ‘marque – consommateur’’ dans un contexte d’internationalisation, la notion de la confiance, et principalement la confiance initiale, intervient comme une pièce motrice pour guider les rapports futurs que le consommateur peut entretenir avec une marque. D’après Errasti, Heras, Bakaikoa & Elgoibar (2003), le facteur clé de succès pour l'internationalisation des services est de convaincre les clients sur le marché local de faire confiance au nouveau fournisseur. Cependant, dans quelle mesure la confiance initiale est déployée dans l’internationalisation des produits et principalement les produits de terroir des coopératives marocaines ?

La Coopérative Dans Un Contexte D’internationalisation Dans une perspective globale, l’internationalisation de la coopérative constitue un frein par rapport à l’internationalisation de l’entreprise. Ce frein réside dans la divergence des finalités des deux acteurs, la coopérative qui cherche la valorisation du produit, et l’entreprise qui cherche à maximiser le profit. Cette divergence d’objectif rend l’internationalisation plus facile dans le cas de l’entreprise par rapport aux coopératives. Les motivations et les modes d’internationalisation ne sont pas de même nature et de même degré pour les coopératives et les entreprises. L’essentiel de l’explication réside dans la différence de facteur risque de la société mère, pour l’une le produit, pour l’autre le capital, Mauget (2005). Si l’avantage de l’internationalisation chez l’entreprise est lié à des raisons de rentabilité, d’acquisition de marchés, pour la coopérative l’avantage est d’assurer la pérennité et l’augmentation de ses « droits à produire » et de son revenu, Mauget (2005). Le sujet de l’internationalisation des coopératives a été abordé par Cook et Iliopoulos (1999). Ces derniers, suite à une étude, attestent que les agriculteurs et leurs coopératives privilégient d’abord l’exportation des produits des adhérents comme mode d’internationalisation, ensuite les investissements en bureau ou filiale commerciale à l’international pour exporter leurs produits, la franchise, l’exportation de savoir-faire dans les cas où la coopérative a une avance technologique, et finalement les implantations industrielles (IDE). Dans le même cadre, selon une étude menée par Frey et Mauget (2010) qui porte sur l’étude de 30 coopératives européennes présentes sur les marchés étrangers, le mode d’internationalisation le plus utilisé, est relatif à l’exportation des produits des adhérents, les investissements ou la création de filiales à l’international, la mise en place de franchises et enfin les implantations industrielles à l’étranger. Dans le cas des deux études, l’exportation est le mode d’internationalisation le plus utilisé par la coopérative.

L’approche Mercatique De La Coopérative Pour de nombreuses coopératives, il y a eu une reconnaissance tardive de la nécessité d'investir dans le marketing et de briser le cycle de la commodité, Beverland, 2005a, Edwards et Shultz (2005). Le marketing en général tel qu’il est présenté, ne diffère pas d’une structure à une autre. Le principe et l’objectif restent les mêmes, cependant une adaptation s’avère indispensable en fonction de l’environnement où la structure exerce. Dans le cadre de la coopérative, Boisvert (1981), avance une définition relative au marketing des coopératives, et le présente comme un équilibrage qui doit se faire entre deux objectifs, un à propos de la raison d’être de la coopérative et un à propos de la dimension économique. La coopérative doit ainsi satisfaire d’une part ses membres internes mais aussi le consommateur et donc le marché pour une survie et une pérennité.

Politique Produit Pour le cas de la coopérative perçue sous l’approche hybride, le marketing doit être cohérent avec les objectifs sociaux mais aussi économiques. Le produit doit répondre aux besoins des parties prenantes, y compris les membres et les consommateurs qui expriment le besoin d'informations sur l'origine des produits, le processus de production et la traçabilité, Rastoin (2004).

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Aussi, dans le marketing adapté à la coopérative, la politique produit doit mettre en valeur l’originalité, la typicité, et l’authenticité de ses produits, tout en mettant le point sur l’aspect lié à l’innovation pour ancrer le produit dans l’authentique, Fort (2006). C’est donc un processus de réflexion qui doit se faire d’une manière globale, pour tenir compte de toutes les particularités de la coopérative et garder la cohérence et l’équilibre entre ces deux objectifs principaux.

Politique Prix Un des autres objectifs du marketing mix est de parvenir à fixer le juste prix qui va garantir d’une part la rentabilité pour l’entreprise et la satisfaction du marché. La politique prix dans sa globalité doit être cohérente avec le positionnement du produit et son image de marque. En ce qui concerne la coopérative, le principe de la stratégie de prix et la finalité derrière restent identiques. Cependant, cette dernière doit s'adapter au principe du commerce équitable (Grandval Soparnot, 2005). La politique prix devra répondre aux objectifs sociaux mais aussi économiques grâce à une rémunération correcte et satisfaisante des producteurs locaux pour améliorer les conditions de vie des producteurs, Capron, Quairel, (2002). Ainsi, il ressort de cette définition le respect du principe du système hybride en assurant le bon équilibre entre la finalité économique et sociale en appliquant le « juste prix » qui va assurer la bonne rémunération des membres de la coopérative et la satisfaction du client.

Politique Distribution La politique de distribution consiste à identifier les circuits de vente les plus adaptés pour commercialiser un produit ou un service. En général, elle doit concilier entre le facteur temporel et géographique pour acheminer le produit à sa destination finale avec les meilleures conditions. Dans le cas de la coopérative, la gestion de la distribution des produits est assez complexe compte tenue de la particularité de transport et de conservation de certains produits. Pour les canaux de distribution, selon Attouch (2014), la coopérative a la possibilité de vendre dans ses propre locaux, ou vendre sur les salons et foires et les marchés équitables, ou par le biais d’un intermédiaire en évitant la sous intermédiation en ayant recours à la livraison directe aux détaillants via des représentations locales ou des grossistes ou commercialisation auprès des grandes surfaces, ou encore le recours aux circuits spécialisés à savoir les magasins spécialisés dans la vente des produits équitables, par correspondance et par internet, Pedregal (2007).

Politique Communication La coopérative dispose de certaines particularités relatives au respect de l’aspect environnemental à travers la consommation bio, la protection du patrimoine national …. De ce fait, la stratégie de communication à adopter doit tenir compte de ces spécificités pour une homogénéité du discours, on parle donc d’une communication sociale. Selon Parguel (2010), la communication sociale est l'ensemble des actions de communication qui visent à fournir des informations sur les engagements environnementaux et sociaux d'une organisation (société, marque, etc.). Cette communication engage plusieurs parties prenantes, à savoir le monde de la politique, les médias, les groupes environnementaux, les associations professionnelles et les associations de consommateurs (Benoit Moreau, al., 2010). En parallèle avec la communication sociale, la coopérative doit personnaliser ses messages pour se différencier en communiquant sur ses propres valeurs. Selon Gouin et Perraud (2008) la communication dans la coopérative spécialisée dans la production de produits locaux devrait se concentrer sur l'identité (origine, qualité) en s'appuyant sur les éléments

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suivants : Authenticité, éthique, société ; Origine : coopérative ; L'artisanat ; Produits de positionnement : label ; Produits locaux ; Qualités naturelles ou nutritionnelles. Les coopératives développent des produits assez spécifiques issus du territoire local ayant des avantages d’ordre écologique. De ce fait, la communication doit porter sur les bienfaits des produits aux clients ciblés. L’entreprise coopérative se doit être éthique et à l’écoute de son marché. En outre, ils doivent renforcer leurs relations avec divers acteurs internes (avec les membres) et externes (avec le marché cible) (Louppe, 2006). Tableau 1 : Synthèse des éléments du marketing mix de la coopérative

MARKETING MIX

Auteurs Rastoin (2004)

Constat Le consommateur a plus d’information sur l’origine des produits, le processus de production et la traçabilité Fort (2006) La politique produit de la coopérative doit mettre en valeur l’originalité, typicité, et authenticité de ses produits Perraud et La communication dans la coopérative spécialisée dans la production des produits locaux devrait se Gouin concentrer sur l’identité (Origine et qualité) (2008) Bobot (2010)

Conclusion Le produit repose sur l’origine, production et traçabilité Le produit doit être original, typique et authentique L’origine et la qualité sont la base de la communication des produits locaux La stratégie d’exportation de produit est en L’exportation est le mode cohérence avec la finalité de la coopérative qui doit d’internationalisation le écouler et valoriser les produits de ses adhérents plus utilisé

Source : Réalisé par l’auteur

Stratégie De Marque De La Coopérative Une communication ne peut être développée sans une identification préalable de la stratégie de marque qui regroupe l’ensemble des valeurs des produits. Beverland (2007), atteste que la recherche sur le repositionnement des produits en tant que marque reste rare et à ce jour-là, la recherche a été silencieuse sur l’efficacité des coopératives agricoles dans le développement de programme de marque orienté sur le marché. Ainsi, dans le but d’explorer la capacité des coopératives à mettre en œuvre des programmes de marketing de marque, Beverland (2007) a conduit une étude qualitative qui a porté sur un échantillon de cinq coopératives sur le territoire de la nouvelle Zélande. Les résultats de l’étude ont affirmé que tous les cas faisant objet d’étude sont passés de l’approche de vente de produits vers l’approche du marketing de marque comme moyen de rendement et de construction d'une forme durable d'avantage concurrentiel. La recherche menée a révélé qu'il existait un désir latent chez les consommateurs et les clients commerciaux pour plus d'investissements dans le marketing, y compris le développement des marques. Pour les consommateurs, les changements dans les modes de vie, les problèmes de santé, les images positives du pays d'origine et les préoccupations environnementales ont permis à chaque responsable de la marque de créer une identité de marque pour la coopérative autour de ces attributs (Beverland, 2007). L'explication finale concerne la nature intégrée des programmes de la marque. Aaker et Joachimsthaler (2000) proposent que le leadership de la marque ne puisse être atteint que grâce à un programme de marketing de marque complet et cohérent. La cohérence peut être obtenue grâce à des communications de marketing intégrées qui garantissent tous les messages délibérés de la marque, quelque soit la source ou le moyen, assurant efficacement une approche «une voix, un regard» (Keller, 2003).

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Tableau 2 : Eléments de la stratégie de marque de la coopérative Constat De récents efforts sont focalisés sur l’amélioration de la qualité comme moyen de différenciation sur le marché Beverland Pour les consommateurs, les changements dans les (2007) modes de vie, les problèmes de santé, les images positives du pays d'origine et les préoccupations environnementales ont permis à chaque responsable de la marque de créer une identité de marque pour la coopérative autour de ces attributs. Source : Réalisé par l’auteur MARQUE

Auteurs Beverland (2007)

Conclusion La qualité, moyen de positionnement Les attributs de la marque doivent répondre aux problèmes de santé, environnements, et du pays d’origine

Méthodologie Dans le cadre des études qualitatives, Pirès (1997) choisit de traiter le processus d’échantillonnage comme étant une opération par laquelle le chercheur décide d’abord de la pertinence de travailler sur un cas unique (acteur, lieu, événement) ou à partir de cas multiples. Les cas multiples, ouvre la voix à deux options, les entrevues ou les études collectives de cas (Stake, 1997). Suite à cela deux enjeux se présentent: celui de la diversification et celui de la saturation. Pour le cas de l’étude exploratoire, nous optons pour la méthode des cas multiples à travers l’établissement d’entrevues. L’échantillon est déterminé selon l’approche de la diversification et de la saturation. Selon Pirès (1997), la diversification peut se faire selon deux formes, selon qu’il s’agisse de la diversification externe/ contraste ou la diversification interne. Partant du principe de la diversification externe, basé sur la détermination d’au moins un représentant ou deux de chaque groupe pertinent au regard de l’objet de l’enquête, nous avons déterminé notre échantillon en cherchant à avoir des représentants des douze régions du royaume pour une représentation et une meilleure exploration du sujet de l’internationalisation de la marque de la coopérative marocaine. L’échantillon s’est arrêté à 30 entrevues selon le principe de la diversification et la saturation sémantique. Au regard de la littérature, l’analyse du contenu des entrevues se fait sur deux étapes, la catégorisation et le codage/ comptage. Selon Bardin (1997), la catégorisation consiste à mettre en place des rubriques ayant un titre commun sous un titre générique. Pour le codage, Robert et Bouillaguet (1997), le présente comme là où on applique les catégories au corpus. De ce fait, et selon cette logique nous avons identifié trois catégories : Les coopératives internationalisées suivant une stratégie réactive ; proactive ; et les coopératives non internationalisées. L’étude a porté sur l’analyse de deux grands axes, un relatif au marketing mix de la coopérative et un relatif à la stratégie de marque en analysant particulièrement les valeurs de marques.

Résultats Et Discussion Les résultats de l’étude montrent que 52% des coopératives interrogées internationalisent leurs produits contre 48% qui se contentent d’exercer sur le marché local. Les motivations d’internationalisation varient d’une coopérative à une autre. La majorité des coopératives s’internationalisent pour répondre à une demande exprimée par les marchés étrangers, on parle donc de stratégie réactive. Et seulement une minorité décide de l’internationalisation selon une approche proactive. Ces résultats impactent également l’avantage attendu de l’internationalisation, qui pour la première catégorie se base sur l’augmentation des ventes, chose qui renforce le constat relevé de la littérature qui défend que l’avantage principal de la coopérative est d’assurer la pérennité et l’augmentation de ses « droits à produire » et de son revenu, Mauget (2005), et la deuxième catégorie, qui cherche à améliorer sa notoriété en plus de l’objectif des ventes. Partant du principe de Weber 1995, l’analyse de contenu est une procédure de réduction des données qui consiste à classifier dans un nombre restreint de catégories un grand nombre de mots et d’expressions.

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C’est dans ce contexte, que nous avons identifié trois catégories distinctes de coopératives pour analyser leur marketing mix à l’international et les valeurs de marques. L’objectif est d’aboutir à une description du contenu des données qualitatives en respectant le caractère de l’objectivité, l’exhaustivité et la quantification, Weber (1985). Tableau 3 : Le marketing de la coopérative marocaine dans le contexte de l’internationalisation

COOPERATIVE NON INTERNATIONALISEE

Valeurs de marque Brand values

Stratégie de produit

Stratégie de communication

Stratégie de prix

Stratégie de distribution

Les types de produits: Safran, Argan, Lavande, Cactus, Miel Daghmos, Menthe et Amande. Stratégie: standardisation des produits en respectant la même qualité. Certaines coopératives appliquent une adaptation au niveau de l'emballage. Les contraintes: la difficulté d'obtention des certificats et labels, les contraintes commerciales et de production limitée. Les conseils: Certification des produits, développer une confiance Types de produits: Miel, Argan, Amelou, Huiles essentielles. Stratégie: Standardisation avec adaptation sur les emballages. Contraintes: la communication, et la majorité atteste ne pas avoir de contraintes. Les conseils: la bonne coordination entre les membres, la qualité du produit, le rapport avec le prix, et les labels La majorité des coopératives envisagent d'internationaliser leurs produits avec une stratégie de standardisation. Actions: faire des efforts sur le produit et aussi l'emballage, sans pour autant négliger les labels.

Certaines coopératives ne disposent d'aucun support de communication, d'autres font une communication traditionnelle qui repose sur le contact des clients pour informer des nouveaux produits, et une minorité dispose de site web et page face book. Disposent de site web et page face book où ils communiquent autour de leurs produits, événements, et actualité. Communication via e-mail.

Le prix est fixé avec l'entreprise importatric e, étant donné que la majorité vend en vrac

La majorité des coopératives ont recours à l'exportation. La distribution se fait selon la demande du marché international

Les principales valeurs de marques présentées tournent autour de la qualité, de la réputation et du made in Maroc

Certaines coopérativ es adaptent leurs prix tenant considérati on des frais d'emballag e

La distribution se fait via commande, certains ont des coopérations avec des entreprises.

Les valeurs de marque : qualité, labels, "promouvoir la femme de la région et exploiter la richesse de la région"; "Le savoir faire des femmes berbères"

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Les coopératives veulent baser leurs valeurs de marque sur le principe de qualité et du Bio

COOPERATIVE INTERNATIONALISEE : Stratégie Proactive

COOPERATIVE INTERNATIONALISEE : Stratégie Réactive

Marketing Mix à l’international

Source : Réalisé par l’auteur

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Dans une approche générale, la coopérative marocaine s’oriente plus vers une approche de production et de vente plutôt qu’une approche mercatique. Cette conclusion s’explique par les réponses présentées par les coopératives interrogées autour du sujet des motivations de l’internationalisation qui revendiquent que 53% s’internationalisent en réponse à une opportunité existante, 40% suite à une stratégie interne, et 7% par des tiers. Le processus d’internationalisation se concrétise par le moyen de l’export, chose qui s’accorde avec les constats de la littérature qui présente l’export comme le moyen le plus utilisé par la coopérative, Mauget (2005), Frey et Mauget (2010), Bobot (2010). Pour la politique de produit, 69% des coopératives qui internationalisent leur production ont recourt à une stratégie de standardisation. En analysant les résultats de l’étude, nous relevons que les coopératives internationalisées sous une approche proactive ont une stratégie marketing et des valeurs de marques plus développées que ceux des coopératives internationalisées sous une approche réactive ou encore les coopératives non internationalisées. Les valeurs de marques développées sont orientées vers les notions de qualité, réputation, labels, et pays d’origine. En étudiant les fréquences des variables citées, la qualité et certification sont citées à une fréquence de 33%, et la variable de qualité à 33% également. Ces conclusions rejoignent les réflexions autour de la littérature de la coopérative qui place l’origine et la qualité comme la base de la communication des produits locaux, Perraud et Gouin (2008). Schéma 1 : Stratégie d’internationalisation de la marque coopérative marocaine ‘Etude exploratoire’

Internationalisation de la Marque de la coopérative

Source : Réalisé par l’auteur Au regard de la littérature et de l’étude exploratoire, les variables telles la réputation, le pays d’origine, les labels et la qualité identifiées convergent vers un même concept qui est la confiance. Dans une définition présentée par Gurviez (2002), la confiance du point de vue du consommateur, est une variable psychologique qui reflète un ensemble de présomptions accumulées quant à la crédibilité, l’intégrité et la bienveillance que le consommateur attribue à la marque. La littérature a largement abordé le sujet de la confiance entre le consommateur et la marque, cependant les auteurs ont développé la notion de la confiance initiale qui est considérée de grande importance dans le cadre de la phase d’établissement de la confiance et principalement pour les structures qui vont vers de nouveaux marchés où les consommateurs n’ont pas d’expérience préalable avec la marque qui est considérée comme étant nouvelle. La confiance initiale a été abordée dans le contexte de l'internationalisation des services Michaelis, Woisetschlager, Backhaus and Dieter Ahlert (2008). Les instruments de marketing tels que les marques, les marques de commerce ou les garanties ont été jugés utiles pour promouvoir la confiance, Schurr et Ozanne, (1985). Nous présentons dans le tableau ci-dessous les variables de la confiance initiale.

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CONFIANCE INITIALE

CONFIANCE

Tableau 5 : synthèse de la littérature de la confiance initiale Auteur

Constat

Conclusion

Géraldine (2009)

La fonction de garantie comme fonction de confiance est liée à la notion du label et de la qualité

Parasurman (1985)

La confiance est source de crédibilité et d’honnêteté qui sont en même temps source de qualité perçue

Sauvce, Valceschini (2003) Gurviez , Ebende kouedi (2013)

Un signal de qualité se présente comme un contrat de confiance

La confiance est liée à la qualité et au label La confiance est liée à la qualité perçue La qualité est signe de confiance

Décomposer la confiance initiale (CI) envers une marque en deux dimensions : la présomption de fiabilité et la présomption d’intégrité de la marque

Composante de la CI : fiabilité et intégrité

Chouk (2005)

Les dimensions crédibilité et intégrité pourraient être prédominantes dans les premières phases de la relation A la phase initiale de la relation, le consommateur se fonde sur des signaux ou des indices dont il dispose pour faire des inférences quant à la fiabilité (trustworthiness) de l’autre partie (la marque)

La CI repose sur la crédibilité et intégrité La CI se base sur les infos collectées : réputation

Zaheer and Zaheer, (2006)

Le pays d’origine influence la confiance

Debruyne (2011)

La certification substitut de la confiance dans l’analyse transactionnelle se positionne comme fondement de confiance dans les compétences de l’organisation à bien mener sa mission : fournir une prestation digne de confiance satisfaisant des critères normaux de performance

La pays d’origine influence la confiance La certification impacte la confiance

McKnight et al, (2002)

Source : Réalisé par l’auteur A comparer avec les résultats de l’étude exploratoire, nous pouvons avancer que la coopérative, pour internationaliser sa marque, se base sur les mêmes variables que celles présentées dans le cadre de la confiance initiale à savoir la réputation, les labels, la qualité et le pays d’origine. C’est dans ce contexte, que la coopérative marocaine des produits terroirs se base sur la confiance initiale, qui est considérée comme étant une étape primordiale préliminaire de la relation entre le consommateur et la marque pour décider de l’internationalisation.

Limites Et Suggestions Le présent travail a porté un éclairage sur le raisonnement de la coopérative marocaine quant au sujet de l’internationalisation de sa marque. Les résultats ont identifié la variable de la confiance et principalement la confiance initiale comme étant une base pour l’internationalisation de la marque de la coopérative de produits de terroir, et ce dans la mesure où la coopérative s’adresse à un nouveau marché où la marque n’est pas connue. Pour améliorer l’étude, il sera intéressant d’étudier les perceptions et les attentes que le consommateur étranger porte au regard de la marque de la coopérative marocaine. Aussi, l’étude exploratoire s’est

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focalisée principalement sur la coopérative marocaine œuvrant dans les produits de terroir, un élargissement de l’échantillon et l’exploration des coopératives situées au-delà du territoire marocain portera une meilleure visibilité.

Bibliographie Attouch, H. (2014), ‘Pratiques du marketing coopératif : cas de la COPAG,’ REMACOOP, 4, ODCO, 6-13. Bennani, B. (2013) ‘Marketing, quelle place dans la gestion des coopératives au Maroc : Cas des coopératives de la région Tensift-Haouz,’ Revue Marocaine de Recherche en Management et Marketing, 8, 171-183. Beverland M. (2007), ‘Can cooperatives brand? Exploring the interplay between cooperative structure and sustained brand marketing success,’ Food Policy, 32 (4), 480–495. Boisvert,J. (1981). ‘Le marketing dans la perspective coopérative,’ La Gestion moderne des coopératives. Chicoutimi, Editions Gaétan Morin, 117-151 Cook, M. and Iliopoulos, C. (1999), ‘Beginning to Inform the Theory of the Cooperative Firm: Emergence of the New Generation Cooperative’ The Finnish Journal of Business Economics, (4), 525535. Dufeu, I. et Ferrandi, J.-M. (2011). Proximité perçue, confiance, satisfaction et engagement des consommateurs dans le cadre d’une économie du lien : les AMAP. 5es Journées de recherche en sciences sociales. AgroSup Dijon, 8-9 décembre. Ebende kouedi, S. et Gurviez , P. (2013), ‘Le rôle de la confiance initiale dans la phase d'établissement de la relation consommateur-marque : proposition d'un cadre conceptuel préliminaire’12ème Congrès International des Tendances du Marketing, Paris, 1-22. Edwards, M.R. and Shultz, C.J. (2005), ‘Reframing agribusiness: moving from farm to market centric,’ Journal of Agribusiness 23 (1), 57–73. Frey, O., Mauget, R. (2012), ‘Stratégies d’internationalisation des coopératives agroalimentaires du top 30 de l’Union Européenne : impact sur le modèle d’affaires, la performance et la gouvernance, in Brassard’, M.-J., Molina, E. (2012). L'étonnant pouvoir des cooperatives. Textes choisis de l'appel international de propositions, Québec, Sommet international des coopératives, 371-387. Géraldine M. (2009) Au cœur de la marque Les clés du management des marques, 2e édition, Etude (broché). Ghilane, H. & Aomari, A. (2016). International brand strategy: Case analysis according to the Moroccan Market. Journal of International Business Research and Marketing, 2(1), 34-40. Ghilane, H., Elyamani, B., et Aomari, A. (2017). ‘The nostalgic brand in service of business competitiveness,’ The Macrotheme Review 6(4) Winter, 70-80 Gouin S. & Perraud, C. (2008).’Coopératives de sel littoral atlantique quelles réflexions stratégiques produits /marché développer face aux perceptions, usages et attitudes des consommateurs,’ Colloque SFER les entreprises coopératives agricoles, mutations et perspectives, atelier E2, Paris. Gurviez P. et Korchia M. (2002), ‘Proposition d’une échelle de mesure multidimensionnelle de la confiance dans la marque,’ Recherches et Applications en Marketing, 17 (3), 41-61.

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Jolibert,A., Jourdan, P. (2011), Marketing Research Méthodes de recherche et d'études en marketing, Collection : Management Sup, Dunod Louppe, A. (2006). ‘Contribution du marketing au développement durable, revue française du marketing, 208, 7-31 Michaelis, M., Woisetschlager, D., Backhaus, C., and Ahlert, D. (2008), ‘The effects of country of origin and corporate reputation on initial trust,’ International Marketing Review, 25 (4), 404-422. Omari, S. and Elkandoussi, F. (2013), ‘The Marketing of Women’s Argan Cooperatives: Challenges and Opportunities,’ International Journal of Business and Social Science, 4 (6), 112-118. Parguel ,B.,2010. ‘La communication sociétale vs communication responsable,’ in Lavorata L, 50 fiches sur le marketing durable, Edition Bréal. Poupart, Deslauriers, Groulx, Laperrière, Mayer, Pires, (1997) La recherche qualitative. Enjeux épistémologiques et méthodologi- ques, pp. 113-169. Première partie : Épistémologie et théorie. Montréal : Gaëtan Mo- rin, Éditeur, 405 pp. Prévost, P. (2001). ‘La formulation de stratégies coopératives et le développement du milieu,’ Sherbrooke, IRECUS, Cahiers de recherche IREC 01 - 08. Sabadie, W. (2001), Contribution à la mesure de la qualité perçue d'un service public, Thèse de doctorat en sciences de gestion, IAE de Toulouse Schurr, Paul H., et Ozanne, Julie L. (1985). ‘Influences on Exchange Processes: Buyers’ Preconceptions of a Seller’s Trustworthiness and Knowledge and Bargaining Toughness,’ Journal of Consumer Research, 939–953. Smaoui, F. (2008), ‘Les déterminants de l’attachement émotionnel à la marque: effet des variables relationnelles et des variables relatives au produit’,Proceedings of the Marketing Trends Congress, 1719. Wanlin,P. (2007), ‘L’analyse de contenu comme méthode d’analyse qualitative d’entretiens : une comparaison entre les traitements manuels et l’utilisation de logiciels’ Actes du colloque, Bilan et prospectives de la recherche qualitative, Recherches qualitatives – Hors série – Numéro 3, ISSN 17158702. Whitelock, J., et Fastoso, F. (2007), ‘Understanding international branding: Defining the domain and reviewing the literature’ International Marketing Review, 24(3), 252–270.

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Fair Value Accounting and Reliability of Accounting Information of Listed Firms in Nigeria Ibidunni Oyebisi, Iyoha Francis, Fakile Samuel, Asiriuwa Osariemen Department of Accounting, Covenant University, Ota-Ogun State, Nigeria

Abstract This study examined the association between Fair Value Accounting and reliability of accounting information. The study adopted the survey research method in addition to also engaging the quantitative approach method. Users of accounting information represented by corporate investment analysts and corporate portfolio managers were the respondents for the purpose of this study. The population size is one hundred and sixty-one (161) users of accounting information decomposed into one hundred (100) Corporate Investment Analysts and sixty-one (61) Corporate Portfolio Managers giving a total of 161. Using a census approach where population size equal sample size, the sample size is 161. The Primary source of data was employed with the structured questionnaire being the instrument used to collect the data. One hypothesis was formulated and this was tested using the Pearson Product Moment Correlation Technique at a significant level of 5% and 10% while the Statistical Package for Social Science (SPSS) was engaged to analyse the data. Findings revealed a significant association between Fair Value Accounting and Reliability of accounting information of Listed Firms in Nigeria. Hence, the study recommended that adequate and regular training programs and conferences on Fair Value Accounting application should be organized for staff of companies.

Keywords: Fair value accounting, historical cost, relevance, reliability Introduction The practice of companies for closing its books of account while preparing and presenting its annual income statement and balance sheet has for several years been done using accounting periodicity. Over the years, organizations came to learn and accept the concept of Historical Cost Accounting which is a traditional system based on the double entry principle that reports transaction cost at the original price. While this method of measuring assets and liabilities in the financial statement has several benefits such as objectivity, reliability and ability to provide conclusive evidence, it has however been criticize on the basis that it fails to account for changes in price level of company’s assets over a period of time, as a result of which assets are presented at prices sometimes lower than the realizable price, thereby leading to a reduction in the reliability and relevance of accounting information. It has also been observed that, it is not a good approach to be used in inflationary market in addition to which it provides information that are only reliable but not relevant to decision making and it provides medium for profit smoothing and gains trading by managers by hiding excess reserves, amongst others (Betakova, Hrazdilova-Bockova and Skoda, 2014). As a result of these drawbacks in Historical Cost Accounting, accounting standard setters in 1980 saw a need for a paradigm shift from Historical Cost Accounting to Fair Value Accounting. This shift was further strengthened by the various financial scandals that rocked some corporations such as Xerox in 2000, Enron in 2001, Worldcom in 2002 and Pamalat in 2003 amongst others (Haldeman, 2006). This shift to Fair Value Accounting was presumed would bring about an improvement over the Historical Cost Accounting as it was believed it will correct the lapses encountered under Historical Cost Accounting. According to IFRS 13, Fair Value is defined “as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. Fair value is expected to provide financial accounting information with high level of decision-usefulness and information relevance of accounting information (Procházka, 2011). It is also expected to eliminate opportunity to take advantage of gain trading and assets securitization with this resulting to an increase in the quality of financial reporting. Of all the benefits derivable from Fair Value Accounting application, one of the perceived advantages is in its potential to reduce the ease of manipulating accounting numbers (CFA, 2007). There has been a major debate between Fair Value Accounting and Historical Cost Accounting has there have been arguments that Historical Cost is more

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reliable and less relevant while Fair Value is more relevant and less reliable. Unfortunately, relevance and reliability of accounting information are the two fundamental qualities of accounting information as revealed in the works of Ojeka, Fakile, Ani-Jesu and Owolabi (2016); Schipper (1989) etc.. Major opponents of Fair Value Accounting have argued overtime that market based values are to a very large extent free from manipulations and as such can be said to be reliable and since fair value makes use of market values, it can therefore be presumed reliable. This means that fair value has the ability to help eliminate any such opportunity available for management to manipulate earnings while historical cost model on the other hand allows firms to prepare and present accounts in such a way that income could easily be managed (Shaffer, 2011). Unfortunately, even though Fair Value Accounting has the ability to eliminate management’s tendency of manipulating earnings, it’s been argued that only level 1 fair value are free from such manipulations (as they are market value of assets and liabilities from an active liquid market). The same cannot be said for Level 2 and 3 Fair values as they are subject to manipulations, estimation errors and miscalculations since they are based on management judgment and model estimation. Fair value accounting would have been reliable and useful for decision making if markets for assets and liabilities were liquid and transparent. Unfortunately because several assets and liabilities do not have an active market, subjective and unreliable inputs and methods (based on management’s judgment) are used to estimate fair value with this leading to tendency of account manipulations (Beis, 2015). As attested to by Emerson, Karim and Rutledge (2010), these manipulation brought about by the use of managerial judgment can result in the effect that Fair Value Accounting was introduced to eliminate. Inspite of the absence of active and liquid market, proponents of Fair Value Accounting believe that Fair Value Accounting is reliable and Historical Cost Accounting can no longer faithfully represent the economic realities of today’s complex instruments (Jones, 1988). In a study by Elfaki and Hammad (2015), it was found out that Fair Value Accounting when compared to Historical Cost Accounting enhances reliability of accounting information. According to Fattouh (2016), Fair Value Accounting plays a vital role in enhancing the quality of accounting information that is embodied in the increment of reliability and appropriateness. This therefore raises a question as to whether or not Fair Value Accounting has an association with reliability of accounting information As a result of this inconsistency and mixed evidence in literature, this study seeks to examine the significant association between Fair Value Accounting and Reliability of accounting information of listed firms in Nigeria. The remaining part of this research is organized in 4 parts. Section 2 comprised a review of extant literatures on Fair Value Accounting and reliability of accounting information. The method employed in proffering solution to the research questions raised is contained in section 3 of this research study while the result of the data obtained and analyzed from the copies of the questionnaire distributed is provided in section 4. Conclusion and recommendations are contained in section 5 of this research work.

Literature Review Concept of Fair Value Accounting The primary qualities of accounting information are relevance and reliability, the two criteria to enhance the usefulness of the financial report. Fair Value Accounting (FVA), thus, fair value measurements have placed the greater function in financial statements because this information is perceived as more relevant to investors and creditors than historical cost information. In recent years, international standard setters and regulators such as the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have begun to favor the use of Fair Value Accounting over Historical Cost Accounting in financial reporting. A key reason for this shift in methodology is to improve the relevancy of the information contained in financial reports. The general principle underlying the shift is that up-to-date information improves investors' and regulators' abilities to make informed decisions (Kaur, 2013). The International Accounting Standard Board (IASB) defines fair value as ‘’an amount at which an asset could be exchanged between knowledgeable and willing parties in arms-length transaction’’ (IASB 2008). IFRS 13, Fair Value Measurement, sets out a single framework for measuring fair value and

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provides comprehensive guidance on how to measure it. It is the result of a joint project conducted by the IASB together with FASB, which led to the same definition of fair value as well as an alignment of measurement and disclosure requirements to FAS 157. Both FAS 157 and IFRS 13 define Fair Value “as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date”. This definition of fair value reflects an exit price option, which is the market price from the perspective of a market participant who holds the asset. Moreover, fair value must be a market-based, not an entity-specific measurement, and the firm’s intention to hold an asset is completely irrelevant (Betakova, Hrazdilova-Bockova & Skoda, 2014). For instance, the application of a blockage factor to a large position of identical financial assets is prohibited given that a decision to sell at a less advantageous price because an entire holding, rather than each instrument individually, is sold represents a factor which is specific to the firm. If observable market transactions or market information are not directly observable, the objective of fair value measurement still remains the same, that is to estimate an exit price for the asset, and the firm shall use valuation techniques (Betakova et al., 2014). Fair value accounting has turn out to be the preferred option of accounting for financial instruments as against historical cost. The significant explanations behind this inclination are: (a) cost is not relevant or understandable, (b) measuring financial instruments at fair value is practical, (c) fair value eliminates issues which arise from using the cost method, (d) fair value is not overly different to the current practice, and (e) the benefits of fair value are obtainable at a reasonable cost (Hancock, 1996). However, critics of fair value accounting are concerned that fair value may be less reliable than historical costs since managers may use their discretion to manipulate the information (Ahmad, 2000). As a result of this, investors could be unwilling to base valuation decisions on these subjective estimates (Barth, 1994). It is also view that fair values may increase the volatility of income as compared to historical costs (Barth, Landsman & Wahlen, 1995; Feay & Abdullah, 2001). For example, in Australia, ED 59 Financial Instruments was criticised by the banking industry which opposed market value measurement method. The banks were concerned that market value may increase the volatility of earnings (Hancock, 1996).

Fair Value Accounting and Reliability of Accounting Information According to IASB, the main objective of financial reporting is to provide information that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the firm (IASB 2010). Although financial reporting users include large numbers of subjects, both the FASB and IASB focus on the needs of participants in capital markets. This is because investors are considered those who are mostly in need of information from financial reports, given that they cannot usually request information directly from the firm. The findings of Markou and Tsitsoni (2013) on “Fair Value Accounting and earnings quality” revealed that application of Fair Value Accounting in financial reporting increases the reliability and accuracy of such information provided in the financial statement with this increase leading to effective decision making. Faraj (2012), investigated analytical study of the fair value measurement under accounting standards - A field study. The study asserted that the application of fair value accounting affects the high quality of accounting information. Elfaki and Hammad (2015) carried out a study on “The impact of the application of Fair Value Accounting on the quality of accounting information: An empirical study on a group of companies listed on the Khartoum Stock Exchange”. Engaging ANOVA, the findings of the study revealed that Fair Value contributes to the provision of useful information to users of accounting information and help them in decision-making. The study furthermore revealed a positive relationship between fair value application and reliability of accounting information; a positive relationship between the application of fair value accounting and the relevance of accounting information in decision making. Alnajjar (2013) embarked on a study that investigated the impact of the application of Fair Value Accounting on the reliability and relevance of the accounting information in Palestinian company’s financial statements. By surveying the opinions of external auditors and financial managers of companies in Palestine, the study revealed that the Fair Value Accounting application increases the reliability and relevance of the accounting information in the financial statement. In another study by Fattouh (2016) on “the role of replacing Fair Value Accounting with the principle of historical cost in enhancing the quality of accounting information”, the study found out that Fair Value Accounting increased both the reliability and the relevance of accounting information with this making it more useful for users of accounting information in making effective decisions.

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Alayarn, Haija and Irabei (2014) on the relationship between Fair Value Accounting and presence of manipulation in financial statements. Using the annual reports of forty-five (45) companies during a tenyear period of five years before and five years after the adoption and application of fair value accounting, the result of the study revealed that a higher number of firms manipulated accounting report after the adoption and application of fair value accounting compared to the number of firms before Fair Value adoption. Hence the quality of accounting information is higher before adoption of fair value accounting as compared to after adoption.

Methodology The purpose of this study is to examine the association between Fair Value Accounting and reliability of earn accounting information of listed firms in Nigeria. The descriptive research study was adopted for the purpose of this research as this type of research design enables the provision of accurate information on events, situations or persons. It attempts to describe a situation, problem or phenomenon with a view of providing information on them (Olaogun 2008). The quantitative method was adopted as this method is presumed more accurate and precise as a result of the fact that it develops and tests theories, hypotheses and mathematical models in addition to examining relationships between variables. The respondents for this study were the Capital Market Operators represented by Corporate Investment Analysts and Corporate Portfolio Managers. The Corporate Investment Analysts and Corporate Portfolio Managers were selected as respondents for this study because according to literature (such as Schipper, 1991; Bercel, 1994; Healy & Palepu, 2001; Clement & Tse, 2003; Mangena, 2004) they are the principal users of financial statements with this requiring them to have such accounting knowledge that would enable them analyse financial statement for effective and efficient decision making purpose. This group was furthermore selected because they are also primary users of financial accounting information in addition to being representative of other users of accounting information (Oyerinde, 2011). Based on this, it could be reasonably argued that the urge to use a company’s financial report is higher for investment analysts and portfolio managers than for any other user (Iyoha, 2011). The population size for this study includes one hundred and sixty-one respondents decomposed into onehundred Corporate Investment Analysts and sixty-one Corporate Portfolio Managers. Those in the category of middle/top management staff who are actively involved in the preparation and presentation of the financial statement formed the target audience for the purpose of this study. The floor of the Nigerian Stock Exchange (NSE), Lagos was the main sampling point for the purpose of this study as it is the oldest of all Stock Exchanges in Nigeria. In addition, of a total of 161 Corporate Investment Analysts and Corporate Portfolio Managers, Lagos has the highest number of Corporate Investment Analysts and Portfolio Managers with 149 of them (representing 92.5%) having their headquarter located in Lagos. The remaining 12 were located outside Lagos State with 9 (representing 5.59%) having their headquarters located in Abuja, 1 (representing 0.621%) in Abeokuta, Ogun State, 1(representing 0.621%) in Edo State and the last one (representing 0.621%) has its location in Kano State. The study adopted the census approach (where population size equals the sample size) in determining the sample size. Using the census approach, the sample size was one hundred and sixty-one respondents. The study engaged the primary source of data with the research instrument being a survey questionnaire. The questionnaire was divided into two sections; the first section comprised eight items representing one major construct “Reliability”. This section focused on such questions that pertain to Fair Value Accounting and reliability of accounting information. The section on the other hand comprised questions on the respondent’s bio-data which are (name of organization, sex, age, highest academic qualification, highest professional qualification, job position). The questionnaire was designed using the five-point Likert scale rated 5 (Strongly Agree), 4 (Agree), 3 (Indifference), 2 (Disagree) and 1 (Strongly Disagree). The content validity was engaged for the purpose of ascertaining whether or not the research instrument (the questionnaire) measures what it ought to measure. To engage content validity, the questionnaire was reviewed by experts and independent assessors both within and outside the field of accounting (Okpala, 2012). The Person Product Moment Correlation Technique, a parametric technique used to test the relationship between two variables was used to examine the significant association between Fair Value Accounting and Reliability of accounting information.

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Results Reliability of Research Instrument Table 1 Cronbach's Alpha .800 Source: Field Survey (2017)

Reliability Statistics

Cronbach's Alpha Based on Standardized Items .840

N of Items 40

Reliability analysis is arrived at through the examination of the proportion of systematic variation in a scale. Cronbach alpha is a reliability test for internal consistency as such it increases as a result of an increase in the inter correlations among the items in the analysis. From table 1 above, the scale items were found to be reliable for the constructs of this research study. The combine reliability of all items in the research instrument gave a reliability statistics of 0.8, which surpasses Pallant’s (2005) reliability benchmark of 0.7. Table 2: Questionnaire administered and retrieved S/No 1 2

Respondents Categories Portfolio Managers Investment Analysts

Total Distributed 61 100

Total Retrieved 47 95

% Total Retrieved 77.05 95

Total not Retrieved 14 5

% Total Retrieved 22.95 5

TOTAL

161

142

88.2

19

11.8

not

Source: Field Survey (2017)

Table 2 above reveals a breakdown of copies of the questionnaire administered and retrieved from the respondents. A total of one hundred and sixty-one copies of the questionnaire were distributed to the respondents. Of this one hundred and sixty-one, one hundred was given to Corporate Investment Analysts while sixty-one was given to Corporate Portfolio Managers. Out of the one hundred copies of the questionnaire given to Corporate Investment Analysts, a total of ninety-five representing 95% of the total copies administered was retrieved. Also, of the sixty-one copies of the questionnaire administered to Corporate Portfolio Managers, a total of forty-seven copies of the questionnaire representing 77.05% of the total copies administered were retrieved thereby leaving the number of total copies retrieved at one hundred and forty-two representing 88.2% of the total copies administered. Five (5) copies representing 5% of the one hundred (100) copies administered to Corporate Investment Analysts was not received while fourteen (14) copies representing 22.95% of the sixty-one (61) copies administered to portfolio managers was not received. This leaves the total of copies of the questionnaire not received at 19 representing 11.8%.

For The Purpose Of This Study, One Hypothesis Was Formulated And Stated In The Null Form: H0: There is no significant association between Fair Value Accounting and Reliability of accounting information of listed firms in Nigeria This hypothesis was tested using the Pearson Product Moment Correlation Technique and the result is stated below:

Table 3: Correlations FVA 1 Assets and liabilities that are measured at fair value do not

Pearson Corr

1

Rel 1: Neutrality .234**

FVA2 -.127

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FVA 3 .037

FVA 4 .011

Reliability 2: Faithful Rep -.276**

Reliability 3: Verifiability .175*

FVA5 -.002


provide information with high level of reliability

Sig. (2tailed) N 142 Accounting information provided Pearson .234** in financial statement prepared on Corr a fair value accounting basis can Sig. (2.005 be said to be neutral tailed) N 142 By virtue of current market Pearson -.127 information provided in the Corr financial statement under fair Sig. (2.131 value accounting, confidence of tailed) users of accounting information N 142 can be said to have risen Information prepared under fair Pearson .037 value accounting basis is to a Corr large extent free from material Sig. (2.660 errors and bias tailed) N 142 There is an association between Pearson .011 fair value accounting and Corr reliability of accounting Sig. (2.897 information tailed) N 142 Fair value based financial Pearson -.276** statement contains accounting Corr information which is a Sig. (2.001 representation of reality tailed) N 142 Accounting information in Pearson .175* financial statement prepared Corr using Fair Value Accounting can Sig. (2.037 be easily verified tailed) N 142 In all, increases in the relevance Pearson -.002 of information provided by Corr financial statements based on Sig. (2.978 FVA outweigh any reduction in tailed) the reliability of such information N 142 **. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the 0.05 level (2-tailed).

.005

.131

.660

.897

.001

.037

.978

142

142

142

142

142

142

142

1

**

**

*

.105

*

.145

.023

.215

.026

.084

.258

.002

.243

.004

.191

.186

142

142

142

142

142

142

142

.258**

1

.344**

.229**

.316**

.145

.169*

.000

.006

.000

.084

.045

142

142

142

142

142

142

.243** .344**

1

.284**

.378**

.079

.255**

.001

.000

.351

.002

.002 142

.004

.000

142

142

142

142

142

142

142

.191*

.229**

.284**

1

.435**

-.124

.328**

.023

.006

.001

.000

.141

.000

142

142

142

142

142

142

142

.105

**

**

**

1

-.074

.291**

.381

.000

.316

.215

.000

.378

.000

.435

.000

142

142

142

142

142

142

142

.186*

.145

.079

-.124

-.074

1

-.023

.026

.084

.351

.141

.381

142

142

142

142

142

142

142

.145

*

**

**

**

-.023

1

.169

.255

.328

.291

.782

.084

.045

.002

.000

.000

.782

142

142

142

142

142

142

Table 3 showed the association between Fair Value Accounting and reliability of accounting information. According to Al-Sheerazi, (1990) and Schroeder (2010), the three sub-properties, sub-characteristics and dimensions to reliability are: verifiability, faithful representation and neutrality. Hence, the first dimension of reliability of accounting information that was statistically tested alongside Fair Value Accounting is neutrality. The results from the table showed that there is a correlation effect between Fair Value Accounting and neutrality. Statistically, accounting information provided in financial statements prepared on a Fair Value Accounting basis can be said to be neutral (r = 0.234, p 0.01). Also, because of current market information provided in the financial statement under Fair Value Accounting, confidence of users of accounting information can be said to have risen (r = 0.258, p 0.01). There are also statistical evidence to the fact that information prepared under Fair Value Accounting basis is to a large extent free from material errors and bias (r = 0.243, p 0.01). Moreover, there was an established association between Fair Value Accounting and reliability of accounting information (r = 0.191, p 0.05). Furthermore, accounting information in financial statement prepared using Fair Value Accounting can be easily verified (r = 0.186, p 0.05). Another dimension of reliability of accounting information that was used in this study is faithful representation. Statistically, the relationship between Fair Value Accounting and faithful representation was revealed. For example, Table 3 above showed that there is a relationship between faithful representation and the rise in confidence of users of accounting information that are presented using current market information which Fair Value Accounting provides (r 0.316, p 0.01). More so, the association between faithful representation and fair value accounting is shown by the

6246

142


extent to which information prepared under fair value accounting basis is free from material errors and bias (r = 0.378, p 0.01). Statistically, it was shown that there is an association between Fair Value Accounting and reliability of accounting information (r = 0.435, p 0.01). Generally, Table 3 revealed that increases in the relevance of information provided by financial statements based on Fair Value Accounting outweigh any reduction in the reliability of such information (r = 0.291, p 0.01). The third dimension of reliability of accounting information used in this research work is verifiability. The results in Table 3 show an association between verifiability and fair value accounting.

Decision: Based on the Pearson Product Correlation tables above, the null hypothesis which states that there is no significant association between fair value accounting and reliability of accounting information was rejected as the table 3 above showed that accounting information under Fair Value Accounting is reliable at the three dimensions (neutrality, verifiability and faithful representation).

Discussion of Findings Hypothesis one stated in its null form states that “There is no significant association between Fair Value Accounting and Reliability of accounting information of listed firms in Nigeria”. To test this, Pearson Product Moment Correlation Technique was engaged and as a result, the alternate hypothesis which states that “there is a significant association between Fair Value Accounting and Reliability of accounting information of listed firms in Nigeria was accepted. This empirical finding is consistent with the result of a research carried out by Fattouh (2016) whose study revealed that FVA plays a vital role in enhancing the quality of accounting information that is embodied in the increment of reliability and appropriateness. The findings of other researchers such as Alnajjar (2013), Elfaki and Hammad (2015) amongst others also revealed a significant association between FVA and Reliability of accounting information

Conclusion and Recommendation Conclusion Traditionally, reliability of accounting information lies in the verifiability of accounting numbers. An explicit factor that motivates the use of Fair Value is in its perceived ability to reduce the tendency of manipulating accounting numbers. This implies that market based values (which is fair value) are largely (especially level 1 fair value) free from manipulations and as such are highly reliable (CFA Institute, 2007). Although, critics of FVA have capitalized on the fact that only level 1 fair value are free from manipulations while level 2 and 3 which are based on management’s discretion are subject to estimation errors and manipulations, Level 2 and 3 Fair Value estimation and manipulation problem can however be countermeasured through an increased disclosure of the underlying assumptions engaged in the course of estimating Fair Value. Fortunately, this increased disclosure requirement has been implemented in the recent IFRS 13 (Fair Value Measurement). In addition, the strength of corporate governance of companies and strong internal control system can also be another countermeasure as according to Song, Thomas and Yi (2010), the strength of corporate governance and internal controls can reduce the problem of less reliable fair value inputs. This point was further stressed when CFA Institute (2007) opined that management through the use of strong corporate governance and internal control system can increase the market’s view of the accuracy of their measurements. With this in place, overtime, confidence in such measures will be enhanced. Furthermore, with these measures in place, reliability of accounting information will in no time be enhanced under Fair Value Accounting.

Recommendations Based on the findings of this study, the following recommendations were made: 1.

Regular training programs and conferences on Fair Value Accounting (most importantly the valuation techniques and how to apply them) should be organized for staff of companies. This is because it was observed that most staff of companies in Nigeria do not understand how to appropriately use Fair Value in an inactive market. Thus, it is of great importance that they are trained as this would help them

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2.

understand the different valuation and estimation techniques of Fair Value; how and when to apply them in the measurement of assets and liabilities in the financial statement. As a result of the high level of subjectivity that comes with using Fair Value, there is a high tendency that prices can be distorted as a result of market inefficiencies, liquidity problems or investor’s irrationality (especially level 3). Thus there should be an expansion of the disclosure of such accounting information prepared using Fair Value as this would of course aid user’s better understanding on how some assets/liabilities values were arrived at and the valuation technique used. In lieu of this, listed firms should be encouraged and required to engage IFRS 13 (Fair Value Measurement) increased disclosure requirement as this would enhance user’s reliability of accounting information.

Acknowledgements The authors wish to acknowledge the management of Covenant University for the privilege to attend the conference and publish this research work in the conference proceedings

References Ahmad, N. (2000). Fair Value Accounting: Study on relevance and reliability of accounting information (Unpublished Master of Science Dissertation). Universiti Kebangsaan Malaysia, Bangi. Al-Najjar, J. (2013). The impact of Fair Value Accounting on the reliability and appropriateness of financial statements information issued by the Palestinian Corporations: An empirical study from the viewpoints of auditors and financial managers. Jordan Journal of Business Administration, 9(3): 465-493 Barth, M. (1994). Fair Value Accounting: Evidence from investment securities and the market valuation of banks. The Accounting Review, 69(1), 1–25. Barth, M., Landsman, W. and Wahlen, J. (1995). Effects of bank earnings volatility, regulatory capital, and valuation contractual cash flows. Journal of Banking and Finance, 19, 577–605. Bercel, A. (1994). Consensus expectations and international equity returns. Financial Analysis Journal, 50, 76-80. Betakova, J.; Hrazdilova Bockova, K. and Skoda, M. (2014). Fair value usefulness in financial statements. Vienna, Austria: DAAAM International Scientific Book, 433-448 CFA Institute (2007). A comprehensive business reporting model: Financial reporting for investors. New York, NY: CFA Institute. Clement, M. and Tse, S. (2003). Do investors respond to analysts’ forecast revisions as if forecast accuracy is all that matters? The Accounting Review, 78(1), 227-249 Elfaki, A. and S. Hammad, (2015). The impact of the application of Fair Value Accounting on the quality of accounting information. An empirical study on a group of companies listed on the Khartoum stock exchange. International Journal of Academic Research in Accounting, Finance and Management Sciences, 5(1): 148-160 Faraj, M. (2012). Analytical study of Fair Value Measurement under accounting standards – A field study. Egyptian Journal of Commercial Studies, 36(1) Fattouh, I. (2016). The role of replacing Fair Value Accounting with the principle of Historical Cost in enhancing the quality of accounting information. IJABER, 14(6): 4931-4950 Feay, W. and Abdullah, F. (2001). Impact of new derivative disclosures on multinational firms’ financing strategies. Multinational Business Review, 9(1), 1–8 Fiechter, P., and Novotny-Farkas, Z. (2011). Pricing of fair values during the financial crisis: International evidence. Working paper, University of Zurich and Goethe-University Frankfurt, Frankfurt, Hancock, P. (1996). Financial instruments. Accounting Forum, 19(4), 385–398 Healy, P. and Palepu, K. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31, 405-440 International Accounting Standard Board (2008). Fair value measurement, where are we in the project? Retrieved 20th November, 2017 from: http://www.iasb.org/Current+Projects/IASB+Projects/Fair+Value+Measurement/Fair+Value+Measurement.htm International Accounting Standard Board (2010). Conceptual framework for financial reporting. Retrieved 20th November, 2017 from http://www.iasb.org Iyoha, F. (2011). State agencies, industry regulations and the quality of accounting practice in Nigeria (Unpublished doctoral thesis). Covenant University, Ogun State, Nigeria Kaur, J. (2013). The Fairness of the Fair value concept. International Journal of Business and Commerce, 3(3), 1-10. Mangena, M. (2004). On the perceived importance of disclosure items in UK interim financial report: Evidence from the investment analysts. (Working paper series) Bradford University Ojeka, S., Fakile, S., Ani-Jesu, A. and Owolabi, F. (2016). Examining the quality of financial reporting in the banking sector in Nigeria: Does audit committee expertise matter? Journal of Internet Banking, 21(3)

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Okpala, K. (2012). Adoption of IFRS and financial statements effects: The perceived implications on FDI and Nigeria economy. Australian Journal of Business and Management Research, 2(5), 76-83 Olaogun, J. (2008). Research in behavioural sciences: Concepts, methods and practice. Ikeja, Lagos: Bolabay Publications Onafowokan, O. (2011). Research companion for students and professionals. Ogun State: Treasure Land Academy Oyerinde, D. (2011). Value relevance of accounting information in the Nigeria Stock Market (Unpublished Doctoral Thesis). Covenant University, Ota, Ogun State, Nigeria Pallant, J. (2005). SPSS survival manual- A step by step guide to data analysis using SPSS for Windows (Version 12). Australia: Allen & Unwin, Paul, A., and Burks, E. (2010). Preparing for international financial reporting standards. Journal of Finance and Accountancy, 4, 1-8. Schipper, K. (1991). Analysts’ forecasts. Accounting Horizons, 5(4): 105-121 Song, C., Thomas, W. and Yi, H. (2010). Value relevance of FAS No. 157 fair value hierarchy information and the impact of corporate governance mechanisms. The Accounting Review, 85(4), 1375–1410.

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Fair Value Accounting and Earnings Quality of Listed Firms in Nigeria 1

ibidunni, Oyebisi; 2 Iyoha Francis; 3 Fakile Samuel; 4adesanmi David 5adedeji Adedayo 1, 2, 3

4, 5

Covenant University, Ota, Ogun State, Nigeria Bells University of Technology, Ota, Ogun State, Nigeria

Abstract This research examined the impact of Fair Value Accounting on earnings quality of listed companies in Nigeria. The study adopted the descriptive research design in addition to also engaging the quantitative approach method. Secondary data was employed as data was gleened from the annual report of 18 Nigeria listed companies. Stratified Sampling Technique and Simple Random Sampling Technique were engaged for selecting the sample. The study engaged the Panel Data as the study seeked to gather data from same sample over a period of time. The data covered a period of 4 years from 2012-2015.One hypothesis was formulated and tested using the Panel Ordinary Least Square Regression technique while the E-views statistical package was engaged to analyse the data. Findings revealed a positively significant relationship between Earnings Quality of Nigeria listed firms and Fair Value Accounting. Consequently, the paper recommended that the application of Fair Value Accounting in the preparation and presentation of financial statement should be encouraged by firms, accounting standard setters and accounting regulatory bodies as this is believed would bring about an enhancement in the quality of financial statement of companies.

Keywords: Decision making, earnings quality, fair value accounting, historical cost Introduction Beginning from the first day in January 2005, European Union (EU) member states saw the urgency to adopt and apply in the preparation and presentation of financial statements, the International Financial Reporting Standards (IFRS). As such, firms listed on the stock exchange market of European Union member countries were directed to prepare and present their financial statements in accordance with the IFRS. IFRS are standards developed and issued by the International Accounting Standard Board (IASB) which is an independent standard setting board charged with the responsibility to develop and issue International Accounting Standards and IFRSs. According to IFRS (2013), IASB’s principal objective is the development of single high quality globally acceptable accounting standards that would be used in the preparation and presentation of accounting standards. IASB presumes that the application of this single universally acceptable high quality accounting standards would bring about high quality, comparable and transparent financial statements (Markou & Tsitsoni, 2013). As such, IAS/IFRS is believed to enhance the quality of accounting information or financial statements in a bid to aid users’ economic decisions (Armstrong, Barth, Jagolizer & Riedl). Furthermore, financial crises such as Enron, Xerox, Tyco, WorldCom, Pamalat, Nestle Plc, Cadbury, Satyam Computers India, Lehman Brothers etc also increased members anticipation and the need for a uniform accounting standard (Adetula, Owolabi & Oyinye, 2014). As a result of increase in globalization of world trade, cross border transactions and to attract investment capital across international boundaries, Nigeria saw a need to adopt IFRS. As such, in 2010, the Nigeria Accounting Standard Board, a body responsible for the development and issuance of accounting standards in Nigeria was repealed and announced its roadmap to IFRS convergence. According to this roadmap, listed firms in Nigeriaand Significant Public Interest were expected to adopt IFRS by 1st of January, 2012; Other Public Listed Entities were required to adopt IFRS from 1st day in January, 2013 while Small and Medium Scale Enterprises were mandated to adopt IFRS from 1st January, 2014 (Oseni, 2013). The adoption of IFRS in Nigeria was believed to bring about investors protection and a restoration of investors confidence level in financial markets in Nigeria through the provision of high quality accounting information. According to Dechow et al (2010), accounting quality is a word

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used to show the degree of the worth attached by users to the accounting information and one of the ways of measuring accounting information is earnings quality. Earnings reported in the financial statements aids users evaluation of management’s performance, helps in estimating earnings power of an enterprise, aids prediction of future earnings and helps in the evaluation of the risk of investing in an enterprise (Markou & Tsitsoni, 2013). Thus, going by how important earnings are to users of accounting information, it therefore means that the quality of earnings is non-negotiable and cannot be compromised.

The adoption of IFRS in Nigeria introduced the application of FVA as a measurement base for financial and non-financial assets and liabilities. FVA according to IAS 40 is “the amount for which an asset can be exchanged between knowledgeable, willing parties in an arm’s length transaction at a measurement date”. With the adoption of IFRS that brought about FVA, the question that comes up is whether or not FVA will bring about an improvement in the quality of accounting information. literature on FVA has produced mixed result with some supporting Fair Value Accounting (Nissim, 2003; Benston, 2008; Power, 2010; Fietcher & Meyer, 2009; Chen, Lam, Smieliauskas & Ye, 2010), and others not in support of Fair Value Accounting (Hermann, Saudagaran & Thomas, 2006; Abdel-Khalik, 2008; Galera, Lopez & Ariza, 2010; Fiechter, 2011; Sodan, 2015). This inconsistency is worthy of investigation. Prior studies on FVA and earnings quality have found it difficult to establish a uniform definition and a best way of measuring earnings quality. As such, this study would be looking at different ways of measuring earnings quality with particular interest on predictability of earnings, value relevance, persistence of earnings, volatility of earnings, accrual quality and conditional conservatism. In addition, prior studies on FVA and earnings quality were carried out in countries whose market conditions were relatively stable but literature on FVA and earnings quality in developing countries that are characterised with volatile market conditions is limited, hence the need for this study (Chidi, 2015). Therefore, using a large range of earnings that will allow for a more comprehensive assessment of earnings quality, this research seeks to examine the impact of FVA on earnings quality of Nigeria Listed firms. The remaining part of this research is organized in 4 parts. Section 2 focused on reviewing literatures on FVA and earnings quality. The method employed in proffering solution to the research questions raised is provided in section 3 while the result of the data obtained and analyzed from the annual reports is provided in section 4 of this study. Conclusion and recommendations are contained in section 5 of this research study.

Literature Review Fair Value Accounting and Earnings Quality The fact that Fair Value Measurment reduces certain incentives for firms to program sale of asets for management of earnings is one of the reasons accounting standard setters supports FV measurement (Landsman, 2007). Penman (2007) likewise attested to this by arguing that with time, Historical prices will becoming irrelevant in the estimation of the current financial position of an entity. According to Barlev & Haddad (2003), Historical Cost are less likely associated to stock returns compared to Fair Value. They furthermore observed that the use of FVA has an effect on the efficient management of the firm. This effect is as a result of the fact that FV helps in minimizing principal-agent conflicts and agency costs, while improving the efficiency with which the firm is directed. Managers while expressing their opinion on certain changes that may lead to earnings of higher quality, mentioned that they would prefer the FVA moderation of that will enable them use their professional judgment freely in preparing annual reports. The result of Sodan (2015) in his study on “The impact of Fair Value Accounting on earnings quality in eastern European countries” conducted through an engagement of aggregate of earnings quality based on six earnings attribute contradicts these findings. Proxying Fair Value Accounting using net income approach and other comprehensive income approach, findings of the study revealed that earnings under a reporting system based on fair value have smaller aggregate earnings quality for companies and banks in situated in Eastern European countries. This simply means that the quality of accounting information using fair value accounting is lower in eastern European countries as compared to the use of historical based accounting method. In another study by Almulije and Kraima (2012) titled “Measuring the predictive accuracy of the Fair Value in the commercial banks – An empirical study”. The study aimed at examining the earnings

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predictive ability of the application of FVA. With this objective in mind, the study found that the application of Fair Value Accounting in the measurement of assets and liabilities permits a more realistic measurement and enhances the disclosure of assets and liabilities in the financial statement. Additionally, the study revealed that Historical Cost Accounting has become less favourable when it comes to its earnings predictive ability while the application of FVA aids the prediction of company’s future cash flows. As a result of this, the confidence of users of accounting information as reflected positively in the stock prices has been enhanced. In a study carried out by Markou and Tsitsoni (2013) on FVA and earnings quality, they found out that FVA has since its application in financial reporting improved the quality of earnings in all listed real estate companies in Sweden. In a study covering the value relevance of Fair Value Accounting embarked on by researchers such as Barth (1994); Bernard et al. (1995); Barth and Clinch (1998), it was discovered from the findings of their studies that Fair Value estimates for investment securities are more value relevant possessing more significant explanatory power compared to that of the Historical Cost measures. These same authors also found out that earnings from Fair Value arising from the recognition of unrealized holding gains and losses tend to be more volatile than such earnings from Historical Cost Accounting.

Methodology The purpose of this research is to investigate the impact of Fair Value Accounting on earnings quality of listed firms in Nigeria. The descriptive research study was engaged herein. Descriptive design is a type of research design that aids the provision of accurate information about an event, situation or persons. It involves the collection of information on an issue to aid adequate interpretation and description of such issues (Aggarwal, 2008). The quantitative method was adopted as this method is presumed more accurate and precise as a result of its formal way of gathering data and the engagement of statistical analytical tools in testing formulated hypothesis (Onafowokan, 2011). The population size for this study includes the one hundred and seventy-two companies listed on the floor of the NSE as at September, 2017. According to Balsely and Clover (1988), using 10% of the population as the sample size has over the years been proven adequate and representative of the population. Ogolo (1996) further buttressed this when he asserted that a minimum of 10% is sufficient to constitute a researchable sample in a situation where the population is known. As such, the sample size of this study is 20. This was derived by dividing the listed companies into their respective industrial sectors, then each of these industrial sectors were taken to be the population. Subsequently, 10% was taken from each of this industrial sector to form the total sample for this study. This is shown in Table 3.1 below: Table 3.1: Breakdown of companies listed on the floor of the Nigeria Stock Exchange S/N 1 2 3 4 5 6 7 8 9 10 11

Industrial Sector Agricultural Conglomerates Construction Consumer goods Financial services Health care ICT Industrial goods Natural resources Oil and gas

Number of Organization 05 06 09 22 56 11 07 16 04 12

Sample Size (10%) 1 1 1 2 6 1 1 2 1 1

24 172

3 20

Services Total

Source: The Nigerian Stock Exchange (2017)

Stratified Sampling Technique was engaged as the companies listed on the floor were divided into stata’s (industrial sectors) on the basis of one or more given characteristics while the Simple Random Sampling

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Technique was then used in selecting randomly the sample such that the sample companies all have equally chances of selection. The Secondary source of data was adopted in the course of this study and the instrument engaged was the Annual Report of selected companies listed on the floor of NSE. The paper engaged the Panel Data as the study seeked to gather data from the same sample over a period of time. The data covered a period of 4 years from 2012-2015. The choice of these years (2012-2015) was as a result of the fact that Nigeria adopted IFRS (under which Fair Value is) in 2012 and since this study is situated in Nigeria, the study has to begin from 2012. The data collected were analysed with the use of inferential statistics. The Panel Ordinary Least Square method was engaged and was used to determine the significant impact or otherwise that FVA has on quality of earnings of companies in Nigeria.

Model Specification The model of this study as adapted from Sodan (2015) investigates the relationship between FVA and quality of accounting information. It is written in a functional form as

Quality of accounting information (QAI) was decomposed into Earnings Quality (EQ) ! "# $ % & ' () Aggregate measure of earnings quality was derived from: AEQ1,t = Predi,t + Persi,t + Voli,t + Reli,t + Condi,t + AQi,t…………..…………….…..…………..……..(4) 6 Where: Predictive ability of earnings is * # +) , () " * # represents net cashflow from operating activities for company “i” in time “t” while Net Income for company “i” in time “t” is represented by +) . As such predictive ability was measured using the standard deviation of estimated error from equations (5) stated above: - . /0 () % Persistence of earnings +) +) , () 1 Persistence value is the negative value of the slope coefficient estimate: - 2 , 3 Volatility of earnings This is measured as the standard deviation of net income averaged by standard deviation net operating cash flows for each company “i”. 4• 56 6 7• Voli = 4 589: 6 7 ; Value Relevance +)-
&

,>

Conditional Conservatism Basu (1997) model was adopted in the estimation of conditional conservatism for companies’ net income: +)-
)

?)

>)

Conditional conservatism was arrived at from equation (9): CONSi=

@A 6B@C 6 @A 6

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=


Accrual Quality ACCijt = D 1_ + 1ij REVijt + 2ijGPPEijt+ I,t DACCijt= ACCijt – 0ij 1__ - 1ij REVijt - 2ij GPPEijt " 0 ? ** % Aggregate Earnings Quality Measure Aggregate measure of quality of earnings denoted “AEQ” was derived from (6), (8), (9), (11), (13) and (16): AEQi={RANK(PREDi)+RANK(PERSi)+RANK(VOLi)+RANK(VALRELi)+RANK(CONDi)+RANK(AQi)} ……( 1 6 Fair Value Gains and Losses FVA is proxied using Relative importance of other comprehensive income (absrelOCI). Mathematically, this was denoted as: absrelOCIi,t = abs (OCIi,t) 3 [abs(NIi,t) + abs(OCIi,t)] Variables The main variables for this study are (1) Fair Value Accounting (independent variable): This was measured using Unrealized Fair Value Gain or Loss of company “i” in time “t”; (2) Age (control variable): This was measured using Number of years of a company’s existence since the first AGM. This measurement was in tandem with the work of Iyoha (2011) and Ojeka (2014) (3) Leverage (control variable): This was measured using the Natural Log of Total Liability of company “i” in time “t”. (4) Earnings Quality (dependent variable): This was measured using an aggregate of six (6) earnings quality that includes: predictability of earnings, persistence of earnings, earnings volatility, value relevance, conditional conservatism and accrual quality.

Results One hypothesis was for the purpose of this study formulated and tested. This hypothesis tested using Panel Data OLS Econometric Technique. The hypothesis formulated and stated in its null form states that H0: Fair Value Accounting has no significant impact on accounting information quality of listed firms in Nigeria. Table 4.1: Panel data analysis of FVA and Quality Earnings of listed firms in Nigeria

Variable

Coefficient

Std. Error

t-Statistic

Prob.

AGE FV GR LV OW C

-0.914973 12.13151 -4.019352 3.845506 23.16382 8.594942

1.297312 3.582283 2.166898 3.204652 43.30694 29.08963

-0.705284 3.386530 -1.854887 1.199976 0.534875 0.295464

0.0336 0.0013 0.0490 0.2353 0.5949 0.7688

Effects Specification Cross-section fixed (dummy variables)

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R-squared Adjusted R-squared F-statistic Prob(F-statistic)

0.843005 0.774499 12.30545 0.000000

Durbin-Watson stat

2.423240

Source: Author's computation (2017)

Table 4.1 above showed the result of the analysis of effect of FVA on the Earnings Quality of firms listed on Nigerian stock exchange. Data of twenty (20) companies were analyzed over four (4) years giving a total observation of eighty. The method used is Panel Least Squares. Cross-section fixed effect was used. The result showed that the r-squared is 0.84 while the adjusted r-squared is 0.77. This implies that 84% of the total variation in the dependent variable is caused by the independent variable the result further showed that the F-statistic is 12.31 while the probability is 0.0000, this suggest that the model is statistically significant and has high goodness of fit, therefore the model can be estimated. The DurbinWatson result of 2.4 shows that the result of the analysis is free from serial auto correlation problem. Fair value has a coefficient of 12.13151 and a probability value of 0.0013, this implies that fair value is positively correlated with earnings quality and is statistically significant at 5% level of significance. This finding is synonymous to findings of Markou and Tsitsoni (2013) on FVA and earnings quality, whose result revealed that FVA has since its application in financial reporting improved the quality of earnings in all listed real estate companies in Sweden. Age has correlation coefficient of -0.914973 and probability value of 0.0336, this, showed that there is significant negative relationship between age and earnings quality of the samples firms. Furthermore, growth has correlation coefficient of -4.019352 and probability value of 0.0490, the result revealed that there is negative but significant relationship between age of firm and earnings quality. In addition, leverage has correlation coefficient of 3.845506 and probability of 0.2053.The result showed that there exists a positive but insignificant association between leverage and earnings quality. Increase in the financial leverage will lead to increase in earnings quality. Finally, the result revealed that the correlation coefficient of ownership structure is 23.16382 while the probability value is 0.5949 which implies that there is positive but insignificant relationship between ownership and earnings quality of the samples firm

Conclusion and Recommendation Conclusion Fair Value Accounting, a measurement base that reflects the prevailing market condition of a company as according to its major proponents, become the best option to correct some of the the shortcomings experienced by the Historical Cost Accounting. Even though several others believe that HC still symbolizes the best logical measurement basis for financial reporting, as it more reliable and conservative yet, the FV reflects the economic reality of the entity, which is closest to conveying a financial statements that is fair. This is evident as shown by the findings of this study which revealed a positive and significant relationship between Fair Value Accounting and quality of accounting information of listed firms in Nigeria. Therefore, FVA application in the preparation and presentation of financial statement should be encouraged by firms, accounting standard setters and accounting regulatory bodies as this is believed would bring about an enhancement in the quality of financial statement of companies.

Recommendations In line with these research findings, the underlisted recommendations were made:

1. It was revealed from the analysis that FVA enhances earnings quality hence; Financial Reporting Council (FRC) in Nigeria should consider working with IASB and other accounting regulatory authorities on adjusting and customizing Fair Value in such a way that it would suit Nigeria’s distinctive characteristics.

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2. Accounting standard setters and regulatory bodies (such as IASB) should pay particular attention and make adequate provision for countries with high level of volatility in market condition especially when it is Fair Value level 2 and level 3. This is by virtue of the peculiarity of Fair Value level 2 and level 3of

Acknowledgements The authors wish to acknowledge the management of Covenant University for the privilege to attend the conference and publish this research work in the conference proceedings

References Adetula, D., Owolabi, F. and Onyinye, O. (2014). International Financial Reporting Standards for SME’s adoption process in Nigeria. European Journal of Accounting, Auditing and Finance Research, 2(4): 33-38 Alzoubi, E., and Selamat, M. (2013). The adoption of IFRS-based accounting standard and earnings quality: Literature review and proposing conceptual framework. [Online]. Available: http://www.wbiconpro.com/104-LatestEbraheem.pdf [2013/04/09] Armstrong, C. Barth, M. Jagolizer, A. and Riedl, J. (2007). Market reaction to the IFRS adoption in Europe. Retrieved 28th September, 2017 from http://ssrn.com Balsely, H. and Clover, V. (1988). Research for business decisions: Business research method (4th ed.). Ohio: Horizons Publishers. Barlev, B. and Haddad, J. (2003). Fair Value Accounting and the management of the firm. Critical Perspectives on Accounting, 14, 383-415. Barth, M., Landsman, W. and Lang, M. (2008). International Accounting Standards and accounting quality. Journal of Accounting Research, 46(3), 467-498 Bernard, V., Merton, R. and Palepu, K. (1995). Mark-to- market accounting for banks and thrifts: Lessons from the Danish experience. Journal of Accounting Research, 33 (1), 1-32. Bradshaw, M. and Miller, G. (2007). Will Harmonizing Accounting Standards Really Harmonize Accounting? Evidence from Non-U.S. Firms Adopting US GAAP. Working paper, Harvard Business School Burgstahler, D., Hail, L. and Leuz, C. (2006). The importance of reporting incentives: Earnings management in European private and public firms. The Accounting Review, 81, 983-1016 Dechow, P., Ge, W. and Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50(2), 344-401. Fiechter, P. (2011). The effects of the Fair Value option under IAS 39 on the volatility of bank earnings. Journal of International Accounting Research, 10 (1), 85-108 Fiechter, P. and Meyer, C. (2009). Big bath accounting using Fair Value Measurement discretion during the financial crisis: Mimeo. Working Paper Galera, A., López, M., and L. Ariza, (2010) .Fair Value of real estate and utility of financial statements of construction companies. International Real Estate Review, 13(3), 323 – 350 Godfrey, J., Hodgson, A., Tarca, A, Hamilton, J. and Holmes, S. (2010). Accounting theory, 7th Edition. Australia: John Wiley & Sons Herrmann, D., Saudagaran, S. and Thomas, W. (2006). The quality of Fair Value measures for property, plant, and equipment. Accounting Forum, 30(1), 43–59 International Accounting Standards Board. (2010). The conceptual framework for financial reporting. Retrieved 20th March, 2016 from http://www.iasb.org Iyoha, F. (2011). State agencies, industry regulations and the quality of accounting practice in Nigeria (Unpublished doctoral thesis). Covenant University, Ogun State, Nigeria Kamp, B. (2002). Earnings quality assessment by a sell-side financial analyst. Issues in Accounting Education, 17 (4) Landsman, W. (2007). Is Fair Value Accounting information relevant and reliable? Evidence from capital market research. Accounting and Business Research, Special Issue: International Accounting Policy Forum, (special issue), 19-30. Lang, M., Raedy, J. and Wilson., W. (2006). Earnings management and cross listing: Are reconciled earnings comparable to US earnings? Journal of Accounting and Economics, 42, 255-83 Levitt, A. (1998). The importance of high quality accounting standards. Accounting Horizons,12(1),79-82. Markou, D. and Tsitsoni, F. (2013). Fair Value Accounting and earnings quality: Listed real estate companies in Sweden. (Thesis) Karlstad Business School, Sweden Nissim, D. (2003) .Reliability of banks' Fair Value disclosure for loans. Review of Quantitative Finance and Accounting, 20(4), 355-384. Ogolo, M. (1996). Student guide to writing research and project proposals. Port Harcourt: City Circle Press.

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Ojeka, S. (2014). Audit committee transparency and the quality of financial reporting: A study of listed banks in Nigeria (2003-2012) (Unpublished doctoral thesis), Covenant University, Ogun State, Nigeria Onafowokan, O. (2011). Research companion for students and professionals. Ogun State: Treasure Land Academy Oseni (2013). Application and challenges of IFRS in Nigeria. Arabian Journal of Business and Management Review (OMAN Chapter), 3(2), 72-79 Penman, S. and Zhang, X. (2002). Accounting conservatism, the quality of earnings, and stock returns. The Accounting Review, 77(2), 237–264. Penman, S. (2007). Financial reporting quality: Is Fair Value a plus or a minus? Accounting and Business Research, Special Issue: International Accounting Policy Forum, 33- 44. Power, M. (2010). Fair Value Accounting, financial economics and the transformation of reliability. Accounting and Business Research, 40: 197-211. Skoda, M. and Bilka, P. (2012), Fair Value Financial statements – Advantages and disadvantages, Vasile Goldis Arad, Studia uninersitatis, Economics Series 22 Sodan, S. (2015). The impact of Fair Value Accounting on earnings quality in eastern European countries. Procedia Economics and Finance, 32, 1769-1786

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Entrepreneurship and Financial Deepening in selected African Economies: Does Human Capital Development Matter? Patrick Omoruyi Eke, Department of Banking and Finance, Covenant University Ota, Nigeria [email protected] Lawrence Uchenna Okoye, Department of Banking and Finance, Covenant University Ota, Nigeria [email protected] Grace Ofure Evbuomwan, Department of Banking and Finance, Covenant University Ota, Nigeria [email protected] Corresponding Author: [email protected]

Abstract This paper examines whether human capital development is significant in the nexus between entrepreneurship and financial deepening, while accounting for institutional quality as control variable in thirteen selected African economies from 1995-2014. Evidence from the augmented Toda-Yamamoto technique shows that human capital does not have long run causal effect on entrepreneurship, and financial deepening, which suggests low quality human capital for entrepreneurial development. The paper recommends market-based funding for human capital development to enhance quality, creativity, entrepreneurship, and hence financial deepening. Global best-practice institutional governance system would reduce ‘cost to start business’ and thereby encourage growth of entrepreneurship.

Keywords: African economies, Entrepreneurship, Financial deepening, Human capital JEL Classification: O1; I2; O31; G100 Introduction The need to deepen the nexus between entrepreneurship and financial development has been topical in developing economies. In recent times, given the increasing rate of socio-economic crises and the need to achieve inclusive growth, entrepreneurship is attracting the attention of policy makers, particularly in developing economies. Otchere, Senbet and Simbanegavi (2017) posit that lack of financial deepening and inclusiveness remain broadening challenging tasks for most African economies, as the state of financial development can barely compare with standards in low income countries. In Africa, irrespective of the recent annual growth rate of, average, 5.5 per cent up to 2015, non-inclusivity of virtually all human development parameters may have made the region to still remain poorest on earth (Knoop, 2013). While assessing the millennium development goals (MDG), the World Bank notes that many developing economies, particularly in Africa, may have improvement in access to education, but the impact evaluation with respect to quality is not encouraging (World Bank, 2011). Ghatak, Morelli and Sjöström (2002) note that talent is a basic requirement for entrepreneurial efficiency. Entrepreneurial talents can create markets for finance, labour, and allied factors of production as well as innovative ideas that boost creativity, and hence employment generation such as ‘waste to wealth’ schemes.

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Financial deepening enhances rapid economic development if it provides mobilization, allocation, and operational efficiencies of financial resources. The truism about economic development is that all planning, innovations and struggles to improve human living conditions end up with financial resources being mobilized. Therefore, financial market institutions may be of crucial assistance for the success of entrepreneurship. Through innovation, given market risk, new product or service discoveries may create demand or market. On the other hand, availability of developed financial market is a major incentive that spurs entrepreneurial mindset to establish an enterprise. This aligns with Fogel, Hawk, Morck, and Yeung (2006) that institutional incentives and their availability can be very encouraging for wholesale entrepreneurship, while weak institutions can otherwise be detrimental to entrepreneurial spirit and financial development. Access to finance as well as sound financial decisions is very critical as individuals seek to exit from poverty (George, Okoye, Efobi, and Modebe, 2017) The most effective antidote for fighting extreme poverty in developing economies may be in quality education and marketable skill (World Bank, 2016). Successful economies like the United States, Japan, Britain, Turkey etc. may have employed quality human capital development to fast-track the transformation of their economies at both the micro and macro levels. Quality education system (gold standard) may produce quality thinkers, innovators and world class human capital required for global competitiveness. Scientific and technological innovators are sources of inventions that facilitates products and markets, which may broaden and deepen the financial system. Human capital development requires massive investments which can be sourced from the financial system in the form of cheap long-tenured education bond issues. Therefore, the conceptual framework that links quality education and financial system development is presented in Figure 1 below:

Innovativeness

Products & Markets development

Human capital development

Financial Deepening

Figure1: Conceptual Framework: Human capital and financial development transmission Source: Developed by the authors (2017)

With regard to quality of entrepreneurial institution, World Bank data-set shows that sub-Sahara Africa, Latin America and Caribbean regions performed below global average in the three incentives that drive entrepreneurship while East Asia and the Pacific regions performed below standard in the levels of bureaucracy, and the minimum number of days to start business. On average, it costs 55 per cent of estimated gross national income per capita to start business in sub-Sahara Africa, the global highest. The overall cost implication, measured by percentage of gross national income (GNI) per capita loss, indicates that Cameroon and Nigeria are the most uninspiring economies for entrepreneurship in Africa, with 32%, and 31% respectively (World Development Indicator (WDI, 2016) This major objective of this paper is to determine whether human capital development has a role in the nexus between entrepreneurship and financial deepening. The study is focused on selected African economies. To achieve this, the following hypotheses were proposed: (i) there is no significant relationship between entrepreneurship and financial deepening (Fdp); (ii) there is no significant

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relationship between human capital development (Hcd) and financial deepening (Fdp); (iii) there is no significant relationship between human capital development (Hcd) and entrepreneurship.

Review of Theoretical Literature Theories on economics of education, and human capital compliments the Solow and Swan’s exogenous theory, and the ‘new growth’ (endogenous) theory to link poverty, sustainability, and inclusivity, with the quality of a country’s education (Jhingan, 2007). Economics of education theorists argue that though education may be costly in schooling time and financial outlay, its social and private benefits could outweigh the cost, particularly at the tertiary level (Musgrave and Musgrave, 1989). Quality education has wide positive externalities as the most credible antidote for economic development. It is needed to unlock mechanisms that can transform enormous indigenous potential resources; and may be useful to expand the frontiers of the financial system and create wealth for the people (OECD, 2001; Sala-I-Martín, Crotti, Battista, Hanous, Galvan, Geiger, and Maiti, 2015). Perhaps, the intellectual foundation on the accretion of finance and its implication as economic development evolves was laid in Gurley and Shaw (1955). The relationship between financial system development and economic growth has been extensively discussed (Patrick, 1966; King and Levine, 1993b; Levine, 2005; Claessens and Feijen, 2006). The channels of influence of financial development on growth and vice versa include private sector development, improved productivity and capital accumulation, improvements in innovations, greater risk-sharing and potency for lower volatility (Claessens and Feijen, 2006). At the higher stage of development, finance responds to growth because the attendant increase in demand for human capital exerts demand pressure on finance (Patrick, 1966). However, the channel of influence between educational development and financial development is not clearly defined in literature, particularly as education may be seen as a means to economic growth. The modes of relationship between educational investments and financial development may be examined in terms of financial services development as it relates to school enrolment, access to credit by the literate, women empowerments and gender equality, reduction in child labour, and provision of education infrastructures (Claessens and Feijen (2006). Also, educational services that provide access to information for innovative thinking can improve financial development. The knowledge spillover theory of entrepreneurship is exploitable to further the nexus between human capital and the entrepreneur towards developing new competences and can also influence the entrepreneur to start new business. Given a world of high level business uncertainty, research and academic institutions serve as power house for entrepreneurs, and as the entrepreneur is constantly motivated by quest for profit, further investment in human capital may be expected (Audretsch, 2012). In particular, this view applies to the intrapreneur that capitalizes on knowledge spillover from current employment to establish new start-ups. In African economies, access to finance, for both industrial and start-ups are weak and problematic (WEF, 2016). The dearth of formal finance for development of genuine start-up entrepreneur is attributed to deficiency of macroeconomic institutions that has made the financial environment onerous and risky (Knoop, 2013). To this extent, informal finance is most common for start-up idealists and majority of micro and small-scale businesses. The endogenous (new growth) models (Romer, 1990; Lucas, 1988) can be further explored towards improving Africa’s entrepreneurship, through idea development for technological change. Lack of endogenous technological development remains one of many reasons of underperformance in developing countries, as global development partners such as UNIDO admonishes developing economies to explore other development-oriented options, such as adopting endogenous light technology rather than western model that is based on heavy technology in their development efforts.

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Review of Empirical Literature William and Vorley (2017) examined the impact of institutional reforms on entrepreneurship in the postconflict Kosovo relative to practices in the transitional economies. Main outcome of the study indicates that Kosovo is yet to witness institutional challenges similar to those of the transitional economies which may have led to changes witnessed in both the formal and informal institutions which may have their development. Closely related is the study by Huggins, Prokop and Thompson (2017) which examined the factors responsible for firms’ survival in peripheral regions such as Wales in the UK, with the outcome that human capital as it relates to the entrepreneurs’ experience, and firms’ growth motivation were responsible for their survival. Haidar (2012) examined the business regulatory reform relative to economic growth in 172 different economies and found, on the average, that each reform linearly improves growth by 0.15 per cent. McGuick, Lenihan and Hart (2014) advanced the study on innovative human capital (IHC) by using the augmented innovative production function to examine innovative human capital effects on new firms’ growth and performance. The outcome reveals that innovative managers are more valuable in small-sized firms with less than 50 employees, than in larger-sized firms. In a study on the role of institutions in economic growth and development, Acemoglu and Robinson (2008) identify differences in economic institutions as major reasons for differences in prosperity across countries. They note the political challenges associated with institutional reforms but recommend that institutions must be reformed to solve problems of development and poverty. In line with Acemoglu and Robinson (2008) we argue institutional reforms will lead to improvement in the quality of human capital, entrepreneur spirit and attitude may help to deepening the intermediacy of finance in both the short and the long term.

Theoretical framework The endogenous (new) growth theory posits that long run growth and convergence depend on indigenous policies and technical progress, learning by doing or knowledge transfer. Investment in human capital produces ideas, or new knowledge as the main determinant of economic growth (Lucas, 1988). For Lucas, investment in human capital has both internal effects and external (spillover) effects. On Lucas technical framework, national output can be augmented by the following relations:

Yi = A( K i ).( H i ).H e

(1)

Where: A is the technical coefficient, Ki and Hi stand for physical and human capital inputs respectively, Yi is the gross domestic output. Variable H is the average human capital capability of the economy augmented by parameter e, the ‘public good’ effects of H on the economy’s gross domestic product. By simple algebra: taking log of both sides and by transformation, equation 1 produces:

log Yi = log A( K i ) + log H i + e log H

(2)

Each sector, firm and the individual investor benefits from the average H in the economy- that is the average level of skill and knowledge is more crucial for entrepreneurial development, transmittable to national output growth Yi.

Data and Methodology Secondary data covering 2004-2015 were sourced from World Bank development indicators (WDI), United Nations development programme statistics, and National Bureau of Statistics of sampled countries. It is a panel data set, that is, series of observations across the thirteen countries, studied over-

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time, such that in variables

xit , yit , i and t subscripts denote individual country and time respectively. It

is an unbalanced panel data set as some countries have omitted observations in some years, that is: {xit , yit }: for i = 1..., N ; t = ti ,..., ti (3)

This study is guided by the population of African capital market economies comprising the twenty-five (25) countries who are registered members of African Securities Exchange Association (ASEA) in 2015 (ASEA, 2015). However, only sixteen of these economies had bond issues traded on their Exchanges as at 2014 (ASEA, 2014). They are Botswana, Cameroon, Cote d’ Ivoire, Egypt, Ghana, Kenya, Malawi, Mauritius, Morocco, Namibia, Nigeria, Rwanda, South Africa, Tanzania, Tunisia and Uganda. However, Malawi, Rwanda and Uganda were excluded due to paucity of data observations, thereby reducing the sample size to thirteen. The sources, measurement indicators, literature justification and a priori expectations of each variable are presented in table 3.1 below: Table 3.1: Description of variables, data sources, measurements, with justification and a priori expectation Variable description

Type/Source/Measurement

Literature justification

Fdp= Financial deepening Hcd=Human capital development

Secondary/World Bank/ Growth of broad money Secondary/ World Bank/ Ratio of Government expenditure on education to total

Csb= ‘Cost to start business’ (proxy for entrepreneurship) Iqx= Institutions’ quality index

Secondary/ World Bank/ income per capita

King and Levine (1993b) Alexe and Alexe, (2017), McGuick et al. (2014), Huggins et al. (2017) Cull and Xu (2005); OECD (2004)

% of

Secondary/Worldwide Governance Indicators(WGI), 2015:www.govindicators.org/ consisting of regulatory quality; rule of law, governance effectiveness

Acemoglu Robinson (2008)

and

Parameter’ s a priori >0 >0

0

Source: Prepared by the authors (2017)

The ‘cost to start business’ (Csb) data is the proxy for entrepreneurship. It is measured as percentage of gross national income per capita in respective economies (WDI, 2016). The World Economic Forum (WEF) reports on competitiveness that poor record of ‘doing business index’ reduce new entrants and foreign direct investment (FDI) which influences productivity, prosperity and well-being of citizens (WEF, 2013b). For institutional quality (Iqx), the relationship between institutions and growth of the financial and economic systems has been treated in various studies (Knoop, 2013, Levine, 2005; Detragiache, Gupta and Tressel, 2005). Poor institutions and corruption are disincentives to entrepreneurial development, foreign direct investment (FDI), and may lead to de-industrialization (Cull and Xu, 2005), while human capital development (Hcd) may provide the requite breakthrough in ‘human ingenuity and technological innovations’ (WEF, 2015). Since human capital and technological development are of long term gestation, it may require market-based finance, such as the development of Africa’s nascent bond market to close the education infrastructure deficit gap in African economies.

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The Model Specification The underlying functional form of the conceptual and theoretical arguments can be presented implicitly in linear model form as follows:

Yit = f (α1 , X 1βit1 , X 2βit2 , X 3βit3 ,..., ε it )

(4)

Where Yit represents financial deepening; X1 is ‘Cost to start business’ (Csb), and X2 is human capital development (Hcd); X3, represents institutional quality index (Iqx). In explicit form, and by applying the log transformation process, the model becomes:

log Yit = α1 + β1 log X 1it + β 2 log X 2it + β 3 log X 3it + ... + ε it

(5)

The study adopts ‘Cost to Start Business’ (Csb), Human capital development (Hcd) as independent variables, and institutional quality (Iqx) as control variable as presented below: Financial deepeningit = f(Cost to Start Businessit, Human capital developmentit, Institutional qualityit) (6) Given the nature of unbalanced panel data, the structure of the model assumes this form: −

−

−

−

Fdpitt = ait + β1Csbitt + β 2 Hcditt + β3 Iqxitt + µi + ε it −

−

−

−

+

(7)

−

+

Where Fdp is financial deepening, Csb is ‘cost to start business’, proxy for entrepreneurship; Hcd is human capital development. Following King and Levine (1993a) this study adopts financial deepening as measure of financial development, due to its liquidity effects, and may substitute for economic growth. Iqx is institutional quality index. Estimation Technique A dynamic relationship is assumed, detailed in an augmented Toda-Yamamoto (ATY) between entrepreneurship, financial deepening, human capital and institutional quality. Toda-Yamamoto (1995) discusses long run regression, by extending granger causality methodology to handle causal relation models in a VAR environment involving non-uniform level of stationarity. The summarized specification of the original Toda and Yamamoto (1995) framework for Yt and Xt series stated with panel notation are presented below: m+d

n+d

φ jYit −i +

Yit = a + j =1

ϖ k X it − j + ε Yit

m+d

n+d

ϕ j X it −1 +

X it = a + j =1

(8)

k =1

δ k Yit −1 + ε Xit

(9)

k =1

Where d represents maximum order of integration of the variable in the system, m and n are optimal lag of Yt and Xt. The random error is assumed white noised. This study extends the TY dynamic long run

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form by introducing short run innovation. The model adopts modified Wald test, whose statistics for Y equation is presented below:

F=

( RssRY − RssUY ) / K RssUY / ( N − K )

(10)

Where K represents the number of estimated coefficient. Using the F-test and Chi-squared statistics, the null hypothesis of no co-integration relationship is defined as: H0 = 1= 2= 0 against alternative hypothesis that H1 1 2 0 of the presence of co-integration. In explicit form, following Masmoudi (2010) on the dynamic linkage of Global hedged funds and traditional financial assets, the dynamic multivariate panel Granger-VAR system is presented, and thus accounts for the elimination of individual country specific effects µi as follows in equations 11 to 14:

P

P

∆Fdpit = α1 +

P

θ1 j ∆Hcdit − j + j =1

P

δ1 j ∆Csbit − j + j =1

ψ 1 j ∆Iqxit − j + j =1

γ 1 j ∆Fdpit − j + ε it , j =1

(11) P

P

∆Hcd it = α 2 +

P

θ 2 j ∆Hcdit − j +

P

δ 2 j ∆Csbit − j +

ψ 2 j ∆Iqxit − j +

γ 2 j ∆Fdpit − j + ε it ,

j =1

j =1

j =1

j =1

P

P

P

P

(12)

∆Csbit = α 3 +

θ 3 j ∆Hcdit − j +

δ 3 j ∆Csbit − j +

ψ 3 j ∆Iqxit − j +

j =1

j =1

j =1

P

P

P

γ 3 j ∆Fdpit − j + ε it , j =1

(13)

∆Iqxit = α 4 +

θ 4 j ∆Hcd it − j + j =1

(14) Where:

δ 4 j ∆Csbit − j + j =1

θ , δ ,ψ , and γ

P

ψ 4 j ∆Fdpit − j + j =1

are unknown parameters;

γ 4 j ∆Iqxit − j + ε it , j =1

α1−4

are constant terms;

ε it

is the

residual, white noise (idiosyncratic) compliant for each equation. In addition, the VECM framework that allows for multiple co-integrating vectors, with each explanatory variable bearing its speed-of-adjustment parameter can be represented as: p

∆Yt = α +

Γi ∆Yt −i + Πet −i + ε t 1= i

(15)

Γ = τβ ′ (16) Where Y represents vector of variables listed in 11-14; τ represents a matrix of speed of adjustment parameters, β represents matrix of co-integrating vectors, ε is vector of error terms.

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Analysis of Results Unit Root Test To determine the level of stationarity, within the context of heterogeneous panel, the study uses three panel unit root processing techniques. That is, the study assumes the common unit root based statistics; the Levin, Lin and Chu ( LLC, 2002); and we assume individual or entity based unit root statistics- Im, Pesaran and Shin (IPS, 2003) and ADF-Fisher Chi-Square. This study places overriding priority on the IPS test for its superiority in handling heterogeneities among entity unit roots in panel. The unit root test presented in table 1 shows that Financial deepening (Fdp) is stationary at level while Institutions’ regulatory quality (Iqx) is stationary at level. Cost to start business (Csb), and Human capital development (Hcd) are stationary at second difference. The outcome of the integrated variables partly influenced the Toda-Yamamoto estimation techniques, augmented for the short run innovation. Table 1: Unit Root

Variable

Fdp Iqx Csb

Common unit root process assumed LLC Prob. test

-5.6666 -3.3804 -

0.000*** 0.000*** -

Individual (country) unit root process assumed IPS test

Prob.

-2.3028 -2.1539 -3.7196

ADFFisher Chisquare 42.7283 37.3020 52.2211

Prob.

Level of station

Assumption on Exogenous variable Ind. effects Ind. effects Ind. effects

0.0106** 0.010** Level 0.0156** 0.004*** 1st diff. 0.0001** 0.000*** 2nd diff. * Hcd -1.5466 0.0610* 30.9009 0.013** 2nd diff. Ind. effects Source: computed by the authors using E-view 7. *; **; *** indicates significant at 0.1, 0.05 and 0.001 significant levels respectively

Lag Selection Process An examination of table 2 below reveals that the study chooses lag length 2 as the optimal, being a consensus of majority of the criteria: All Information Criterion (AIC), Final Prediction Error (FPE), and sequential modified LR test statistics. Table 2: Lag Selection Lag LogL LR FPE AIC SC HQ 0 -289.6432 NA 0.015154 7.162030 7.279431 7.209165 1 -116.1258 325.8742 0.000325 3.320141 3.907146* 3.555815* 2 -94.72275 38.10787* 0.000286* 3.188360* 4.244968 3.612572 3 -79.98148 24.80847 0.000297 3.219061 4.745273 3.831811 Source: computed by the authors (2017) using E-view 7: where LR: sequential modified LR test statistic (each test at 5% level); FPE: Final prediction error; AIC: Akaike information criterion; SC: Schwarz information criterion; HQ: Hannan-Quinn information criterion. * denotes lag order selected by the criteria.

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The Findings: Short-Run (Dynamic) and Long-Run Results The result of the multivariate interactions is presented in table 3 below, with four short run (dynamic) multivariate equation results of mixed outcome: Financial deepening (Fdp), Human capital development (Hcd), and Institutional quality (Iqx) produce the required standard negative short run adjustment coefficients, indicative of speed of adjustment to equilibrium It reveals that there are short run dynamic influences flowing from the respective explanatory variables jointly impacting the dependent variables. Thus, the results reveal reasonably that the models tend towards long run stability. However, the ‘cost to start business’ (Csb) variable produces positive short run coefficient, an indication that the Csb models would not converge, tends to be explosive; its short-term instability may be transmitted further to the long term, hence no long term equilibrium. Table 3: Short Run (Dynamic) Causality Results Dependent variable

Coefficient: Short run residual

Std. Error

Outcome and implication

Fdp

Optimal Lag order of exogenous variables 2

-0.34647

0.2593

Hcd

2

-0.16253

0.2429

Csb Iqx

2 2

0.02015 -0.64305

0.3013 0.4064

Joint influence of the model’s exogenous variables flow to the dependent variable and converges to equilibrium Joint influence of the model’s exogenous variables flow to the dependent variable and converges to equilibrium No convergence to equilibrium Joint influence of the model’s exogenous variables flow to the dependent variable and converges to equilibrium

Source: Authors’ computation (2017) using E-view 7.

Long Run Causality Result The long run causality results presented in table 4 shows negative long run causality from ‘cost to start business’ (Csb) (proxy for entrepreneurship) to financial deepening (Fdp), albeit insignificantly. This suggests that the high ‘cost to start business’ in Africa is disincentive to prompting financial development. For hypothesis 2, the Wald test result reveals that Fdp positively drives Hcd in the long term. An insight into these outcomes may underscore the contentious debate of whether growth drives financial development or otherwise in developing economies. Since Hcd does not drive Fdp, it can be deduced a priori that growth through human capital investments fail to drive financial development, while financial development drives growth in the African region. The study fails to reject the null hypothesis of no significant causal flow from human capital development (Hcd) to entrepreneurship. The outcome suggests low quality education output which does not prompt entrepreneurship. Non-qualitative education system is likely not to produce genius, creativity and inventors. The reverse causality from entrepreneurship (Csb) to Hcd is however indicates that Csb significantly drives Hcd. Further result reveals that financial deepening (Fdp) has positive long term causal relationship with institutions’ regulatory quality (Iqx), while the reverse causality is insignificant. Financial deepening may

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encourage risk taking and risk sharing attitude, which should inspire institutional support to drive effectiveness and efficiency in the financial industry. A dynamic financial market may inspire regulatory institutions, as Levine (2004) reveals that developments in the money and capital markets have positive link with development of financial institutions, such as regulations that ensure fair secondary market trading, contract enforcements, adequate information dissemination or sharing, investors’ protection, and so on. Moreover, the financial system can perform incredibly to aid growth and development if credible institutions are in place in African economies. The lack of long run co-integration flow from regulatory institutions to financial deepening may reveal poor state of institutional support for development in Africa. Moreover, two positive and significant outcomes of the study is that one way long-term causality exists from institutional quality (Iqx) to entrepreneurial development (Csb), and from Iqx to human capital development (Hcd. The former result, that is, Iqx driving Csb may affirm that effective institutions’ governance system is needed for wide-spread entrepreneurship in the region. Given that Africa is largely consumption-oriented population, global entrepreneurs may revert to African economies if requisite regulatory institutions and market-oriented policies are consistently in place. The latter case signals that quality institution significantly impact human capital, transmittable to deepening finance in the region. The result of human capital (Hcd) not driving institutional quality (Iqx) may have revealed the poor education output and ‘training for leadership’ of African education, such that by a priori, quality of education determines a nation’s growth supporting institutions and hence the living standard. Table 4: Long Run Causality Result: Augmented Toda-Yamamoto Granger (Non-causality & cointegration) Approach Null Hypothesis

Coefficient

MWald test (p lag order =2) value/(prob.):

χ 2 Stat.

Co-integration & Causality?

F-Stat.

Csb does not cause Fdp -0.0002 0.65(0.72) 0.32(0.72) no Fdp does not cause Csb 11.149 1.24(0.53) 0.62(0.54) no Hcd does not cause Fdp 0.188 2.45(0.29) 1.22(0.30) no Fdp does not cause Hcd 0.471 yes: Fdp Hcd 9.86(0.00)*** 4.92(0.01)** Csb does not cause Hcd -0.002 5.04(0.08)* 2.52(0.09)* yes: Csb Hcd Hcd does not cause Csb -9.775 1.97(0.37) 0.98(0.38) no Iqx does not cause Fdp 0.05 0.42(0.80) 0.21(0.81) no Fdp does not cause Iqx 1.82 5.39(0.06)* 2.69(0.08)* yes: Fdp Iqx Iqx does not cause Csb 33.92 11.90(0.00)*** 5.95(0.00)*** yes: Iqx Csb Csb does not cause Iqx 0.004 2.12(0.34) 1.06(0.35) no Iqx does not cause Hcd 0.065 5.19(0.07)* 2.59(0.09)* yes: Iqx Hcd Hcd does not cause Iqx -0.462 2.48(0.28) 1.24(0.30) no Source: computed by the authors (2017) using E-view 7; *,**,*** indicate significance at 0.1, 0.05 and 0.001 levels respectively. denotes one-way causality; yes: indicates co-integration and causality; no: indicates no co-integration and causality. Probability values are in parenthesis. Presented in table 5 below is the overall (Wald) test for individual equations in the multivariate model. Two equations, human capital (Hcd) and entrepreneurship (Csb), are statistically significant. It provides overall long run evidence that the explanatory variables- Fdp, Csb, Hcd, and Iqx jointly and contemporaneously influence the respective dependent variables (Csb and Iqx) in the long term. However, Fdp and Iqx equations are not significant which may suggest that their respective models require more explanatory variable.

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Table 5: Long Run Causality Results: Joint Statistics Modified Wald Test 2 Variables studied @ lag Test statistics value Prob.( χ Stat.) Prob.(F. Stat.) 2 order P=2: Fdp, Csb, Hcd, χ Stat. F. Stat. and Iqx Dependent variable: Fdp 41.0016 5.1252 0.0000 *** 0.0005*** Dependent variable: Hcd 18.3284 2.2910 0.0189** 0.0500** Dependent variable: Csb 229.503 28.6879 0.0000*** 0.0000*** Dependent variable: Iqx 16.2833 2.3854 0.038 ** 0.0787* Source: computed by the authors (2017) using E-view 7; *,**,*** indicate significance 0.001 levels respectively.

Outcome: joint influence flow? Yes Yes Yes Yes at 0.1, 0.05 and

Diagnostic Tests Co-Integration Test To ascertain evidence of co-integration, the Pedroni residual result presented in table 6 suggests rejection of the null hypothesis of no co-integration exists among the variables. Table 4.6: Pedroni residual co-integration test Test Intercept Intercept and Trend Panel adf-statistics -0.851552 -3.199410** Panel t-weighted stat. -1.665850* -2.560699** Panel adf-Weighted stat. -2.061165** -3.235299** Group t-statistics -2.507640** -3.039117** Group adf-stat. -1.985863* -4.519239** Source: Computed by the authors (2017) using E-view 7; Pedroni (2004) one sided statistics critical values -1.64 (k < -1.64). * & ** represents significance 5% and 1% respectively, suggests rejection of the null.

Serial Correlation Test The Lagrange multiplier (LM) serial test result presented in table 7 below reveals that the study fails to reject the null hypothesis that there is no serial correlation at both lags 1 and 2, as the probability is above 5% threshold. Table 7: VAR residual correlation LM test Lag 1 2

Observations 95 95

LM-Stat. 24.09619 24.13770

Probability 0.0874 0.0865

Sources: By the authors using E-view 7. Probs from chi-square with 16 df.

Discussion of Findings A major outcome of the study is that both entrepreneurship (Csb) and financial deepening (Fdp) do not drive one another in the long term, neither does human capital (Hcd) co-integrate and cause entrepreneurship (Csb) and institutional quality (Iqx). It may indicate poor state of human capital, as catalyst and ‘vector’ to critical growth variables, enroute impacting financial deepening. Quality

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education may open up the mind of the learner to latent business opportunity and assist in creating markets that would deepen finance. It points to the key challenge of the education system in developing economies, as current human capital being produced may be less relevant relatively, to match demand, and meet the fast-changing labour market opportunities (UNESCO, 2014). The lack of co-integrating linkage of human capital to entrepreneurship is more precarious, as this may have accounted for growing level of unemployment in the economies. Entrepreneurship theory reveals that human capital impacts entrepreneurial development directly and indirectly (Fogel et al., 2006). In addition to promoting basic knowledge, academic content of learning ought to promote problem-solving capacities and creative thinkers. Low factor productivity remains the most daunting causes of persistent poverty in developing countries (Altenburg, 2011). Entrepreneurial talents require absorption, adaptation and application of knowledge and technology creatively. Similarly, the poor linkage from human capital to institutional quality evidences the underperformance of Africa’s institutions and bane of her underdevelopment, unlike advanced economies. Further result that financial deepening (Fdp) lacks co-integrating course with entrepreneurship (Csb) may have revealed the perverse state of African financial system, as its high interest cost discourages long term risk taking attitude. Though, for developing countries Mckinnon (1973) and Shaw (1973) emphasize financial repression as bane of financial development towards impacting the real sector growth, however African economies are noted for ‘maladapted’ financial system and bank disorientation against long term investments (Ojo, 2010). Lack of legal support, information asymmetry, high interest rate on borrowings and corresponding low deposits rate still run in many African financial markets, hence long term borrowing for start-ups and entrepreneurship seem herculean (Knoop, 2013). Furthermore, one-way causal influence from financial deepening (Fdp) to human capital development is achieved, and as a fall-out from earlier paragraph, human capital (Hcd) does not drive financial deepening (Fdp). As human capital creates market and functions it, the result may be an indication of paucity of the financial system to provide needful intermediation function. Given low annual public budget for education in majority of the economies, the low quality of education may not be in doubt, such that outputs may lack entrepreneurial innovativeness and capacity for critical thinking. In reality, quality education is required for the development of needful entrepreneurial ‘spirit’ in the modern higher school graduate for global competitiveness in innovation and productivity. UNESCO (2014) reasons that in many societies, knowledge acquired by recent graduates did not prepare them for the labour market. Advocates of a knowledge economy contend that the weak ‘state of doing business’ index in developing countries may be overcome by requisite knowledge, skill and by extension enquiring mind wishing to overcome business obstacles (Altenburg, 2011; World Bank, 2001). Upon that feat can skillful innovators engineer financial development through product development. Furthermore, lack of creative human capital only end-up increasing the low productive distributive and service sectors for the new school leavers especially at the college graduate level, rather than the much needed high value addition from new creativity and innovations. Should there be commitment to quality human capital, genuine entrepreneurial development can transform the African economies, improve the level of employment and the peoples’ living standard, and reduce household poverty.

Summary of Findings, Conclusion and Recommendations Summary of finding Three hypotheses were tested. Results of the short-run dynamic residuals of financial deepening (Fdp), Human capital (Hdp) and institutional quality (Iqx) produce negative coefficients, which suggest convergence and co-integration. Result of the first hypothesis reveal that in the long-term

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entrepreneurship does not significantly impact financial deepening; the second hypothesis similarly reveals that human capital development (Hcd) does not positively link financial deepening (Fdp) in the long term. Neither does human capital (Hcd) drive entrepreneurship.

Conclusion Based on the findings above the study concludes that human capital development does not significantly drive entrepreneurship, which itself does not link financial deepening; an indication that risk taking tasks by prospective entrepreneurs may be a monumental task for financial market development.

Recommendations The findings of this study have informed the following recommendations: First, the disconnect from entrepreneurship to financial deepening requires institutions in governments and private sector to devote commitment to entrepreneurship. Secondly, human capital development lacks long term causal relations with financial deepening. Here, a robust education curriculum that incorporates skill development by ‘town and gown’ interfacing can build the needed manpower to manage productive resources, to create wealth and build businesses. Thirdly, human capital does not co-integrate with entrepreneurship. It is recommended that higher education should be privatized as competitiveness can produce a better quality output. Government regulatory policies on education services should be on quality human output rather than quantity. Mechanisms of ‘training the trainer’ on the needs of the labour market through industry-college recurrent workshops, lectures, seminars and conferences can be initiated by proactive regulatory institutions. Fourthly, as financial deepening does not influence entrepreneurship in the long term, it requires government to evolve stable macroeconomic system that will lower cost of funds. Government may have to intervene at influencing low monetary policy rates at the Central Bank. Fifthly, financial deepening driving human capital significantly implies that education infrastructure can be further boosted by existing financial products. This study advocates development of education bond towards financing standard education infrastructures. Sixthly, entrepreneurship drives human capital significantly in the long term. The paper recommends that the institutional challenges of entrepreneurship such as ease of doing business and financing issues be addressed by government. Seventh, institutional quality adversely drives entrepreneurship. On institutions link with entrepreneurship, governments should periodically review the legal and regulatory policies to further give incentives to reduce the cost to start-up business and enhance the ease of doing business. Also, government should ensure adequacy and strict enforcement of property right laws. Finally, the nonlinkage of human capital to institutional quality requires that government evolve a research culture, invest in research infrastructure, and promote competitive higher education by privatization. Scholarships should be provided for higher quality human capital development.

Acknowledgment The authors duly appreciate Covenant University Ota, Nigeria for the full sponsorship of their participation at the 31st IBIMA Conference.

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The Role of Human Resource Management in Developing a Culture of Innovation in an Organization Dorin Maier, PhD ec. PhD eng., Technical University of Cluj- Napoca, Romania, [email protected] Andreea Maier, PhD, Technical University of Cluj-Napoca, Romania, [email protected] Ioana Ceausu, PhD, Bucharest University of Economic Studies, Romania, [email protected] Elisa Gotesman, Bucharest University of Economic Studies, Romania [email protected] Adrian Bercovici, Bucharest University of Economic Studies, Romania.

Abstract This paper presents research results regarding the role of good human resource management in developing an innovation culture that can support an organization to implement and benefit from the innovation process. In today's highly dynamic and competitive business environment, organizations are exposed to higher challenges with meeting the ever-increasing needs and expectations from the market and customers. To ensure the competiveness and success of the organization managers need to accept innovation as a key element for the organization, knowing that innovation is one of the key factors in this sense. The aim of this paper is to highlight the link between human resource management and the innovation performance of organizations. In this context we analyzed the human resource management activities supporting innovation and connect them with the main determinants for developing an innovative culture in an organization. A good idea comes from a person, but it is transformed in innovation by a team so human resource management must be an engine of innovation.

Keywords: innovation, innovation process, importance of innovation, economic globalization. Introduction The success, performance and competitiveness of any organization depend, to a large extent, on the content and quality of human resource management, as, as many specialists in the field emphasize, the competitive advantage of an organization resides in its people. People are a common resource and, equally, a vital resource of all organizations, regardless of the field in which they operate, a resource that ensures their survival, development and competitive success. Without the actual presence of people who know what, when and how to do it, it is simply impossible for organizations to achieve their goals. Organizations exist because people have limited physical and intellectual capabilities, but also the capacity to develop the organization (Maier, 2013). The link between human resource management and the innovation performance of organizations is a theme developed in many publications, especially in the last decades. In the 1990s, many studies focused on "new practices in human resource management" - a global label on a series of changes relating to: organizing working relationships (including teamwork, decentralization of leadership and empowering employees), learning continuous access to information, dissemination of internal knowledge, rewarding performance, etc. (Laursen & amp; Foss, 2000, 2013; Chen & Huang, 2009)

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These practices have spread rapidly, becoming the distinctive elements of modern management, essential for the efficient use of human resources and adaptation to the requirements of a flexible and learner organization (Nielsen, 2006). According to Nielson, "Employee issues are part of the innovation system and, from this perspective, skills development and learning are important."

Human Resource Management Activities Supporting Innovation Managers' attention is focused largely on urgent daily issues. Innovation is often not an emergency although this is considered an important issue. Managers need to realize that the postponement of innovation today undermines the ability to innovate tomorrow, and innovation should be an urgent matter. When a leadership team becomes aware of the changes needed for innovation, it identifies a series of challenges they face such as: -

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the need to protect innovation from potential mistreatment; to be credible, innovation must produce consistent results; new ideas require a certain attitude (visionary thinking, observing possibilities at the expense of problems, etc.) which, in many cases, is exactly the opposite of how people have been taught to perceive these situations; innovation will flourish only if there is a change in management style.

Faced with such a scenario, most managers tend to withdraw. There are also cases where directors are willing to face the challenges of developing new opportunities. There are two key issues for any organizational solution that aims to achieve innovation in a company. First of all, innovation is a challenge that is resolved more with human resources than technical ones. Developing innovation capacity requires a paradigm shift in leadership strategy and the way people act. Secondly, and more importantly, innovation is aimed at the management pyramid. The move towards a completely innovative culture calls for new managerial skills and practices that have so far not been considered vital. Successfully introducing innovation on the market is done by combining efforts across several different areas. The advantage of creating an environment where everyone can contribute to creating an innovative culture becomes one of the priorities on the managers' agenda. The best tactic to create an innovative culture is to introduce management practices (progressive, spreading employees at each level through different channels) to promote innovation. Changing the management style (in every aspect: setting goals, planning, allocating resources, evaluating employees, rewarding and recognizing merits, assigning degrees of responsibility and autonomy, managing information, etc.) leads to an innovative, conscious or unconscious culture (Maier, 2013). Human capital is unique in terms of growth and development potential, people's ability to know and overcome their own limits, to meet new challenges or current and prospective exigencies. Human resources are valuable, rare, difficult to imitate, and relatively irreplaceable. People have the potential to create material and spiritual assets capable of meeting new requirements or better meeting some of the old requirements. People design and produce goods and services, control quality, allocate resources, make decisions, and set or develop goals and strategies. Human resource management decisions interconnect individual organizational and situational factors, vary from one country to another, from one organization to another, from one organizational subdivision to another, because the relative importance of functions or activities in the field of human resource management is not the same in all situations. Human resource decisions must take into account fundamental moral and ethical principles; reflect the socially accepted system of values and the moral development stage in which that organization is located. Respect for the individual, mutual respect, procedural fairness, transparency, honest communication, fair treatment, honest competition, special consideration, responsibility towards the organization, respect for the law, respect for the personality of the people must be the pillars on which to base the decision-making process managerial skills in human resources. Human resources

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are strongly marked by the time factor needed to change mentalities, habits, and behaviors. Here is where managerial practice has to intervene to overcome relative inertia to change people and turn it into openness and adaptability to diverse situations. Thomas Murphy, a former chairman of General Motors, said: "We must try to treat people the way we want and we like to be ourselves, because it will be good for both the individual and the organization." As worthy human beings, people have the right to be treated fairly, and their personal needs cannot be met without the promotion of adequate human resource management. J.K. Galbraith announced "the human resource's restitution over the other resources." It is what is happening nowadays, when human resources management has differentiated, specialized, autotomized, having a well-defined place within the management, borrowing from it concepts and methods but also innovating, proposing its own language expressions, own concepts, new methods of investigation, thus tracing their own borders, so that the realities of the organization are treated according to the objectives pursued (Covrig, 2007). Employee qualification is, on the one hand, a means of reaching innovation because it is indispensable for further implementation of innovation. On the other hand, qualification is the result of innovation when technological and organizational changes take place in the qualification of employees. Human resource development primarily focuses on a coherent, well-targeted training process with a content tailored to the new skills and qualifications required. An assessment of training needs (analysis of the current work situation) is usually the starting point of any type of training oriented management. By assessing training needs, employees are directed to addressing the issues they have. Thus, the problems and the working situation are analyzed and the implementation of the training becomes possible. Based on training needs assessment, training objectives can be defined. Based on the training objectives, programs, content and tools are set. A fundamental element in the training process is the transfer and implementation of the acquired knowledge in a working situation, the applicability of the training results being the main factor of a successful training (Perdomo-Ortiz, 2009). Human resources management must develop and sustain the organizational and social transformations needed to achieve the innovation goals. To this end, human resource leaders need to understand the critical importance of innovation and how they can contribute to improving the organization's innovation performance. The main activities specific to human resource management with direct effects on innovation performance (Figure 1) is as follows:

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Fig. 1: Human resource management activities that support innovation and development of innovation culture (authors processing) Empowerment of Employees: refers to increasing employee autonomy, the ability to influence the context of work and self-employment. Creating innovation opportunities for each employee by including innovation in the job requirements and in the performance management tools is essential in this respect. Access to information, making resources available, workplace support and development opportunities are also empowerment tools. Recruitment and selection of staff: Organizations must incorporate creativity and other important skills in innovation between recruitment and selection criteria. When organizations engage in innovation, they need creative, flexible people who take risks and have the ability to work in a team. Training in innovation: aims at broadening and enriching knowledge, including training in innovation management, developing creativity and entrepreneurial skills. Innovation performance depends on employee knowledge, so developing extensive and long-term training programs is an essential component of innovative organizations. Communication: developing an open communication system that facilitates broad access to information, collaboration and teamwork. Communication has an important place in innovation management in the context of expanding participation in innovation and interdependencies between the involved structures, being done in specific forms within project teams, but also at the organization level, in leadership, on the flow of creation and development of new products / processes, dissemination of results, etc. Rewarding innovation performance: The organization needs to develop an incentive reward system that encourages innovation. Introducing stimulus packages to reward performance can help increase employee motivation and engagement in innovation.

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Innovation culture: Developing an organizational culture that supports innovation, where innovation is seen as the responsibility of each employee. Summarizing the studies on the culture of innovation, it is defined by the following determinants shown in Figure 1: -

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Values: freedom, risk-taking, trust, openness, creativity, flexibility, lifelong learning Strategy: innovation as a strategic goal, strong customer identification, future orientation; Structure: autonomy, flexibility, collaborative teams and group interaction, transparency; Behavior and communication: support, tolerance of mistakes; opening up new ideas; the ability to adopt new ideas; rapid adaptation to market changes; trust relationships; emphasis on key competences; Leadership: focusing on innovation management and shaping behaviors that encourage innovation, such as risk taking, innovation support, and rewarding initiatives.

Leadership plays a decisive role in achieving the behavioral transformations on which organizations' innovation performance depends. In the opinion of the specialists, the leading role of the leader in innovation is to create a culture in which innovation and creativity are found in everyone's work. The defining values of the firm are essential tools of leadership in modern management. Values determine priorities and decisions, which are reflected in the way a company spends its time and money. The values of a company are not what the leaders say or what they write in promotional materials and reports, but what people, leaders and employees do. Really innovative organizations provide the resources needed to support entrepreneurial action, stimulate creativity and learn. Behaviors describe how people act in terms of innovation. For leaders, these acts include the description of the future through strategies and plans, and the energizing of employees to achieve defined goals. For employees, innovation actions include participation in innovation by finding solutions or engaging in projects, perseverance in overcoming technical barriers, negotiating resources, listening to customers, etc. An important feature of the organizational culture of high performance companies in innovation is the cultivation of a smart climate of risk taking and learning from failures instead of sanctioning mistakes. Innovative businesses distinguish between low or non-performance performance and innovation failures, establishing acceptable risk tolerance and an innovation strategy appropriate to the level of risk accepted. Each of the human resource issues listed above has effects on innovation performance but, to maximize results, they should be seen not as isolated actions but as a system.

The Culture of Innovation The culture of innovation is a catalyst for innovation that makes it possible for innovation to become a daily way of life for both managers and other employees. Numerous studies on the innovation include the culture of innovation as key success factors (Angel, 2006; Lombardo & Roddy, 2010; Rao & Weintraub, 2013; Losane, 2013). Starting from this perception, it becomes important for managers interested in innovation to formulate answers to the questions: What is the culture of innovation? How can it be built? Focusing on organizational culture emerged as theory and practice in the 1980s of the last century. Organizational culture is a social variable, defines the distinctive way in which people perform their tasks, treat clients, solve problems and conflicts, etc. Simply defined, organizational culture is the "lifestyle of an organization" and is found to be mainly expressed in behavioral patterns of employees (Dauber et al., 2012). Organizational culture is what gives personality and identity to an organization. Each organization has its own culture, synthesized in the values, beliefs, beliefs and aspirations shared by members of the organization. The organization's approach from this perspective helps to understand the different impact and difficulties in organizational change. Studies show that the failure

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to implement modern management systems or other change projects has occurred, in most cases, because the organization's culture has not been aligned with the new values and principles. When the assumed values and employee behaviors remain constant, resolutions are often formal, even if the structures and working procedures have been modified. These do not result in the expected results, on the contrary, they often produce frustration, loss of confidence and employee morale, and the organization may get worse than before the change projects (O'Donnell & Boyle, 2008; Popescu, 2011). Organizational culture counts enormously in innovation. The analysis of the characteristics of the successful firms shows that they have developed organizational cultures where innovation is seen as the responsibility of each and as an objective that employees at all levels try to achieve in their daily work (Kasper & Clohesi, 2008). No matter how large or small an organization is, it cannot effectively implement its strategy without the commitment of leadership and employees. Leaders who are dedicated to innovation and who also prioritize employees who want to innovate will also understand how to do it (Reuter, 2018). The phrase "innovation culture" is associated with organizational practices and behaviors related to innovation, being an increasingly widespread theme in recent years, in the context of the concentration of organizations on innovation. But many companies face barriers that stop them from starting this process of innovation. Innovation has clear benefits for both organizations and employees. So why is innovation so difficult to be a priority? Some of the barriers to innovation are (Reuter, 2018): -

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Resources - It takes time, money and resources to innovate. Leaders tend to focus their efforts on more controllable parts and less devotes resources to innovation. Culture - Employees should be empowered to innovate, yet cultural issues inhibit this. If you do not reward or recognize employees' efforts and do not equip them with skills, confidence and autonomy to innovate, people are not stimulated to invest time in thinking outside of the organization. Fear of failure - Fear of failure, a byproduct of culture, also inhibits innovation. Collaboration - collaborative collaboration may seem an easy concept, but for some organizations it is harder than it seems. Sometimes, processes, procedures, and structural frameworks make it difficult for teams to effectively share ideas and work together inhibiting their ability to innovate.

But many of these barriers can easily be overcome if leadership pledges to innovate. And those leaders and organizations that do it best, not only communicate well and embrace it, they also create an environment focused on supporting and inspiring ideas and innovative collaboration. While innovation starts with a leadership commitment, it is very important to engage and involve employees at all levels of the company. Communicating, creating innovation forums, and providing employees with opportunities to experience it are the key to stimulating innovation and discovering the next important initiative (Reuter, 2018). An important feature of the organizational culture of high performance companies in innovation is the cultivation of a smart climate of risk taking and learning from failures instead of sanctioning mistakes. Innovative businesses distinguish between low or non-performing performance and innovation failures, establishing acceptable risk tolerance and an adequate innovation strategy (Global Innovation 1000).

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Conclusions Innovation depends on people, on their ability to generate knowledge and ideas and to apply them to their workplace and society. Organizational innovation performance is related to new practices in human resource management related to: organizing working relationships, lifelong learning, access to information, dissemination of internal knowledge, rewarding performance, etc. Employees of any company are the greatest "wealth" because they bring skills, knowledge and experience to the company that impact on business performance and business goals. Employee performance is being tested by a changing market environment; they need to be kept up to date with the latest technological breakthroughs, customer demand, new product or process standards, management techniques or government and EU regulations, financial and business, health and safety rules, etc. On the other hand, the requirements of the client and the market are manifested by a constant change. A good idea comes from a person, but it is transformed in innovation by a team so human resource management must be an engine of innovation. The development of a culture conducive to innovation is a complex process and is carried out in parallel with the implementation of appropriate openminded structures and new innovation management tools. The key to success is communication, training and staff training.

References Angel, R. (2016), Putting an innovation culture into practice, In: Ivey Business Journal Online, 2006, http://www.gilfordgrp.com/ Brian Reuter, James, Ashley (2018), How culture can make or break innovation main image, ORC International, https://orcinternational.com/innovation/culture-can-make-break-innovation/ Chen, C-J, Huang, J-W, (2009), Strategic human resource practices and innovation performance — The mediating role of knowledge management capacity. In: Journal of Business Research 62, Covrig, S. (2007), Managementul Resurselor Umane, PhD Thesis, Universitatea "Politehnic " Bucure ti Dauber, D., Fink, G., Yolles, M (2012), A Configuration Model of Organizational Culture, SAGE Open, 2012, accessed on June 18, 2016 Gupta, A., (1993), A Study of Metrics and Measures to Measure Innovation at Firm Level & at National Level, Institute pour le Management de la Recherche et de l’Innovation, Kasper, G., Clohesi, S. (2008), Intentional Innovation: How Getting More Systematic about Innovation Could Improve Philanthropy and Increase Social Impact, W.K Kellogg Foundation Laursen, L., Foss, N.J. (2000), New HRM Practices, Complementarities, and the Impact on Innovation Performance, The 3rd Applied Econometrics Conference, Alicante, Spain, 20 –21 April 2000 Laursen, L., Foss, N.J. (2013), Human Resource Management Practices and Innovation. In: Handbook of Innovation Management, edited by Mark Dodgson, David Gann and Nelson Phillips, Oxford University Press, 2013

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Lombardo, J.B., Roddy, J.D. (2010), Cultivating organizational creativity in an age of complexity. A companion study, the IBM 2010 Global Chief Human Resource Officer Study, IBM Institute for Business Value Losane, L., Innovation Culture – Determinant of Firms´ Sustainability. In: International Journal of Social, Education, Economics and Management Engineering Vol:7, No:10, 2013, p. 1483-1488 Maier, A. (2013), Cercet ri i contribu ii la dezvoltatea modelelor de management al inov rii, PhD thesis, Universitatea Tehnic din Cluj- Napoca, Romania Maier, D., Olaru, M., Weber, G. and Maier, A., (2014), Business Success by Understanding the Process of Innovation. In: s.n., The 9th European Conference on innovation and Entrepreneurship – ECIE 2014, Belfast, UK, 18-19 September 2014. Maier, D., Olaru, M. and Maier, A., (2013). Integrating concepts of innovation and creativity - a key to excellence in business. In: s.n. The 8th European Conference on Innovation and Entrepreneurship. Brussels, Belgium, 19-20 September 2013 Nielsen, P., The Human Side of Innovation Systems – Innovation, Organizations and Competence Building in a Learning Perspective, Aalborg University Press, 2006 O’Donnell, O., Boyle, R., Understanding and Managing Organizational Culture, Institute of Public Administration, Dublin, Ireland, 2008 Perdomo-Ortiz, J., Gonzalez-Benito, J., Galende, J. (2009), An analysis of the relationship between total quality management based human resource management practices and innovation, The International Journal of Human Resource Management, Vol. 20, Nr. 5 Popescu, M., Management.,Course ID. Ed. Universit ii Transilvania din Bra ov, 2011 Rao, J., Weintraub, J., How innovative is your company’s culture? In: Magazine: Spring, 2013

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Exchange Rate Management and Sectoral Output Performance Isibor Areghan, Covenant University, Ota, Nigeria, [email protected] Olokoyo Felicia, Covenant University, Ota, Nigeria, [email protected] Arogundade Maria, Covenant University, Ota, Nigeria, [email protected] Osuma Godswill, Covenant University, Ota, Nigeria, [email protected] Ndigwe Chisom, Covenant University, Ota, Nigeria, [email protected]

Abstract The aim of all national economies is to stabilize its exchange rate with the countries it trades with; therefore exchange rate is very vital to the economy of every country. Nigeria has adopted both fixed and fluctuating exchange rate regimes in order to realize the goal of a stable exchange rate but this has proven futile as the economy has continued to perform poorly over the years. This study is therefore aimed at examining the effect exchange rate management has on output performance of both the agricultural and the manufacturing sector. Secondary data from 1981 – 2015 were analyzed using the Ordinary Least Square technique. The findings revealed that exchange rate have a positive and significant effect on only the agriculture sector. The study recommends amongst others that efforts should be made to increase the exportation of agricultural products in order to boost exchange rate.

Keywords:

Exchange

rate;

Agriculture;

Manufacturing

sector;

Sectoral

output

Introduction Exchange rate can be defined as the value of one currency in relation to another. It is the price of the currency of one country in terms of another. The goal of every economy is to have a stable exchange rate with the countries it trades with. The exchange rate of a country is of vital importance to a country’s international trade because no country is self-sufficient or independent as a result of the variation in various endowments (Enekwe, Ordu, and Nwoha, 2013). According to Alabi (2015), the bleak economic development in Africa could be linked to the changes in real exchange rate. It is therefore important to state that an efficient exchange rate policy is important to enhance economic performance in any country. Asher (2012) stated that the exchange rate of a country is used as a yard stick to determine the growth of the country. In Nigeria, the stability of exchange rate was not achieved in spite of the devaluation of the naira to promote export. Enekwe, Ordu, and Nwoha (2013) observed that exchange rate management in developing nations are most times unstable due to the structural reformation needed like reduction of goods importation and increasing the exportation of goods and services. Ikpefan, Isibor, and Okafor (2016) stated that exchange rate was fairly stable from 1973 to 1979 during the oil boom period since 70% of the nation’s GDP was made up of agricultural products, but in 1986 after the introduction of the Structural Adjustment Programme, the country moved to a flexible exchange rate from a fixed exchange rate which was determined by market forces. This conflicting exchange rate policy contributed to the fluctuating and unstable nature of the naira and this failure made various industrial sectors of the economy to face the challenge of exchange rate fluctuation (Enekwe, Ordu, and Nwoha, 2013).

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Oladipupo and Onotaniyohowo (2011) observed that fluctuations in the rate of exchange had a significant effect on some macroeconomic variables in the economy like the level of inflation, unemployment, interest rates, and money supply. Exchange rate fluctuations also affect the production of goods in the economy, investment opportunities, level of employment, and income and wealth distribution, (Oladipupo and Onotaniyohowo, 2011). Elumelu (2012) defined management of exchange rate as a deliberate attempt at controlling and using optimally the available foreign resources in a country while making sure the external reserves increases so as to dodge external shocks which are because of the reducing foreign exchange incomes. The effective management of exchange rate in a country is one of the key elements in the financial structure of various industrial sectors. The economy of Nigeria has been described as a ‘Mono Economy’ exporting majorly crude oil and importing 60% of our basic commodities. In a country with high import rate, there is a great demand for foreign exchange, from the power subsector, oil and gas industries, manufacturing industries, commercial sector and other sectors of the economy. Therefore, exchange rate fluctuations affect the purchasing power, balance of payment, prices, import, export, external reserves, among others. The Nigerian Naira has depreciated and appreciated several times as a result of government intervention and market forces, so as to obtain a stable exchange rate that would improve the performance of macroeconomic variable and diversify the productive base of the economy (Yaqub, 2010). The Nigerian Government has however been unable to stabilize the exchange rate and the currency has continually depreciated from the early periods till date. As a result of a series of adverse development in the international oil market, Nigeria has been pushed into a difficult situation. The economy continues to depend on crude oil as its single export which contributes up to about 80% of the country’s income while agriculture which was the pillar of the economy before the discovery of oil continues to abate. Also output in the manufacturing sector has been adversely affected during this period. The economy today is facing a foreign exchange scarcity which is as a result of high exchange rate of the naira to dollar, which has resulted into stagflation, leading to increase of prices of goods and services which affect the output of industries. The economy is currently in a recession and this has resulted in major losses in different sectors of the economy. Although a lot of research studies have been done to show the effect of exchange rate fluctuation on economic growth of developing nations, very few studies has been done on its effect on sectors of the economy. This study will thus be examining the effect of exchange rate on two major sectors of the economy which are the agricultural and manufacturing and sectors.

Conceptual Framework Developments in Exchange Rate Policies Between 1959 and 1994, ad-hoc administrative measures were put in place, the Nigeria foreign exchange was the pound sterling until the actualization of the sterling by 10% in 1967. After the exchange rate was changed from pound to naira in 1973, fixed exchange rate were set for the US dollar and the pound sterling. This was done to stabilize the foreign exchange (Obadan, 1997). During the 1970s, many countries were pushed to change their foreign exchange because of unprecedented changes such as high rate of inflation and unemployment, low productivity and instability in the international financial system. Between 1972 and 1994, the Nigeria monetary authorities decided to set naira at par with the US dollar. This period coincided with oil boom period and by 1981, N1.00=$0.65. The official foreign exchange reserve was also $1 billion. During 1985, a policy of one currency intervention was introduced, where naira was quoted against only against the dollar. Ikpefan, Isibor, and Okafor (2016) postulated that this policy was adopted so as to minimize the challenge of high incidence in the foreign exchange quotation.

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During SAP, the Second-tier foreign exchange market was introduced in September 1986 (Isibor, Ojo, and Ikpefan, 2017). The SFEM was operated along with a managed first tier exchange market. Nigeria moved from a fixed exchange rate to a floating exchange rate regimes during this period. During the year 1987, Unified official market was introduced where both the first-tier and second-tier markets were merged. During the year 1988, banks transacted foreign exchange business among themselves but this was discontinued in 1989 due to instability, (Taiwo, Babajide, Okafor, and Isibor, 2016). In October 1990, the Foreign exchange market was liberalized again and the Interbank Foreign Exchange market was introduced (IFEM). They used weighted average to determine the exchange rate at different times. In December 1990, the Dutch Auction System was introduced, although it was first used in April 1987 but was scrapped due to instability in the FOREX market. In 1994, the Federal Government fixed the official exchange rate at N21.1960 to a dollar, in order to secure the illegalities of the parallel market and to prevent bureau the change from selling foreign exchange. In 1995, the dual exchange rate policy was introduced with the aim of reducing the depreciation of naira in the parallel market and for efficient allocation and utilization of resources. The foreign exchange provision decree17 of 195 was enacted which established the autonomous foreign exchange for trading for privately sourced foreign exchange. During the period 1996, 1US dollar=N80.00. In 1997, liberalization of some payments increased the pressure on the foreign exchange which depreciated it to 1USdollar=N85.00 In 2000, the dual exchange rate system was repealed by the Federal Government and the autonomous foreign exchange rate was merged with the government official rate. The official rate of N22.00 to 1 US dollar was also scrapped. The exchange rate in 2001 was N111.20 to 1 US dollar in the foreign exchange market and N128 in the parallel market. During 2002, the Dutch Auction System was reintroduced and the Retail Dutch System was implemented with the CBN selling to end-users through the banks. By January 2003, the naira further depreciated to N131, (Olokoyo, Isibor, Oladeji, and Edosomwan, 2016). In 2006, the market was deregulated with the adoption of Wholesale Dutch Auction System (CBN Bullion, 2007). This was meant to deepen the foreign exchange market on their accounts for onward sale to their customers, (Ogochukwu, Ikpefan, Okafor, and Isibor, 2016).

Trends in the Agriculture Sector Before the CBN was established, Exchange rate earnings were made by the private sector, (Ikpefan, Isibor, and Okafor (2016). During this era the main bulk of the foreign exchange earnings were made from agricultural earnings. In the early 1970’s crude oil replaced agriculture as the major source of export, this was due to the rise in the price of petroleum which helped to increase the foreign exchange reserve of the country. The policies established during the Pre-SFEM period from 1962 to 1986 led to structural changes which resulted into price distortions and increased vulnerability to external shocks, (Adeniran, Yusuf, and Adeyemi, 2014). The liberalization of import control in 1976 threatened the domestic production of both the agricultural and manufacturing sectors. Therefore, the competiveness of the agricultural sector as the principal contributor to the GDP was deteriorating due to the appreciation of Naira, rural-urban migration and in effective pricing policy.

Trends in the Manufacturing Sector Onyeizugbe and Umeaguges (2014) defined manufacturing capital utilization as the extent a nation or enterprise uses its installed production capacity. Before 1986, the reforms in foreign exchange polices helped to boost the manufacturing output. The Nigerian average manufacturing capacity utilization has continued to experience a downward trend while inflation has continued to move upward and the naira

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has continuously depreciated. In 1975, the average manufacturing capacity utilization was 76.6%, in 1980, it moved to 70.1%, 38.3% in 1985, 29.29% in 1995, 36.1% in 2000, 54.8% in 2005, 53.8% in 2008, 58.92% in 2009, and 55.82% in 2010, 58.8% in 2015, in 2016, the manufacturing capacity utilization fell to 50.7% in July from 53.7% in Nigeria. The lack of vital industrial inputs adversely affected the industry capacity utilization which fell from 76.6% in 1981 to averagely 25% between 1982 and 1986. One of the major characteristic of the Structural Adjustment Program was the increase in the cost of importing inputs in order to encourage the use of vital inputs. After the introduction of SAP and the scrapping of the import license system, there was an improvement in industrial performance. There was a continuous rise in the average capacity utilization from 1987 to 1989 by about 32%. The manufacturing sector contributed to about 4% of the GDP in 1977, 13% in 1982, 15% in 2012, and 16% in 2015.

Theoretical Framework Balance of Payment Theory This theory implies that the exchange rate of a nation is determined by the market forces in the foreign exchange market. These forces are determined by the contents of the country’s balance of payment. It also asserts that exchange rate is determined from the position of balance of payments of a country, a nation’s balance of payment can be in surplus or deficit, when it is in deficit that means that there is a more demand for foreign currency than the home currency and when it is in surplus, it means there is more demand for the home currency. Balance of payment theory is a more satisfactory theory than purchasing power parity because it recognizes all items in the balance of payment and their significance, rather than few selected under the PPP theory. This theory also postulates that Balance of Payment Disequilibrium can be corrected by devaluation or revaluation of a country’s currency. One limitation of the BOP is that it is base on an unrealistic assumption of a perfect competition in the Foreign Exchange Market (Akrani, 2010).

Empirical Framework Alabi (2014) examined the effect of real exchange rate fluctuation on Industrial Output in Nigeria. Their developed hypothesis was tested using the OLS regression analysis. Their result and finding discovered a positive bidirectional relationship between exchange rate and output in Nigeria and other resource dependent economies. They conclude that industrial output in Nigeria can be determined by movement in real exchange rate, capital utilization ratio, technology and available foreign exchange. Oladele (2015) studied the effect of the foreign exchange market on economic development in Nigeria within a ten years span (1996-2005) by comparing the movement of the GDP in relations to the exchange rate of Naira and dollar and official and parallel rate data analyzed using the correlation analyses and F ratio techniques. The result showed a direct relationship between the official exchange rate and parallel exchange rate. They both jointly determine the movement of the GDP. He therefore concluded that proper management of exchange rate should be put in place as it is a major determinant of exchange rate. Amassona and Odeniyi (2016) looked into the relationship between exchange rate variation and economic development in Nigeria emphasizing on level of international transaction and the purchasing power of the average Nigerian. The Standard Deviation method was used to estimate fluctuation inherent in the model over a period of 43 years (1970-2013). Other economic techniques such as multiple regression model, error correction model, and Johansen Co-integration were used to analyze the data. The findings showed that exchange rate has a positive but insignificant relationship with economic development in the short

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run. This insignificant relationship was due to the involvement of the government on influencing exchange rate fluctuation in Nigeria. Onyeizugbe and Umeaguges (2014) looked into the effect of exchange rate management and survival of the industrial subsector of Nigeria. The study’s hypothesis was tested using the OLS regression technique with data from CBN statistical bulletin over a period of 23 years. The result showed a positive correlation between exchange rate and survival of industrial factors. Enekwe, Ordu, and Nwoha (2013) studied the effect of exchange rate fluctuations on the manufacturing sector in Nigeria from 1985 to 2010. Data culled from the CBN Statistical Bulletin were analyzed using regression analysis and descriptive analysis. The findings showed that exchange rate fluctuation has a significantly positive relationship with the manufacturing sector of Nigeria. The researchers recommended export diversification in agriculture, agro-allied industries and agro investment as this would improve the development of the manufacturing sector. Oladapo and Oloyede (2014) examined the relationship between foreign exchange rat management and Nigeria economic growth from 1970-2012. Data was sourced from the CBN statistical bulletin and estimated with the OLS estimation techniques within the error correction model. The result showed an insignificant but positive relationship between exchange rate and economic growth. Although variables within an effective Foreign Exchange Rate Management Policy affects Foreign Direct Investment which in turns affects economic growth.

Methodology Model Specification MODEL 1: Agricultural Output LGDPa =

0

+

1

LRER +

2

LYF +

3

LMS +

4

LINT + µ

(1)

Where: GDPa= Output for agricultural output RER= Real effective exchange rate YF = Foreign Income which will be used as a proxy for Foreign Direct Investment. MS= Money Supply INT= Interest rate on Lending. µ= Stochastic error term MODEL 2: Manufacturing Output Equation LGDPm=

0

+

1

LRER +

2

LYF +

3

LMS +

4

LINT + µ

(2)

GDPm= Stands for Output for Manufacturing Sector This study used secondary annual time series data which runs from 1981 to 2015, thus covering a timeframe of 34 years. The data were culled from the CBN statistical bulletin and the World development Indicator. Data for this study would be analyzed using the Ordinary Least Square Regression Analysis. This estimation techniques would enable the researcher determine the relationships among the variables.

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Result Unit Root Test In carrying out this test, the augmented-Dickey Fuller test was used. The test is carried out to test for the stationarity of each variable. A variable is stationary when the value of the ADF statistics test is higher than the critical value at 5%. Table 1: Unit root test result

Variables

Adf Statistics At 1st Difference

Critical Levels (5%)

Order Integration

LGDPa

3.773321

2.954021

I(1)( Stationary)

LGDPm

4.504725

2.954021

I(1)( Stationary)

LMS

3.392523

2.954021

I(1)( Stationary)

LRER

4.910888

2.954021

I(1)( Stationary)

LINT

4.257818

2.954021

I(1)( Stationary)

LYF

10.96493

2.954021

I(1)( Stationary)

Of

Source: Researcher’s computation Using Eviews 9

From the table above, all the variables were stationary at first difference, trend and intercept.

Ordinary Least Squares Regression Analysis Table 2: Result for Manufacturing Sector Variable C LMS LRER LINT LYF R-squared 0.9915

Coefficient 0.824782 0.772035 0.228249 0.318929 -0.074259

Std. Error

t-Statistics

1.395038 0.073502 0.095104 0.228339 0.071364

0.591225 10.50363 3.297030 1.396739 -1.040574

F-statistics = 873.76

Durbin-Watson Test = 1.59

Prob. 0.5588 0.0000 0.0685 0.1727 0.3064

=

Adjusted Rsquared = 0.9904 Source: Computed by researcher Using Eviews 9

From table above, the regression analysis has an r-square of 0.991489; therefore there is a goodness of fit between the dependent variable and explanatory variables. This implies that 99% of manufacturing output is explained by the explanatory variables. From the table also, we can see that there exists a positive significant relationship between money supply and manufacturing output. There exist also a positive relationship between real effective exchange rate and manufacturing output. For interest rate and foreign income, there exists a positive but insignificant relationship between them and the dependent variable.

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The Durbin-Watson stat shows an approximate figure of 2 to show that there is no autocorrelation in the data.

Table 3: Result for Agricultural Sector Variable

Coefficient

Std. Error

t-Statistics

Prob.

C LMS LRER LINT LYF R-squared 0.9904

0.131116 0.720255 0.340617 0.055022 0.008719 Adjusted squared 0.9892

1.861339 0.098070 0.126893 0.304662 0.095217

0.070442 7.344277 2.684292 0.180600 0.091565

0.9443 0.0000 0.0117 0.8579 0.9277

=

R=

F-statistics 777.79

=

Durbin-Watson Test = 2.08

Source: Computed By Researcher Using Eviews 9

Using the table above, the r-square of 0.990449 means that 99% of agriculture output is explained by the explanatory variables. Also, there is a positive significant relationship between money supply and agriculture output, and also between real effective exchange rate and agriculture output. For interest rate and foreign income, there exists a positive but insignificant relationship between them and the dependent variable. The Durbin-Watson stat shows a figure of 2 to show that there is no autocorrelation in the data.

Recommendations From the analysis conducted in this study, it is important that the following recommendation be made to improve the output performance of sectors in Nigeria. 1. There is a need to have a realistic exchange rate in place in Nigeria to promote sectorial output performance. 2. Efforts should be made in order to ensure that monetary and fiscal policies are effective and consistent in order to boost sectorial output performance. 3.

Efforts should also be made to increase the exportation in order to boost exchange rate.

4.

Interest on lending should also be reduced as it negatively impacts the agricultural and service sectors.

Acknowledgement The researchers wish to thank Covenant University for their unwavering support towards the sponsorship of this research article.

References Adeniran, J.O, Yusuf, S.A, and Adeyemi, O.A. (2014), “The Impact of Exchange Rate Fluctuations on the Nigerian Economic Growth: An empirical investigation”, International Journal of Academic Research in Business and Social Sciences, 4(8), 224 – 233

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Akrani, G. (2010). Balance of Payment BOP Theory-Find Exchange rate, Kaylancity.blogspot.com.ng, [Retrieved April 12, 2017] http://kalyancity.blogspot.com.ng/2010/09/balance-of-payments-bof-theoryfind.html, (5-6-2017) Alabi, O. R. (2015) “Foreign Exchange Market and the Nigerian Economy”, Journal of Economics and Sustainable Development, 6(4), 102-107 Amassona, D. and Odeniyi, B.D. (2016) “The Nexus between Exchange Rate Variation and Economic Growth in Nigeria”, Singaporean Journal of Business Economics and Management Studies, 4(12), 8-28 Asher, O.J. (2012) “The Impact of Exchange Rate Fluctuation on the Nigerian Economic Growth (19802010)”, Unpublished M.Sc Dissertation, Caritas University, Enugu state, Nigeria Ehinomen, C. and Oladipo, I. (2012), “Exchange Rate Management and the Manufacturing Sector Performance in the Nigerian Economy”, IOSR Journal of Humanities and Social Sciences, 5(5), 1-12 Elumelu, I. (2012), “Interest and Exchange Rate Fluctuations in Nigeria; A Macro Economic Implication”, Alumnus Guest Lecture series of Department of Economics, Ambrose Ali University Enekwe, C., Ordu, M., and Nwoha, C. (2013), “Effect of Exchange Rate Fluctuations on Manufacturing Sector in Nigeria” European Journal of Business and Management, 5(22), 67-73 Ikpefan, O. A., Isibor, A. A, and Okafor, T. C. (2016), “Deregulation of the Foreign Exchange Market and its Effect on Industrial Produce in Nigeria”, Global Media Journal, 1(7), 1 – 7 Isibor A., Ojo, J. A. T., and Ikpefan, O. A. (2017). Does Financial Deregulation Spur Economic Development in Nigeria? Journal of Applied Economic Science, 8(54), 2339 - 2350 Obadan, M. I. (2016), “Research Process, Policy-Making, Report Writing and Referencing (2nd ed.)”, Abuja: Goldmark Press Limited Obadan, M. I. (1997), “Analytical Framework for Poverty Reduction: Issues of economic growth versus other strategies in: Poverty Alleviation in Nigeria”, Selected Papers for the 1997 Annual Conference of Nigeria Economic Society Ogochukwu, C., Ikpefan, O. A., Okafor, T. C., and Isibor, A. A. (2016), “An Investigative Analysis into Capital Market and Economic Growth in Nigeria”, Proceedings of the 28th International Business Information Management Association (IBIMA) Conference held in April 2016, Seville, Spain Okoye, L. U., Clement, I. N., and Okorie, E. U. (2016). Deregulating the Nigerian Economy For Enhanced Real Sector Growth. Journal of Policy and Development Studies, 10(2), 144 – 158 Oladapo.F. and Oloyede.J.A. (2014). “Foreign Exchange Management and the Nigerian Economy”, European Journal of Business and Innovative Research, 2(2), 19-31. Oladipupo, A. and Onotaniyohowo, F. (2011), “Impact of Exchange Rate on Balance of Payment in Nigeria”, African Research Review Journal, 5(4), 73-88

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Olokoyo, F. O., Isibor, A. A., Oladeji, T. F., and Edosomwan, O. (2016), “Effect of Banker-Customer Relationship on the Performance of Nigerian Banks”, Proceedings of the 28th International Business Information Management Association (IBIMA) Conference held in April 2016, Seville, Spain Onyeizugbe, C. U. and Umeaguges, U. E. (2014) “Exchange Rate Management and the Survival of the Industrial Sub-sector of Nigeria (1990-2013)”, Global Journal of Management and Business Research, 14(10), 13-18 Taiwo, J. N., babajide, A. A., Okafor, T. C., and Isibor, A. A. (2016), “Growth of Bank Fraud and its impact on the Nigerian Banking Industry”, Proceedings of The 28th International Business Information Management Association (IBIMA) Conference, Seville, Spain Yaqub, O. J. “Exchange Rate Changes and Output Performance in Nigeria: A Sectorial Analysis”, Pakistan Journal of Social Sciences, 7(5), 380-387

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The Relationship between Borrowing, Saving and Individuals’ Socio- Economics Characteristics in Palestine Fadi Shihadeh Palestine Technical University- Kadoorie, Tulkarm, Palestine. [email protected] Azzam (M T) Hannon College of Business Administration, American University in the Emirates Dubai, United Arab Emirates. [email protected] Yipeng Wang, School of Finance and Statistics, Hunan University, Hunan, China. [email protected]

Abstract This study aims to test the relationship between individual’s socio-economics characteristics and borrowing and saving in Palestine. We find that age is positively related to all borrowing purposes, i.e. education, medical, business, and home/land. It was found also that female variable is related to borrowing for business, and home/land. The secondary education level is found to be related to borrowing for education. But the tertiary education level has no relation with any of the borrowing purposes. The income level is some relation with some of the borrowing purposes. In regard to savings purposes, it was found that saving for age and saving for education are related to the variables: age, female, secondary education, tertiary education, and the first three income quartiles, the relation has different levels and signs. But has no relation to the fourth quartile “rich”. We recommend further studies, to examine other factors that could have an effect on the borrowing and saving behavior of the citizens.

Keywords: Palestine, saving, borrowing, individual characteristics Introduction Financial inclusion can improve the life styles of the disadvantaged people (i.e., the poor, women, youth, and the illiterate) by enabling them to invest in businesses, gain access to health services, and acquire education so as to improve knowledge, skills and employability. In 2010 G20, determined that world development could be enhanced through financial inclusion, which is defined as the formal financial services being made available to all communities so they can cover their needs at an affordable price. Financial development focuses on measures at the country level, such as the performance of stock market indices, and the percentage of bank loans to GDP, where financial inclusion is measured according to individuals’ level of access to and use of formal financial services (banks and other lending agencies). Thus, financial inclusion at the micro-level that enhances financial development at the macro level is key for development sustainability, Klapper et. Al. (2016). Several studies discussed and analyzed financial inclusion issues among the world, Wang and Guan (2017) analyzed the level of financial inclusion among different countries. They found that the high income developed countries in Europe and North America have a high level of financial inclusion than

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other countries in Africa and Asia. Thus, the income, education level and banking sector are considered as determinants to the financial inclusion. Gabor and Brooks (2017) pointed that improving the digital tools could enhance the access and usage of formal financial sources level in the countries and let more poor people to be financially included. Zins and Weill (2016) found that poor people and female are less likely to access and use the formal financial sources and enhancing the mobile banking could enhance their ability to use these sources among African countries. Fungacova and Weill (2015) found that China have the lower level of borrowing indicator compared to other BRICS countries. Also, poor people and female are less likely to be use the formal sources of financial services. Wulandari et. al (2017) pointed that more financial awareness campaign could help farmer to know more about financial services providers. Wang and Shihadeh (2015); and Shihadeh et. al (2017) addressed and discussed some indicator of financial inclusion (i.e. saving, borrowing). Also, they present the developments in Palestine in regards to banking penetration through branches, ATMs and POSs. They pointed that Palestine have notable developments in the banking penetration, and electronic tools, while the borrowing percentage is still very low. Furthermore, Palestine have notable efforts in financial awareness as well as on other financial regulations and rules Efobi et al. (2014) analyzed the reach of access and usage of banking services in Nigeria by using three indicators: use of bank service, saving, and frequency of withdrawals. The authors found that Nigeria has low credits as a percentage of GDP from 1990 to 2010. Income, level of financial discipline, information, and communication technology inclination revealed the use of bank services in Nigeria. Beck et. al (2009) pointed that some of financial exclusion (people are not included to the formal financial system) is related to individuals themselves as they don’t need the financial services. This study aims to examine the influence of individual socio-economic characteristics on borrowing and saving purposes as financial inclusion factors. Basing on the previous studies which analysed the relationship between the individual socio-economic characteristics and financial inclusion factors. Therefore, we hypothesized that: H1: There is a significant influence of individual’s socio-economic characteristics on borrowing and saving in Palestine. This paper organized as follow: next section presents the methodology, third section 3 presents the empirical Study, where section 4 presents the conclusion.

Methodology Data We used the Global Findex Database of World Bank which presented by Demirguc-Kunt et. al, (2015) to analyse the borrowing and saving purposes link it with the individual’s characteristics in Palestine, our selected data covered 1000 individual from Palestine. Therefore, we use this database to analyze the borrowing and saving behavior and purposes in Palestine. Table (1) presents the Definition of independent variables. Table 1: Definition of independent variables Variables Age Female Secondary education Tertiary education Poorest-income20%

Definition Age in number of years. 1 if female, 0 if else 1 if secondary education, 0 if else 1 if tertiary education, 0 if else 1 if income is in the first income quintile, 0 if else

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Second-income 20% Third-income20% Fourth-income20%

1 if income is in the second income quintile, 0 if else 1 if income is in the third income quintile, 0 if else 1 if income is in the fourth income quintile, 0 if else

Source: Global Findex database 2014 and authors’ calculations.

Model We examined the following; borrowing purposes; saving purposes as financial inclusion factors and linked with the individual socio- economics characteristics in Palestine. These characteristics are related to age, gender, education and income as independent variables. Our main objective in this study, is to analyze the relationship between the individual socio-economics characteristics and borrowing; saving purposes, as financial inclusion factors. And as the respondent’s answer is a binary variable (0, 1), thus, we use the logistic regression as its suitable technique of our data. Therefore, following the previous studies Fungacova and Weill (2015); Wulandari et. al (2017); Allen et. al, (2016):

Yi =

+

genderi + µ

agei +

educationi +

incomei +

i

Where Y is the borrowing and saving purposes as determinants of financial inclusion; and i represents the respondents., gender, age, education, and income are the explanatory variables in our model.

Empirical Study The Descriptive statistics In this section, we present the descriptive statistics analysis for dependent variables. These statistics are presented in table 2, as below. Table 2: Descriptive statistics for the variables Dependent Variables Borrowing Purposes Borrowed for education Borrowed for medical Borrowed for business Borrowed for home/land Saving Purposes Saved for farm Saved for age Saved for education Independent Variables Age Female Secondary education Tertiary education Poorest-income20% Second-income 20% Third-income20% Fourth-income20%

Obs.

Mean

Std. Dev.

1000 1000 1000 1000

0.061 0.095 0.027 0.067

0.239 0.293 0.162 0.25

1000 1000 1000

0.044 0.059 0.085

0.205 0.235 0.279

1000 1000 1000 1000 1000 1000 1000 1000

37.32 0.575 0.614 0.146 0.148 0.186 0.194 0.188

16.864 0.4946 0.4871 0.3533 0.3553 0.3893 0.3956 0.3909

Source: Global Findex database 2014 and authors’ calculations.

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The Empirical Examinations Borrowing purposes In this section, we are going to examine the relation between individual socio-economic characteristics and borrowing purposes. We run the logistic regression using borrowing for education, medical purposes, business or farm and home or land as dependent variables, whereas the individual socio-economic characteristics were used as an explanatory variable. Therefore, we can understand from these purposes why people are looking to borrow money, especially poor people, then formal institutions could build the national development agenda in regard to these purposes and direct the lender and other financial services provider to offer more convivence services for education, medical or other purposes. Notably, that development is considered as sustainable process and some of the requirements for this sustainability is the participation of all entities in this process. Table 2 presents the coefficients between individuals’ socio- economics characteristics and borrowing purposes in Palestine, and standard errors. Table 3: The Borrowing Purposes Individual characteristics Female Age Tertiary Education Secondary Education Poorest -income 20% Second -income 20% Third -income 20% Fourth-income 20% Observations LR chi2(9) Prob > chi2

For education

For medical

0.029 (0.132) 0.071*** (0.024) 0.305 (0.243) 0.401** (0.202) -0.677*** (0.266) -0.189 (0.190) -0.317* (0.194) -0.193 (0.182) 1000 25.63 0.002

0.162 (0.116) 0.029* (0.017) -0.113 (0.217) 0.033 (0.151) 0.729*** (0.177) 0.416** (0.175) 0.305* (0.177) 0.023 (0.194) 1000 28.50 0.000

For farm/business -0.423** (0.180) 0.094*** (0.038) 0.362 (0.282) -0.004 (0.249) -0.218 (0.330) 0.193 (0.250) -0.353 (0.321) 0.116 (0.241) 1000 24.82 0.003

For Home/ land -0.422*** (0.130) 0.067*** (0.021) 0.635 (0.218) 0.212*** (0.189) -0.512** (0.254) -0.254 (0.202) -0.302 (0.197) -0.006 (0.175) 1000 49.84 0.000

Source: Global Findex database 2014 and authors’ calculations. *** p = 0.05 of the green products awareness. We accept the null hypothesis stating that there is no significant relationship between green products awareness and consumers' purchasing decision. The five hypotheses were proposed and results are above illustrated in the model. R² means that our independent variables are explaining the dependent variables by 65.5 percent. Meanwhile, the adjusted R² was 0.662 and the five variables can significantly account for percent variance in the consumer purchasing decision. Results indicated that all variables are statistically significant at 1 percent level except awareness of green product. The study findings are not consistent with those of D'Souza et al. (2006) and Yeon and Chung (2011) who discovered a positive impact of green products awareness and their relationship with consumers' purchasing decision. Next to that, Oliver and Lee (2010) stated his findings about green products to be positively related environmentally friendly purchase behaviour. However, Laroche et al (2002) findings were consistent with our study results, by interpreting the environmental concerns and product purchasing decision being positively related.

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The estimated regression equation for the model is formulated as follows:

Conclusions and Recommendations The results show that most of respondents were undergraduate students with the minimum income ranged between 0-1800 Turkish lira and aged between 18-35.The major findings of this study indicated a significant relationship between awareness of environmental concerns and purchasing decision, hence, university students in TRNC are aware about environmental problems and believe that environmental issues are an emergency issue. Thus, Students' awareness of eco-friendly products is due to their awareness of environmental concerns. Furthermore, a significant relationship between awareness of price and purchasing decision was found, which explains students’ price sensitivity towards green products (Morel and Kwakye (2012). The price of green products should be reasonable especially when it comes to students purchasing decision. However, a positive relationship is drawn between students’ purchase decision making and their willingness to purchase green products. Meanwhile, awareness of brand image was significant which explains that attractive advertisement for a brand; firm's campaigns on internet, magazines and so on are affecting positively consumers' purchasing decision. This is consistent with Ansar (2013) findings on ecological branded products that are successfully commercialized due to their public image which can lead to the increase of brand loyalty Ginsberg and Bloom (2004). Otherwise, there was no significant relationship between green products and students consumers’ purchasing decision, due to their minimal exhibition in the market of Northern Cyprus. Companies and wholesalers in Northern Cyprus should highlight green products’ features in order to carry prominent exhibition into the regular supermarket not only the specified green products selling markets. Meanwhile, the Turkish Republic of the Northern Cyprus universities is open to students from all over the world. Due to students' diversity, different nationalities and different background, the study has brought with it awareness of green marketing investigation from national and international students perspectives. However, Students' aim is to achieve a sustainable lifestyle and firms' campaigns can create their own corporate responsibility and competitive advantage in order to maximize their profit. Also, in the same time to manage their shared value by promoting green products in a persuasive manner such as raising students' awareness by joining the company's environmental activities and practices. Throughout this fact, students’ will be encouraged to purchase green products and augment their environmental knowledge and discover some information on the products packaging, the competitively priced products and so on. Green marketing strategy can satisfy the environment, consumers and firms if every sector got involved for the environmental sake.

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The Impact of Brand Identity Development on Customers’ Loyalty Through E-Procurement in the Jordanian F&D Industry

Fayez Ahmad Albadri, Middle East University, Amman, Jordan, [email protected] Sami Saed Albadri, SIMS Creation, Amman, Jordan, [email protected]

Abstract This paper reports on the approach, and the findings of an exploratory research, to investigate the impact of Brand Identity development on Customers’ Loyalty, through e-Purchasing in the Jordanian Food and Beverages (F&B) Industry. The evaluation of the Brand Identity development in the study had four main dimensions (Brand image, Brand elements, Brand strategy and Brand reputation). The analysis of the impact of the Brand Identity development on the Customers’ Loyalty through e-Purchasing indicated a median level in Jordanian F&B industry, with all relevant dimensions incorporated in the analysis. Consequently, the study was concluded with a recommendations to the Jordanian F&B enterprises, to translate their vision into policies and procedures, in order to enhance their impact on their operation competitive capabilities, ensuring a clear and shared understanding of the importance of Brand Identity development and its impact on Customers’ Loyalty and Customers’ retention. Keywords: 3-4 keywords that highlight the topic in the paper. Introduction Further to the common perception of ‘Branding’ as means for the presentation of the visual identity of products and services, it is also increasingly used as the basis for product and service recognition and categorization through appropriate descriptive specifications. The information revolution manifested by the rapid emergence of new telecommunications and Internet technologies (ICT) and applications, and what followed of globalization over the past two decades or so (Buhalis, 2008) has provided business organizations with genuine opportunities to enter global market and to compete globally. It is evident that this new environment was to the advantage of the consumer as it has provided the consumer with additional power and more choices to select from in reaching the final purchasing decision. Nevertheless, many consumers prefer familiar products and services, organizations or brands (Maes, Guttman,&Moukas, 1999), a claim that is in line with identified consumer buying behavior (CBB) patterns. The fierce competition between organizations of various business models including; physical (Brick and Mortar), partially physical-partially online (Click and Mortar) and fully online (Virtual Pure Play), has highlighted the importance of branding, and warranted the need to create a unique and creative brand image, to take a place in mindset of customers.

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Gaining a bigger share of the market could be achievable by recognizing that “the motivations that lead a potential e-customer to make a purchase are not the same as those that influence an experienced customer” according to (Hernandez, Jimenez & Martin (2008). Since the process of buying a product online does not include any physical contact experience by the customer, organizations need to know these motivations as to get potential customers first-buy, and influence experienced ones to repeat the electronic purchase that may lead to customer’s loyalty. Consumer Buyer’s Behavior (CBB), and the interaction with the brand marketing activates could spell out what is a good, preferred brand by consumers, and what is their preference criteria. According to Cretua and Brodie (2007), “the brand’s image has a more specific influence on the customers’ perceptions of product and service quality, while the company’s reputation has a broader influence on perceptions of customer value and customer loyalty.” This paper focuses on the Brand ID development, represented by its key attributes (brand image, brand elements, brand strategy, brand reputation), and explores the impact of these attributes on ePurchasing and Customers’ Loyalty in the Jordanian F&B sector. The Study Details Following is an account of the basic details, describing the study on hand including; the study problem, study objectives, study significance, study questions and study hypothesis: Study Problem: Luis Cabral (2005), as other studies assume that as business organisations introduce new products or extend a brand, they experience problems with the development of the brand ID as well as creating the brand image, choosing the brand elements, setting the brand strategy and keeping a good reputation. As important is the challenge of making customers loyal as highlighted by Chaudhur & Holbroo, (2001); a loyalty that corresponds to brands rather than products. To this effect, this study is focused on the relationship between these two important factors; Brand ID development and Customers’ Loyalty, through e-purchasing. Study Objectives The prime objectives of this study are summarized here as the follows: ·

To determine the impact of Brand Identity development on e-Purchasing.

·

To explore the impact of Brand image on e-Purchasing.

·

To determine the impact of Brand elements on e-Purchasing.

·

To examine the impact of Brand strategy applications on e-Purchasing.

·

To define the impact of Brand reputation on e-Purchasing.

·

To determine the impact of Brand Identity development on Customers’ loyalty.

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·

To explore the impact of Brand elements on Customers’ loyalty.

·

To determine the impact of Brand strategy applications on Customers’ loyalty.

·

To determine the impact of Brand reputation on Customers’ loyalty.

·

To explore the impact of e-Purchasing on Customers’ loyalty.

·

To examine the indirect impact of Brand Identity development on Customers’ loyalty through e-Purchasing.

Study Significance: The importance of the study is its practical applications whereby the findings could help organizations decision-making, by setting up proper plans and strategies based on their brand development orientation, their market share and their applications on e-purchasing, leading to improved understanding by companies of the market and customers buying behaviors, in a way that improves or maintains their brand image, and develop their brand to have bigger market share in physical and virtual online stores, and making their customers loyal to their brands, by knowing what customers’ needs and wants, and how they engage and react with marketing activities that relates to the brand. Additionally, the study is different from previous studies due to adding the ‘e-purchasing’ factor as a mediator variable, especially as the main concern of the majority of other studies is the traditional purchasing. Also the scarcity of research in Jordan about the brand identity development and customers’ loyalty adds more importance to the study as it contributes to filling the gap. Study Questions: The scope of the study includes the three variables; 1) Brand Identity development (Brand image, Brand elements, Brand strategy and Brand reputation), 2) e-Purchasing and 3) Customers’ loyalty. The study main concern is to investigate the impact of each of these variables on the others, attempting to answer the following questions: ·

Is there a direct impact of Brand Identity development on e-Purchasing?

·

Is there a direct impact of Brand Identity development on Customers’ loyalty?

·

Is there a direct impact of e-Purchasing on Customers’ loyalty?

·

Is there a direct impact of Brand Identity development on Customers’ loyalty through ePurchasing?

Study Hypothesis: Accordingly, the following study hypothesis were put forward for testing in order to reach answers to the study questions:

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H1: Brand Identity development has a positive direct impact on e-Purchasing in Jordanian food and beverage industries at the level (! " 0.05). H1.1 Brand image has a direct impact on e-Purchasing in Jordanian F&B industry at the level (! " 0.05). H1.2 Brand element has a direct impact on e-Purchasing in Jordanian F&B industry at the level (! " 0.05). H1.3 Brand strategy has a direct impact on e-Purchasing in Jordanian F&B industry at the level (! " 0.05). H1.4 Brand reputation has a direct impact on e-Purchasing in Jordanian F&B industry at the level (! " 0.05). H2: Brand Identity development has a positive direct impact on Customer's loyalty in Jordanian F&B industry at the level (! " 0.05). H2.1 Brand image has direct impact on Customers’ loyalty in Jordanian F&B industry at the level (! " 0.05). H2.2 Brand element has a direct impact on Customers’ loyalty in Jordanian F&B industry at the level (! " 0.05). H2.3 Brand strategy has a direct impact on Customers’ loyalty in Jordanian F&B industry at the level (! " 0.05). H2.4 Brand reputation has a direct impact on Customers’ loyalty in Jordanian F&B industry at the level (! " 0.05). H3: e-Purchasing has a positive direct impact on Customer's loyalty in Jordanian F&B industry at the level (! " 0.05). H4: Brand Identity development has a positive indirect impact on Customer's loyalty through ePurchasing in Jordanian F&B industry at the level (! " 0.05). Study Model: The building of the study model (shown below) has followed a thorough review of relevant literature and it was finally built based on the following studies that investigated the brand and other related factors in F&B sector: ·

Brand Identity development: Burmann, Jost-Benz and Riley, (2008)

·

Customer loyalty: Luarn & Lin, (2003) and Rutsaert, & Pieniak, (2014)

·

e-Purchasing: Daniel, Wilson, and Myers, (2002), (Aswad, 2015)

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Fig1. Study Model Study Limitations: The study had various limitations including: ·

Human limitations: the scope of the study deals with corporate brand stakeholders, such as owners, managers and marketers’.

·

Place limitations: Jordanian F&B organization.

·

Time limitations: 2015 - 2016

·

Scientific Limitations: The study tries to fill an evident research gap in marketing and designing point of view.

Study Terminology: The study used the following terminologies that were derived for definitions from various credible sources that are referred to as follows: Brand: “A name, term, sign, symbol or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors.”(Kotler, Keller, 2012) Brand identity: “Represents a set of promises that, for the buyer, implies trust, consistency, and a defined set of expectation.”(Craig, Dibrell,& Davis, 2007) Brand development: A metric of marketing success that measures the number of sales within a specific market. The calculation is expressed as the number of unit sales per thousand people within a geographic area. (Business Dictionary)

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Brand Image: The impression in the consumers' mind of a brand's total personality (real and imaginary qualities and shortcomings). Brand image is developed over time through advertising campaigns with a consistent theme, and is authenticated through the consumers' direct experience. (http://www.businessdictionary.com) Brand elements: Devices, which can be trademarked, that identify and differentiate the brand. And they are brand names, symbols, slogans, logos, characters and URL. (Kotler, Keller, 2012) Brand strategy: A long-term plan for the development of a successful brand in order to achieve specific goals. A well-defined and executed brand strategy affects all aspects of a business and is directly connected to consumer needs, emotions, and competitive environments. (Aytm) Brand reputation: The promise associated with a particular brand to consumers, business customers and other stakeholders (Greyser, 2009) E-Purchasing: The combined use of information and communications technology through electronic means to enhance external and internal purchasing and supply management processes. These tools and solutions deliver a range of options that will facilitate improved purchasing and supply management”. (https://www.cips.org) Customers’ loyalty: The increasing the percentage of repeat purchases among current customers (Pitta, Franzak, & Fowler, 2006)

Literature Review The bulk of previous studies where concerned with Brand identity Development and Customers’ loyalty or e-Purchasing and Customers’ loyalty. Also, they did not get into the emotional side of the customer for a brand. Therefore, this study attempts to fill in this gap, making it in that sense. The review of the available relevant literature consists of three parts: ·

Reviews the brand identity development definition and aspects

·

Defining e-Purchasing

·

Defining the concept of customers’ loyalty

The Brand: The phrase brand was defined as “a name, term, sign, symbol or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors”. (Kotler, Keller, 2012) also brand was distinct as “the mark of a company, a declaration of what it is and what it believes. It can also be considered as a promise of the company’s quality, trust and value which is communicated across wide range of designs, colors, shapes, text and images are all elements that produce a consistent theme, which we call it a brand, and giving it a meaningful description for a product.

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According to Pike (2005), “The future of marketing will be a battle of brands”, which makes companies invest more on its brands, as a competitive advantage that differentiate them from competitors, and gives the companies more value. There are “five basic topics that align with the brand-management decisions: (1) developing brand positioning, (2) integrating brand marketing, (3) assessing brand performance, (4) growing brands, and (5) strategically managing the brand.”(Keller, Lehmann, 2006) Brand identity: According to Roll (2006), the Brand identity “describes the company’s strategic intention for the brand, its uniqueness, meaning and values, and how the brand aims to be positioned in the marketplace. It projects how the boardroom wants the brand to be perceived by customers and other stakeholders. Brand identity is the strategic charter for the brand and links closely to the overall business strategy.” The role of brand identity is informing, guiding, and helping to develop, nurture, and implement the firm's overall. Madhavaram et. al. (2005), referring to the Integrated Marketing Communication (IMC) strategy. of the brand, asserts that both brand identity and brand strategy play together a major role of a brand success. Brand development: The Brand development is a metric of marketing success that indicates the number of sales within a specific market. The calculation is expressed as the number of unit sales per thousand people within a geographic area, and the added value, which will be granted by the brand to the product. (www.businessdictionary.com) Brand itself could be; (1) Traditional product and its branding, and the brand is viewed primarily as an identifier. (2) Holistic view is to focus on the brand itself, and could be a promise of the relevant attributes that influence buyer’s satisfaction (Ambler, Styles. 1996). The brand is also becoming a very important asset to any organization and represents an iconic representation of value associated with its products and services. Brand image: It is the question of what people think of a brand that matters, and the answer to this question what guides the choice of the brand image which is the impression in the consumers' mind of a brand's total personality (real and imaginary qualities and shortcomings). Brand image is developed over time through advertising campaigns with a consistent theme, and is authenticated through the consumers' direct experience. It’s also defined as “the picture of the brand in the minds of customers and stakeholders, and refers to the way customers and stakeholders decode all the signals provided by a given product, brand, company or even country. The brand image is a result of many external factors of which marketing communications is just one.” (Roll, 2006)

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Brand elements: According to Kotler and Keller (2012), brand elements are “devices, which can be trademarked, that identify and differentiate the brand. They are also brand names, symbols, slogans, logos, characters and URLs.” These elements shapes the brand identity, which makes it easy to recognize. Nevertheless, Frahana (2012), defines a brand element as “a visual or verbal information that serves to identify and differentiate a product. The most common brand elements are names, logos, symbols, characters, packaging and slogans.” Brand strategy: Roll (2011), suggests that “the brand research and identity processes build a strong foundation from which companies can devise suitable strategies for their future growth”. Therefore, Branding strategy may refer to “the ways that firms mix and match their brand's name on their products”. (Shahri, 2011) Shahri (2011) also confirms that the relationship between strategic and organizational factors can be viewed from two different perspectives: “(1) a strategy formulation perspective, where organizational variables influence the formulation of strategy, and (2) a strategy implementation perspective, where the strategy has an impact on organizational variables”. By taking a strategy formulation perspective of the relationship between organizational variables and strategy, it is assumed that organizational variables influence the formulation of strategy. A number of researchers have assumed such a link between intangible organizational variables such as market orientation and strategy, where the underlying beliefs and behaviors have an important impact on strategy. They argue that cognitive maps and related constructs such as world views, schemata, dominant logics, and knowledge structures provide the foundation for managerial action”. (Homburg, Kroxhmer, Workman, 2004) Brand reputation: Greyser (2009) defined brand reputation as “The promise associated with a particular brand to consumers, business customers and other stakeholders, and how the public perceives a brand”. (Misc, 2011), suggested that companies could be recognized by the given quality level, which is the private information that applies to any product it sells. (Cabral, 2000) “Both academics and practitioners believe that brand reputation is becoming increasingly important. To be successful and hence profitable, brands should have a positive reputation; also the reputation is the aggregate perception of outsiders on the salient characteristics of companies.” (Veloutsou, Moutinho, 2009) e-Purchasing: e-Purchasing is defined as the “combined use of information and communications technology through electronic means to enhance external and internal purchasing and supply management processes”, (https://www.cips.org) the proliferation of the electronic commerce e-purchasing has become a daily practice for many purchasing organizations, which lead us to identify Electronic commerce: (e-commerce) “generally refers to an inter-organizational information system that is

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intended to facilitate business-to-business electronic communication, information exchange, and transaction support through a web of networks. E-commerce can take variety of forms such as electronic data interchange (EDI), Internet, Extranet, online catalog ordering, and e-mail.” Min, Smolinski, Boratyn, (2001). Having an integrated e-commerce system facilitates online business, such as e-payment, e-invoice, e-purchasing … ext. and any other organizational function, that works together to deliver value to customer and profit to the organization. This type of commerce could be considered as a standalone business or a part of an organization business model (click and mortar). Steinfield, Bouwman, and Adelaar (2002) Customer loyalty: “Customer loyalty involves both attitudinal and behavioral components. Thus, in order to assess the antecedents of customer loyalty, it is important for us to understand the difference between attitudinal loyalty and behavioral loyalty.”(Kassim , Abdullah, 2008). Customer loyalty is about “increasing the percentage of repeat purchases among current customers” (Pitta, Franzak, & Fowler, 2006) and that could be described in the projection of customer satisfaction, customer loyalty, and profitability and the relation of these aspects. Proposes that customer satisfaction influences customer loyalty, which in turn affects profitability. (Pitta, Franzak, & Fowler, 2006). Customer loyalty: held commitment to rebuy a preferred product or service consistently in the future (Oliver, 1997).In this study, the researcher will use attitudinal and behavioral loyalty. Behavioral loyalty is based on consistent and repetitious behavior, while attitudinal loyalty use emotional and psychological data that indicate engagement and allegiance (chodzaza, Gombachika, 2013). Three conceptualizations of customer loyalty have been identified in the literature: (chodzaza, Gombachika, 2013). ·

Loyalty as primarily an attitude that sometimes leads to a relationship with the brand

·

Loyalty mainly expressed in terms of revealed behavior.

·

Buying moderated by the individual’s attitudes

They may also become advocates of the organization concerned by playing a powerful role in the decision-making of others. Aydin (2005), proposed the following four conditions related to loyalty: 1) Loyalty A : signifies a favorable correspondence between relative attitude 2) Repeat Patronage: Latent loyalty: is associated with high relative attitude, but low repeat patronage 3) Spurious loyalty: represents a low relative attitude, with high repeat patronage.

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4) No loyalty: is associated with low relative attitude, combined with low repeat patronage Customer’s loyalty has two dimensions: behavioral and attitudinal dimensions: Behavioral Loyalty: Behavioral loyalty can be defined as a customer’s act toward a specific product/service in terms of repeating purchasing patterns- a repeating purchasing pattern can be determined as actual purchase frequency. Behavioral loyalty is observed from the customer purchase behavior. It focuses on the value of the customer to the product/service, and for any organization, customer loyalty becomes more meaningful only when it is translated into purchase behavior. (Panatouvakis and Lymperpoulos, 2008) Attitudinal Loyalty: Attitudinal loyalty has further been defined as the desire on the part of the consumer to continue the relationship even if competitors lower price, and the willingness to recommend friends and intention to continue to patronize. Researchers argue that attitudinal loyalty represents a higherorder, or long-term, commitment of a customer to the organization that cannot be inferred by merely observing customer repeat purchase behavior. (Khaligh,et. Al, 2009). Customer Loyalty Benefits: (Lacey and Sneath, 2006) ·

Loyal customers are less-price sensitive.

·

Loyal customers are cheaper to serve.

·

Loyal customers spend more time with the company.

·

Loyal customers pass on their positive feeling about the company or brand to others, in other word, Word-of-mouth promotions.

·

Loyal customers imply a high market share and an ability to demand relatively higher prices compared of the competitors.

All variables are related to each other’s within the customer buying process or rebuying process in online food and beverage organizations.

Methods and Procedures This section describes the adopted methodology in the study, and provides details of the study population and sample, the study model and tools of data collection, leading to a brief discussion of the statistical treatment used in the analysis of the collected data. The Methodology: Method, is the tool and technique used to obtain and analyze research data, including questionnaires, observation, interviews, and statistical and non-statistical techniques. To serve the

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objectives of this study, data was collected through a questionnaire as a primary data, which was distributed, to customers of Jordanian F&B firms. Since a ‘descriptive research’ was adopted for this study, the intension was to basically describe the characteristics of a population or a phenomenon, and it involved collecting data in order to test hypotheses, and to answer questions concerning the current status of the subject. The data would be introduced and analyzed in order to acquire indicators, which would also be evaluated and interpreted in accordance with the study, leading to choosing the analytical statistical method to investigate the mediating effect of ePurchasing between Brand Identity development and the Customer’s loyalty. The population of the study was a random appropriate sample that included all online F&B customers in Amman, the capital of Jordan. Of the (350) questionnaires that were distributed, only (183) questionnaires returned, and (5) removed, thus (50.8%) from the total distributed questionnaires, profiles as follows: ·

Gender Perspective: 51.7% Males and 48.3 Females

·

Age Perspective: (13-18yrs) 3.9%, (19-25yrs) 25.9%, (26-35yrs) 43.8%, (36-50yrs) 20.2%, (>50yrs) 6.2%.

·

Marital Status: Single 46%, Married 50.6%, Divorced 3.4%

·

Education Perspective: High School 0%, Diploma 14.6%, Bachelors 65.1%, Masters 16.9%, PhD 3.4%

The data collection, was based on two sources: 1. Secondary sources: books, journals, and theses to write the theoretical framework of the study. 2. Primary source: a questionnaire that was designed to reflect the study objectives and questions. The questionnaire instrumental sections were as follows: Section One: Demographic variables. The demographic information was collected with closedended questions, through (4) factors (Gender; Age; Educational level; and Marital status). Section Two: Independent variable: Brand Identity development (Brand image, Brand elements, Brand strategy, and Brand reputation). Cretu, (2007) and Martensen, et al., (2000) Brand Image: The impression in the consumers' mind of a brand's total personality (real and imaginary qualities and shortcomings), measured through (5) items on five Likert-type scale, from item (1-5). Cretu, (2007) Brand elements: Devices, which can be trademarked, that identify and differentiate the brand. And they are brand names, symbols, slogans, logos, characters and URLs. was measured through (5) items on five Likert-type scale, from item (6-10). Montgomery, et al., (2009) Branding strategy: Refers to the ways that firms mix and match their brand's name on their products, was measured through (5) items on five Likert-type scale, from item (11-15). Greyser, (2009)

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Brand Reputation: The promise associated with a particular brand to consumers, business customers and other stakeholders was measured through (5) items on five Likert-type scale, from item (16-20). Martensen, et al., (2000) Section Three: Mediating variable: E-Purchasing: The combined use of information and communications technology through electronic means to enhance external and internal purchasing and supply management processes. was measured through (5) items on five Likert-type scale, from item (21-25). Montgomery, et al., (2009) Section Four: Dependent: Customer loyalty: is about “increasing the percentage of repeat purchases among current customers was measured through (5) items on five Likert-type scale, from item (25-30). Pitta, et al., (2006) as follows: Strongly Agree

Agree

Agree to an Extent

Disagree

Strongly Disagree

5

4

3

2

1

The data collected from the responses of the questionnaire was used through Statistical Package for Social Sciences (SPSS) & Amos for analysis and conclusions. Finally, the used statistical methods included: ·

Percentage and Frequency.

·

Cronbach Alpha reliability (!) to measure strength of the correlation and coherence between questionnaire items.

·

Arithmetic to identify the level of response of study sample individuals to the study variables.

·

Standard Deviation: to measure the responses spacing degree about Arithmetic Mean.

·

Variance Inflation Factor and Tolerance to make sure that there are no Multicollinearity between independent variables.

·

Multiple and Simple Regression analysis to measure the impact of study variables on testing the direct effects.

·

Path Analysis to test the direct and indirect impact of independent variables on dependent variable through mediating variable.

‘Validation’ was achieved through professional reviews, and ‘Reliability’ using Cronbach’s alpha to determine internal consistency.

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Descriptive Analysis of Study Variables: For Brand Identity development; The Arithmetic mean, Standard Deviation (SD), Item importance and Level Importance of Brand Identity development dimensions No

Brand development

Identity

Mean

St.D

Item

Importance

Importance

Level

1

Brand Image

3.152

0.492

4

Median

2

Brand elements

3.352

0.594

3

Median

3

Branding strategy

3.719

0.581

2

High

4

Brand Reputation

4.194

0.463

1

High

General Arithmetic mean and standard deviation

3.604

0.522

t- Value Tabulate at level (!" 0.05) t- Value Tabulate was calculated based on Assumption mean to item that (3). The above is a sample analysis - Similar analysis included: ·

Arithmetic mean, SD, item importance and importance level of Brand Image

·

Arithmetic mean, SD, item importance and importance level of brand elements

·

Arithmetic mean, SD, item importance and importance level of brand strategy

·

Arithmetic mean, SD, item importance and importance level of Brand Reputation

·

Arithmetic mean, SD, item importance and importance level of e-Purchasing

·

Arithmetic mean, SD, item importance and importance level of Customer loyalty

Analysis Adequacy and Hypothesis Testing Prior to studying the hypotheses, a suitable data analysis adequacy was conducted that included the following: ·

Variance Inflation Factor (VIF) analysis, to measure how the multicollinearity can inflate the variance of regression, the coefficient should not exceed a value of (10).

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·

Tolerance analysis, used to test the multicollinearity between independent variables, tolerance value should be greater than (0.05).

·

Skewness analysis, to test that the data follow normal distribution, Skewness value is less than (1.0). Sekara, (2003)

The hypotheses testing was carried out through multiple and simple Linear Regression analyses with (F) test using ANOVA table and path analysis.

Study Results The study explored a number of important and significant issues that could potentially lead to novel contributions to theory and relevant literature, with the hope that the results would trigger a number of critical decisions by F&B business organizations; decisions that may reflect positively on business. Based on the data analysis and hypotheses testing, the research results generated from this work can be summarized as follows: ·

This study carried out the evaluation of the Brand Identity development in the Jordanian F&B industry, through four main dimensions (Brand image, brand elements, brand strategy brand reputation). The study showed a median level of importance of Brand Identity development in the Jordanian enterprises, with all dimensions discussed earlier in this study. The results are in agreement with the academic work of Greyser, (2009).

·

The importance level of Brand image in the Jordanian F&B industry was median (3.152), which corresponds with (Crety, 2007) finding the influence of brand image and company reputation where manufacturers market to small firms customer value perspective.

·

The importance level of Brand elements in the Jordanian F&B industry was median (3.352), with standard deviation equal to (0.594), and the highest statement got approved from the viewpoint of sample study was "I think that consistent brand elements is a must" Martensen, et al., (2000).

·

The importance level of Brand strategy in the Jordanian F&B industry was a high (3.719), indicating that Jordanian F&B industry supports (Martensen, et al., 2000), in that the companies should develop a customer-based brand equity model for measuring and managing of online brand equity, the researchers developed a cause-and-effect model linking customerbrand relationships to rational and emotional brand associations, as well as rational and emotional brand evaluations.

·

The importance level of Brand reputation in the Jordanian F&B industry was a high (4.194). Where the arithmetic means range for this independent variable was between (3.938 - 4.629) compared with General Arithmetic mean amount of (4.194). It is observed as the highest mean for the item, "I think that consistency of quality keeps good reputation.

·

The importance level of Brand reputation in the Jordanian F&B industry supports (Cretu, 2007), study entitled “the influence of brand image and company reputation where

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manufacturers market to small firms: A customer value perspective”. The results indicate that the brand’s image has a more influence on the customers’ perceptions of product and service quality, while the company’s reputation has a broader influence on perceptions of customer value and customer loyalty, in a way that affects the buy process. ·

The importance level of e-Purchasing in the Jordanian F&B industry was median (3.151), observed as the highest mean for the item "I think that making food delivery orders via Internet is much easier” with arithmetic mean (3.370), Standard deviation (1.040). The lowest arithmetic mean was for the item # I do like making my payment online once purchasing” With Average (2.943) and Standard deviation (1.260). In general, it appears that the Importance level of e-Purchasing in the Jordanian F&B industry from the study sample viewpoint was Median.

·

The importance level of Customer loyalty in the Jordanian F&B industry was equal to (3.309). The statistical analysis confirms the importance level of Customer loyalty, where the arithmetic means range of (2.623–4.073), compared with General Arithmetic mean amount of (3.309). The highest mean for the item " As a loyal customers I usually recommend my loyal brand to others” with arithmetic mean (4.073). The lowest arithmetic mean was for the item "I think that repurchasing leads to loyalty” With Average (2.623). In general, it appears that the Importance level of Customer loyalty was Median.

·

There is a positive direct effect of Brand Identity development on e-Purchasing among Jordanian F&B enterprises. The (R) was (0.542) at level (! " 0.05), that support results of (Cretu, 2007), which indicate that the brand’s image has a more influence on the customers’ perceptions of product and service quality, while the company’s reputation has a broader influence on perceptions of Customer value and Customer loyalty, in a way that affects the buy process.

·

The Brand image has a positive direct effect on e-Purchasing F&B in Jordan at the level (! " 0.05).

·

The Brand elements have no positive direct effect on e-Purchasing F&B in Jordan at the level (! " 0.05). This result does not support many previous studies possibly due to different culture and different environment where the studies were conducted.

·

According to statistical analysis, the Brand strategy had no positive direct effect on ‘epurchasing’ F&B in Jordan at the level (! " 0.05). This result also does not support many of previous studies possibly due to varying culture and environment factors.

·

The Brand reputation has a positive direct effect on e-Purchasing F&B in Jordan at the level (! " 0.05).

·

There is significant impact of Brand Identity development on Customer's loyalty in Jordanian F&B industry at the level (! " 0.05).

·

There is significant impact of Brand image of F&B and Customer's loyalty in Jordan at the level (! " 0.05).

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·

The Brand elements have positive direct effect on F&B and Customer's loyalty in Jordan at the level (! " 0.05).

·

The Brand strategy has no positive direct effect on F&B and Customer's loyalty in Jordan at the level (! " 0.05).

·

The Brand reputation has a positive direct effect on Customer's loyalty in Jordan at the level (! " 0.05). This result supports the study by (Greyser, 2009), titled “Corporate brand reputation and brand crisis management” highlighting the problems of brand reputation that are affected the distinctive attribute/characteristic – most closely associated with the brand’s meaning and success.

·

The e-Purchasing has a positive direct effect on F&B Customer's loyalty in Jordan at the level (! " 0.05).

·

There is a significant statistical indirect effect of Brand Identity development on Customers’ loyalty through e-Purchasing, as a mediator in the Jordanian F&B industry at the level (!" 0.05). This means that there is positive direct impact relationship between the independent and the dependent variables, and indirect positive impact between the independent and the dependent variables through the mediator.

Conclusions and Recommendations Conclusions: This research aimed to study the impact of Brand Identity development on Customer's loyalty on light of e-Purchasing. The study attempted to determine the key of Brand Identity development that affects e-Purchasing, such as: (brand image, brand elements, brand strategy, and brand reputation). The second aim of this study was to understand the impact of Brand identity development on Customer's loyalty in the Jordanian F&B industry. Finally, this study aimed to investigate the impact of Brand Identity development on Customer loyalty, though e-Purchasing. The study classified Brand Identity development to brand image, brand elements, brand strategy, and brand reputation. As expected, in this modern digital business environment, the Brand identity development is confirmed to be the right solution to gain Customer's loyalty. By in Large, this is because in the current e-business environment, e-Purchasing can provide organizations with various benefits such as; optimizing and integrating business processes, maximizing operational and managerial profits, and improving strategic and organizational benefits. In order to achieve the objectives of this study, a novel model was developed to measure the impact of Brand Identity development on Customer's loyalty through e-Purchasing. An extensive literature review was essential for developing the model, which eventually included the three main variables: Brand Identity development, e-Purchasing, and Customer's loyalty. The construct of

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Brand Identity development included the following sub-dimensions: brand image, brand elements, brand strategy, and brand reputation. The developed model was applied and tested in the context of Jordanian F&B industry, the sample was determined to include representative F&B e-Purchasing users. For the hypotheses testing, a questionnaire instrument was designed on the basis of the constructed model. Prior to the data collection, the questionnaire instrument was validated by professional reviewers, and experts in the domain of this study. The questionnaire instrument was validated in terms of clearance, meaning, format, and its ability to measure the constructs included within the research model. The questionnaire instrument was then revised. Thereafter, (350) questionnaire distributed to the sample of this study and (178) responses considered valid for data analysis were collected. The analysis conducted using Statistical Package for Social Sciences (SPSS) Version (20) and AMOS. The positive direct impact between Brand Identity development and Customers loyalty that was confirmed by the study, should give organizations in the F&B industry in Jordan, the incentive and motivation to invest more in their brands in order to acquire more customers loyalty, and having a positive indirect impact between Brand Identity development and Customers loyalty through ePurchasing should give organizations more and more clues to invest in using the online technologies. Recommendations: Based on study results and conclusions, the following recommendations are put forward to the Jordanian F&B enterprise: ·

To translate the corporate vision into policies and procedures, in order to enhance the impact on operation competitive capabilities, and to have a clear and shared understanding of the importance of Brand Identity development.

·

To enhance core capabilities (special skills and knowledge) and leverage them to maintain competitive advantage and to create value of customers.

·

To adopt effective Brand strategies in order to increase Customer's loyalty

·

To develop Brand elements to satisfy customers.

Other recommendations to academics and researchers may include the following: ·

To conduct similar research in other sectors in Jordan To conduct further studies from the perspective of customer's need

·

To ensure that the firm’s Brands Identity development adapt to Customers’ requirements.

·

To consider for future research other Brand Identity components or dimensions such as; brand equity and its impact on Customers’ loyalty, and also to study the impact of Brand Identity development on Consumer Buying decisions.

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Corporate Social Responsibility towards Customer Loyalty: Case Study of Aqua Dessy Isfianadewi, Department of Management, Faculty of Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia, [email protected] Melina Amelia Chrissanti, Department of Management, Faculty of Economics, Universitas Budi Luhur, Jakarta, Indonesia, [email protected] Abstract The purpose of this paper is to analyze the activity on corporate social responsibility (CSR) program is realized in social alliance can also be bring a positive perception towards the value that influence the buying decision. If the customer feel satisfied, then they will do purchasing continuously, do a wordof-mouth promotion, less attention to other brand, even create a new customer and become loyal. This loyalty will be the main aim of the corporate. Primary data was collected from those who ever bought Aqua between ages 20 – 34 years old and lives in Jakarta. The data was gathered at one time (crosssection) by using purposive (judgment) sampling method. Aqua is a brand of drinking water since 1973 with the largest sales in Indonesia and is one of the most famous brand of drinking water in Indonesia, which has become like a generic brand for drinking water. To test the hypothesis, structural equation model were performed. The statistic tools is Linear Structural Relation Result indicated that CSR and trust have a positive relationship, supporting the perspective that a customer’s perception that a corporate is socially responsible will strengthen their trust to product brand. But CSR and commitment have a negative relationship. Commitment and purchase behavior have a positive relationship, supporting the perspective that a customer’s commitment to the corporate will positively impact the magnitude of their purchase behavior. Commitment and word of mouth have a positive relationship, supporting the perspective that a customer’s commitment to the corporate will strengthen their desire to share favorable word-of-mouth about the corporate. Keywords: Corporate Social Responsibility, Customer Loyalty, Trust, Commitment Introduction The environment problems make the intention of changing the thinking of business people. Changing patterns of business approach began to steer business to business activity-based approach to environmental sustainability. The environmental problems could be an opportunity or a threat for business people. Smart business people who will make the environmental issue into an opportunity to satisfy the needs and desires of consumers, to meet these conditions, to be responsible for the shareholder and stakeholders that related into the corporate’s impact. It brings new phenomenon. A company or product that has an image of public care would be much appreciated. Thus, eventually generate profits. (Velany, 2008). The CSR program can be social alliance, and the most popular one is Cause Related Marketing (CRM) is become an innovative strategy to give a value added to the company image as the strategy to differentiate among others. By focusing on the long term strategy, CRM can be also a competitive advantage (Kotler & Lee, 2005). The activity that included on CSR program is realized in social alliance can be also bring a positive perception towards the value that influence the buying decision. If the customer feel satisfied, then they will do purchasing continuously, do a wordof-mouth promotion, less attention to other brand, even create a new customer and become loyal. This loyalty will be the main aim of the corporate (Keegan, 2004) This main objective of this paper is to analyze the activity on corporate social responsibility (CSR) program is realized in social alliance can also be bring a positive perception towards the value that influence the buying decision. Loyalty is linked with the repeated business. Customer loyalty has four levels that divided into loyal to the brand, store or other entities: a) Hard core loyals, customer buy one

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product all the time; b) Split loyals, customer loyal to more than one product; c) Shifting loyals, customer switching product often; d) Switchers, Customer don’t show any interest to any brand (Kotler, 2000). A company which can get more customer whether it is hard core loyals or only loyal will give an advantage to the sales, because the customer will purchase more on that company than to the others. The company also can minimize the marketing cost because they don’t need to do any effort to get a new customers. The marketing cost getting lower because the satisfied customer will share their experience to the people (word of mouth). Besides that, the operational cost will be also decreased because the company is trustworthy. Loyalty will push the customer to feel satisfied to try another product from the same company (Kotler, 2000). Aqua is a brand of bottled drinking water produced by Aqua Golden Mississippi in Indonesia since 1973. Aqua is a brand of drinking water with the largest sales in Indonesia and is one of the most famous brand of drinking water in Indonesia, which has become like a generic brand for drinking water. In Indonesia, there are 14 factories that produce Aqua. Since 1998, Aqua has also owned by multinational companies from France, Danone, the result of the merger with Danone Aqua Golden Mississippi (History of Aqua, 2018). The tight competitions between Air Minum Dalam Kemasan (AMDK) industry in Indonesia needs an innovative strategy to create a value for the customer to be loyal. The competition caused by the low ability of the government to improve the water facility. 2808 districts and 5910 villages in Indonesia haven’t get a proper water to drink. It causes the improvement of AMDK industry getting better. From the sales, this industry has a good growth rate. In 2016, it improves 1% if we compare it to 2015 from 24.7 billion becomes 25 billion liter. In 2017 the improvement became 8% become 27 billion litters, then target 10% became 29.7 billion in 2018. (Asosiasi Perusahaan Air Minum Dalam Kemasan, 2018). For many years Aqua has achieving many program which concern to the environmental sustainability. For example, Aqua achieve Indonesia Green Awards 2014, The Best Green Private Partnership, Wonosobo Green City in 2013, Indonesia Green Awards; Perusahaan Penginspirasi Bumi category of La Tofi School of CSR 2011, AQUA Lestari for the management of water resources in an integrated manner through access to clean water and sanitation, as well as launched the project "Satu Untuk Sepuluh" inNTT. Indonesia received the Platinum Brand Award etc. Aqua always make a program that environmental oriented, they realized that water is an important element which is impossible to be separated from the people living. 70% of human element is water, most of the living aspect is related to the water and human need water as the source of their life. (BPS: Dalam Kemitraan Air Indonesia, 2016) The water usage in Indonesia is 80%-90% for agricultural, thus in 2015 the people needs will become more huge with the limited resources will take the part for agriculture. Even in the global forecast, in 2030 world will lacking of water, 70% of population will get water insufficient. This forecast make Program Satu Untuk Sepuluh become an innovative investment for the society. (BPS, 2017) Research Question With the statement mentioned above, in this study the problem that will be discuss are as follows: a. b. c. d.

Why the customer’s perceptions that a corporate is socially responsible strengthen his or her trust in the corporate? Why customer’s perceptions that a corporate is socially responsible strengthen his or her commitment to the corporate? Why customer’s commitment to the corporate positively impact the magnitude of his or her purchase behavior? Why customer’s commitment to the corporate strengthen his or her desire to share favorable word-of-mouth about the corporate?

Literature Review

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Corporate Social Responsibility Corporate responsibility is therefore a prominent feature of the business and society literature, addressing topics of business ethics, corporate social performance, global corporate citizenship, and stakeholder management. Marketing management can be an important tools for this idea, because it needs to advertise the idea to the get the customer attention, attract them to purchase the product, even increase their purchasing level, so the sales will go up and the organization can donate some of our profits to the CSR program. (D'Amaton, Henderson, & Florence, 2009) Another argument about CSR is, it encompasses three dimension – economic, environmental and social. In the past, the focus of corporate responsibility agenda was on economic and environmental dimensions have been explored extensively in many business cases and academic researches. On the other hand, the social dimension was not well osculated in business discussions and many issues pertaining to it were not clear and not well understood. Recently, the growing interest in the social dimension of business sustainability and the increasing expectations by various stakeholders that corporations should be socially responsible have constituted a new area of concern in many businesses (Panapanaan, Linnanen, Karvonen, & Phan, 2003) The maturity of CSR is further validated by the large number of sustainability reports produced by businesses, mutual funds available to investors, consultants to organizations, trade associations manage CSR the same way (Smith, 2011) Trust and Commitment The commitment-trust theoretical perspective argues that a customer’s trust and commitment to a firm are the key determinants of successful relational exchanges. Trust is the customer’s belief that the firm is reliable, stands by its word, fulfills its promises and is sincere. Commitment reflects a customer’s enduring desire to maintain his/her relationship with a firm. Together, commitment and trust explain the positive influence of relationship marketing by developing behaviors that support shared goals and mutually beneficial strategies (Lacey & Knnett-Hensel, 2010). As a social bonding, CSR represents a common aspect of a firm’s efforts to display its shared values. Shared values describe the extent to which goals, policies, and beliefs held by the exchange parties are consistent or compatible. Building on extant linkages between shared values and trust, when a firm displays CSR and customer value this behavior, customer’s trust in the firm should be enhanced. Customer hold high levels of trust in a firms that are viewed as acting socially responsible. And overtime, the trust in a firm that is continuously perceived as socially responsible logically should increase. (Kheiri, Lajevardi, Golmaghani, & Fakharmanesh, 2015) Customer Loyalty A loyal customer tends to repurchase the product, purchase among product lines, recommend the product to others and be able to show the quality of similar products produced by other companies. To determine customer loyalty, a company is required not only to observe the customer’s habit (especially habit of repurchase), but also to learn where to buy, how to buy it, and under what condition these products must be purchased. A loyal customer will make purchase repeatedly over a certain period, because customer loyalty to a product is reflected through the customer’s habit to purchase a product continuously. Therefore, in order to understand the customer’s needs and expectations as well as to achieve the objectives, a company needs to observe customer loyalty (Griffin, 2002) A company which can get more customer whether it is hard core loyals (customer buy one product all the time) or only loyal (customer loyal to more than one product) will give an advantage to the sales, because the customer will purchase more on that company than to the others. The company also can minimize the marketing cost because they don’t need to do any effort to get a new customers. The

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marketing cost getting lower because the satisfied customer will share their experience to the people (word of mouth). Besides that, the operational cost will be also decreased because the company is trustworthy. Loyalty will push the customer to feel satisfied to try another product from the same company (Kotler, 2000). Customer loyalty is a purchase behavior, which, unlike customer satisfaction, is an attitude. Customer loyalty is concerned with the likelihood customer returning, making business referrals, providing strong word-of-mouth, as well as offering references and publicity. Loyal customers are less likely to switch in view of a given price inducement, and they make more purchases compared to less loyal customers. Although most research on loyalty has focused on frequently purchased package goods (i.e., brand loyalty), the loyalty concept is also important for industrial goods (i.e., vendor loyalty), services (i.e., service loyalty), and retail establishments (i.e., store loyalty). Customer loyalty has been described as occurring when customers repeatedly purchase goods or services over time, have word of mouth and make referrals to other customers) (Cheng, Lai, & Yeung, 2008). Commitment and Relational Behaviors Commitment is the conceptual model’s construct needed to support stronger relational behaviors. Since trust precedes commitment, customers are not expected to engage in relational behaviors directly without first forming a desire to continue the marketing relationship. Once commitment is established, the firm will be in better positioned to benefit from a variety of relational behaviors, which in this study includes increasing the magnitude of existing purchasing behavior, engaging in positive word-ofmouth, and more closing following the firm’s performance (Lacey & Knnett-Hensel, 2010). Commitment has been shown to increase purchases. Consequently, committed customers will increase the magnitude of their purchasing behavior (Sen, Bhattacharya, & Korschun, 2006). Purchasing behavior is the decision process and acts of people involved in buying and using products. A firm needs to analyze purchasing behavior to understand buyer’s reactions to a firm marketing strategy, whether it has a great impact on the firm success or not, beside that it will also help the marketers to predict better how consumer will respond to marketing strategies. (Becker-Olsen & Hill, 2006). The critical role favorable word-of-mouth plays in supporting new customer acquisition is well understood. Positive word-of-mouth describes favorable communications regarding a certain firm that a customer is willing to share with others. Positive word-of-mouth has been shown to increase as customer commitment increases and the longer the duration of time is anticipated to strongly moderate this positive relationship. Customer who feel a bond with a firm often become persuasive. If this psychological attachment exist, the customer exhibits willingness to serve as reference because they are vested in the firm’s continued success. Further, it has been posited that companies with good CSR records are rewarded through this mechanism. (Sen, Bhattacharya, & Korschun, 2006) Conceptual Framework Figure 1: Conceptual Framework

H1

H3

H2

H4

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Word of Mouth


Source: Lacey & Knnett-Hensel, 2010; Kheiri, Lajevardi, Golmaghani, & Fakharmanesh, 2015; Sen, Bhattacharya, & Korschun, 2006 Hypothesis Development CSR, Trust and Commitment The commitment-trust theoretical perspective argues that a customer’s trust and commitment to a firm are the key determinants of successful relational exchanges. Trust is the customer’s belief that the firm is reliable, stands by its word, fulfills its promises and is sincere. Commitment reflects a customer’s enduring desire to maintain his/her relationship with a firm. Together commitment and trust explain the positive influence of relationship marketing by developing behaviors that support shared goals and mutually beneficial strategies (Lacey & Knnett-Hensel, 2010). As a social bonding source, CSR represents a common aspect of a firm’s effort to display its shared values. Shared values describe the extent which goals, policies, and beliefs held by the exchange parties are consistent. Building on extant linkages between shared values and trust, when a firm displays CSR and customer’s value’s behavior, the customer’s trust in the firm should be enhanced. Trust is the center of CSR effectiveness. Customers hold high levels of trust in firms that are viewed as acting socially responsible. And over time, the trust in a firm that is continuously perceived as socially responsible to be increased (Kheiri, Lajevardi, Golmaghani, & Fakharmanesh, 2015). Thus the following hypotheses are proposed: H1: A customer’s perception that a corporate is socially responsible will strengthen their trust to our brand In addition to increase trust in a firm, customers base their level of commitment, in part, on shared values. Social responsibility as a dimension of customer-based corporate reputation has been linked to commitment (Bartikowski & Walsh, 2009). If CSR initiatives overlap with a customer’s self-concept, customers have higher degrees of identification with the sponsoring firm and consequently are more committed to the firm. These connections with CSR-oriented companies are fostered through the consumer-company identification process and ultimately create a desire to maintain the relationship. CSR perceptions are anticipated to strengthen commitment to the firm, and longer term commitment on the part of the organization to a cause should result in stronger commitment of the customer to the organization (Kheiri, Lajevardi, Golmaghani, & Fakharmanesh, 2015). Thus the following hypothesis are proposed: H2: A customer’s perceptions that a corporate is socially responsible will strengthen their commitment to the corporate Commitment and Relational Behaviors Commitment is the conceptual model’s which needed to support stronger relational behaviors. Since trust precedes commitment, customers are not expected to engage in relational behaviors directly without first forming a desire to continue the marketing relationship. Once commitment is established, the researchers anticipate that the firm is better positioned to benefit from a variety of relational behaviors, which in this study include increasing the magnitude of existing purchasing behavior, engaging in positive word-of-mouth, and more closely following the firm’s performance (Bowden, 2009). In the framework of this study, it is hypothesized that CSR results in committed customers will increase their purchasing behaviors. By focusing on the mediating role of commitment and its impact on actual purchase behavior, (Sen, Bhattacharya, & Korschun, 2006) this hypothesis extend research which has focused on CSR and purchase intention:

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H3: A customer’s commitment to the corporate will positively impact the magnitude of their purchase behavior The critical role favorable word-of-mouth plays in supporting new customer to purchase exactly the same product. Positive word-of-mouth describes favorable communications regarding a certain firm that a customer is willing to share with others. Positive word-of-mouth describes favorable communications regarding a certain firm that a customer is willing to share with others. Positive wordof-mouth has been shown to increase as customer commitment increases. And the longer duration of time is anticipated to strongly moderate this positive relationship (Hagenbach, 2008). Customers who feel a bond with a firm often become an advocate. If this psychological attachment exists, the customer exhibits a willingness to serve as a reference because they are vested in the firm’s continued success. Further, it has been posited that companies with good CSR records are rewarded through this mechanism (Sen, Bhattacharya, & Korschun, 2006). Thus the following hypothesis are proposed: H4: A customer’s commitment to the corporate will strengthen their desire to share favorable word-ofmouth about the corporate. Research Methodology Sample The population for this study is Aqua consumers of a range of age 20 – 34 years old in Jakarta. The total population in Jakarta is 10.012.271 and the population of people on age 20 – 34 years old is 2.587.565. This research will be conducted to the people who ever bought Aqua between ages 20 – 34 years and live in Jakarta. Based on purposive (judgment) sampling method got 312 respondents Data Collection The data have been collected through a questionnaire-based survey. The questionnaire distributed through online by using Google form. The data was gathered at one time (cross-section) by using purposive (judgment) sampling method. Respondents here were limited to those who ever bought Aqua between ages 20 – 34 years old and lives in Jakarta. Respondents who never bought Aqua was eliminated. The total of questions are 14 questions. Questionnaire is close question and used Likert scale can be created as the simple sum of questionnaire responses over the full range of the scale (e.g., 1 = strongly disagree to 5 = strongly agree Measurement Table 1: Variable and Measurement Variable Measurement

Source

CSR

(Lacey & 1. Aqua includes charity in its business activities Knnett2. Aqua is involved with the local community 3. Aqua is committed to using a portion of its profits to help Hensel, 2010) nonprofit causes and events 4. Aqua is involved in corporate giving

Trust

5. Aqua has high integrity 6. Aqua can be trusted by customers 7. Aqua is honest and truthful to Customers

(Lacey & KnnettHensel, 2010)

Commitment

8. I am passionate about buying Aqua 9. I really care about Aqua 10. It is worthwhile for me to buy Aqua

(Lacey & KnnettHensel, 2010)

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Purchasing Behavior 11. I will not buy another mineral water except Aqua although it (Velany, 2008) offers in a cheaper price 12. I am willing to buy all the Aqua’s product Word-of-Mouth 13. I am willing to encourage others to buy Aqua (Lacey & 14. When the topic of mineral water comes up in conversation, I am Knnettwilling to go out of my way to recommend buying Aqua to Hensel, 2010) others

Data Analysis Method To test the hypothesis from the conceptual framework, structural equation model (SEM) were performed. The interest in SEM is often on conceptual framework which are represented by the latent factors or intervening variables (Hox & Bechger, 2002). The statistic tools is Linear Structural Relation (LISREL) Results Confirmatory Factor Analysis Figure 2: Lisrel Path Diagram

Source: Processed Data. The path above was proceed on Lisrel by creating a covariance matrix and ran a confirmatory factor analysis on the sample (n=312). This analysis yielded the following result: Chi-Square = 550.06, NonNormed Fit Index (NNFI) = 0.94, Comparative Fit Index (CFI) = 0.95, Incremental Fit Index (IFI) = 0.95, and Standardized Root Mean Square Residual (SRMR) = 0.077. Overall, the fit indices suggest an acceptable fit between the hypothesized model and the observed sample data. The overall fit as indicated by chi-square statistic was significant (p = 0.00). Therefore, based on these results, the model was fit and thus can be brought into further analysis.

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Table 2: Scale items and Confirmatory Factor Analysis Lambda Loadings Corporate Social Responsibility Aqua includes charity in its business

Reliability Variance 0.852

0.596

0.826

0.625

0.907

0.912

0.886

1.261

0.874

0.926

0.67

Activities Aqua is involved with the local community

0.79

Aqua is committed to using a portion of its

0.63

profits to help nonprofit causes and events Aqua is involved in corporate giving

0.75

Trust Aqua has high integrity

0.70

Aqua can be trusted by customers

0.72

Aqua is honest and truthful to customers

0.74

Commitment I am passionate about buying Aqua

0.82

I really care about Aqua

1.01

It is worthwhile for me to buy Aqua

0.79

Purchasing Behavior I will not buy another mineral water except

1.09

Aqua although it offers in a cheaper price I am willing to buy all the Aqua’s product

1.02

Word of Mouth I am willing to encourage others to buy Aqua

0.81

When the topic of mineral water comes up

1.01

in conversation, I am willing to go out of my way to recommend buying Aqua to others Source: Processed Data Based on table 2, all items of 312 data were tested for its validity and reliability. There was no single item eliminated. All items were reliable with Cronbach Alpha score greater than 0.70. All composite reliability (CR) score was also greater than 0.70. Therefore, all of the items were valid and reliable. Structural Model – Hypotheses Testing The effect of CSR on TRUST was found significant with estimate ! score 0.81 and significant at p-value " 0.01. CSR also significantly affected COMMITME with estimated ! -0.10 and significant at p-value " 0.01. Therefore, it provided an empirical support for H1 and H2. The effect of COMMITME on PURBEH was found significant with estimate ! score 0.81 and significant at p-value " 0.01. COMMITME also significantly affected WORDOFMO with estimated ! 1.00 and

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significant at p-value " 0.01. Therefore, it provided an empirical support for H3 and H4. Table 3: Path Analysis Results\ Ha Path H1 CSR and Trust H2 CSR and COMMITME H3 COMMITME and PURBEH H4 COMMITME and WORDOFMO *p ! 0.01 Source: Processed Data

Estimate 0.81* -0.10* 0.81* 1.00*

Conclusion H1 supported H2 supported H3 supported H4 supported

Conclusion and Managerial Implication CSR and trust has a positive relationship which ready to be proceed to the next analysis. Respondent are considering about the CSR activities which held by the products they used to buy. The respondent evaluates the brand, decide which brand that they want to purchase, and the company which produced it. The cause-related-marketing which done Aqua by showing their CSR activities about the water availability in the isolated area, and show the respondent and make them understand about the importance of using water economically. Aqua successfully make a tight bound between the issue of water crisis to make the customer interested and attracted then become a loyal customer. CSR and commitment has a poor relationship, since commitment is intervening variable, it will delivered the next process to the dependent variables. Although CSR issue which supported by the company is important for respondent as individual, it also important for others. But it doesn’t give any effect to their buying habit. Respondent has commitment to a product not because its CSR activities, but because they satisfied with the product’s quality and its services. CSR is one off a positive value which offered by the company, but it doesn’t influence the commitment of customer. Commitment and purchasing behavior also has a good relationship towards customer loyalty. It means that once commitment is established, the customer will repurchase Aqua continuously without looking to other brand. Commitment and word-of-mouth has the highest bond towards customer loyalty. Positive word-ofmouth has been shows to increase elevate as customer commitment increases. Customer who feel a bond with a firm often become a mover. If this psychological attachment exist, the customer exhibits a willingness to serve as a reference because they are vested in the firm’s continued success. Furthermore, it has been posited that companies with good product’s quality records are rewarded through this mechanism. The respondents don’t feel hesitate to encourage others to buy Aqua when the topic of mineral water comes up in a conversation References (2018). Asosiasi Perusahaan Air Minum Dalam Kemasan. http://www.beritasatu.com/bisnis/465268industri-amdk bidik-pertumbuhan-10.html (2018). History of AQUA in Indonesia. : http://albinmulyono.blogspot.co.id/2011/01/history-of-aquain-indonesia.html Baghi, I., Rubaltelli, E., & Tedeschi, M. (2008). A Strategy to Communicate Corporate Social Responsibility: Cause Related Marketing and its Dark Side. Corporate Social Responsibility and Environmental Management, 16. Barnes, A.-J. (2011). Corporate Social Responsibility and Its Effects on Brand Trust. Auckland: Auckland University of Technology Business School. Bartikowski, B., & Walsh, g. (2009). Investigating Mediators between Corporate Reputation and

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Customer Citizenship Behavior. Journal of Business Research. Becker-Olsen, K. L., & Hill, R. P. (2006). The Impact of Perceived Corporate Social Responsibility on Consumer Behavior. Journal of Business Research, 46-53. Bowden, J. L. (2009). The Process of Customer Engagement. Journal of Marketing Theory and Practice, 63-74. (2017). BPS: Dalam Kemitraan Air Indonesia. Badan Pusat Statistik. Brønn, P. S., & Vrioni, A. B. (2001). Corporate Social Responsibility and Cause-Related Marketing: an Overview. International Journal of Advertisin, 207-222. Cheng, T., Lai, L., & Yeung, A. (2008). The Driving Forces of Customer LOyalty: A study of Internet Service Providers in Hong Kong. International Journal of E-Business Research, 26-42. Coca Cola Amatil Indonesia | Pemberdayaan Usaha Kecil Menengah. (2016, August 8). Retrieved from Coca Cola Amatil Indonesia: colaamatil.co.id/csr/index/44.48.107/pemberdayaanusaha-kecil-menengah D'Amaton, A., Henderson, S., & Florence, S. (2009). Corporate Social Responsibility and Sustainable Business (A Guide to Leadership Tasks and Functions). Greensboro: Center for Creative Leadership. Fullerton, G. (2005). The Impact of Brand Commitment on Loyalty to Retail Service Brands. Canadian Journal of Administrative Sciences, 97-110. Griffin, J. (2002). Customer Loyalty How to Earn It, How to Keep It. Kentucky: McGraw- Hill. Hagenbach, D. J. (2008). Understanding Satisfied and Affectively Committed Clients. Services Marketing, 24-74. Hox, J. J., & Bechger, T. M. (2002). An Introduction to Structural Equation Modeling. Family Science Review, 354-373. Jamaly, D., & Mirshak, R. (2007). Corporate Social Responsibility (CSR): Theory and Practice in a Developing Country Context. Journal of Business Ethics, 243. Kalyanaram, G., & Gurumurthy, R. (2016). Market Entry Strategies: Pioneers Versus Late Arrivals. Retrieved from Strategy + Business: http://www.strategy- business.com/article/18881?gko=64116 Karthikeyan, K., Manivannan, L., & Karthi, G. (2013). A Study on Brand Switcher's Attitude Towards Present Vodafone Customers in Erode District. International Journal of Humanities and Social Science Invention, 1. Keller, G. (2012). Managerial Statistics, Ninth Edition. Canada: Cengage Learning. Kheiri, B., Lajevardi, M., Golmaghani, M. M., & Fakharmanesh, S. (2015). Corporate Social Responsibility, Consumption Values and Consumers Choice Behaviour Journal of Marketing and Consumer Research, 43-48. Kotler, P. (2000). Marketing Management 10th edition. New Jersey: Prentice-Hall. Kotler, P., & Kertajaya, H. (2000). Repositioning Asia: From Bubble to Sustainable Economy. John and Willey Sons. Kotler, P., & Lee, N. (2005). Corporate Social Responsibility. New Jersey: John Wiley & Sons, Inc.

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Lacey, R., & Knnett-Hensel, P. A. (2010). Longitudinal Effects of Corporate Social Responsibility on Customer Relationships. Journal of Business Ethics, 583. Liu, G., & Ko, W.-W. (2011). An Analysis of Cause-Related Marketing Implementation Strategies Through Social Alliance: Partnership Conditions and Strategic Objectives. Journal of Business Ethics, 253-254. Morgan, R. M., & Hunt, S. D. (1994). The Commitment-Trust Theory of Relationship Marketing. Journal of Marketing, 20-38. Panapanaan, V. M., Linnanen, L., Karvonen, M.-M., & Phan, V. T. (2003). Roadmapping Corporate Social Responsibility in Finnish Company. Journal of Business Ethics, 133. Poin Berhadiah dan Beasiswa 2016. (2016, August 6). Retrieved from DataPrint Sahabat Printer Anda: http://www.dataprint.co.id/berita/178/Poin+Berhadiah+dan+Beasiswa+2016 Purwanto, Kuswandi, & Sunjoto. (2015). Role of Demanding Customer: The Influence of Utilitarian and Hedonic Values on Loyalty Customer. Journal of Arts, Science and Commerce, 1-11. Sekaran, U., & Bougie, R. (2010). Research Methods for Business: A Skill Building Approach. West Sussex: John Wiley & Sons Ltd. Sen, S., Bhattacharya, C. B., & Korschun, D. (2006). The Role of Corporate Social Responsibility in Strengthening Multiple Stakeholder Relationship. Journal of the Academy of Marketing Science, 158166. Sitorus, V. A. (2014). Pengaruh Green Marketing Terhadap Keputusan Pembelian Pada Produk Aqua dan Ades Tahun 2014. Bandung: Telkom University. Smith, R. E. (2011). Defining Corporate Social Responsibility: A Systems Approach for Socially Responsible Capitalism.Pennsylvania: Scholarly Commons. Sulistyo, B. (2013). Implementasi Corporate Social Responsibility Pada PT Aqua Danone. Depok: Gunadharma. Trang, D. T. (2011). The Impact of Corporate Social Responsibility on Consumer Behavior in the Restaurant Industry of Vaasa. Vaasa: Vaasan Ammattikorkeakoulu University Of Applied Sciences. Velany, A. (2008). Pengaruh Cause Related Marketing (CRM) Terhadap Loyalitas Pelanggan Air Minum Dalam Kemasan (AMDK) Merek Aqua Pada Mahasiswa Sarjana Reguler Universitas Indonesia. Jakarta: University of Indonesia

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Construction of an Optimal Timetable Schedule in Accordance With User Preferences Using the Graph Coloring Algorithm Dalibor Cimr1, Richard Cimler2 and Hana Tomaskova3 1

University of Hradec Kralove, Faculty of Informatics and Management, Hradec Kralove, Czech Republic, [email protected] 2

3

University of Hradec Kralove, Faculty of Science, Hradec Kralove, Czech Republic [email protected]

University of Hradec Kralove, Faculty of Informatics and Management, Hradec Kralove, Czech Republic, [email protected]

Abstract Time management is an important component of management in this hurried time. Decisionmaking on the timetable already requires more and more sophisticated approaches. An effective method for creating time schedules with individual preferential users is studied in this article. The proposed method uses a chart color method to select an optimal time schedule in accordance with user-defined limitations. The implementation of the algorithm is presented on the example of creating an optimal timetable for students. The evaluation of user preferences and the creation of an optimal time schedule are recorded.

Keywords: Graph coloring, Optimization, Timetable, decision making Introduction Optimization leads to savings of various resources. In factories, these could be raw materials, in markets it could be money. This paper deals with an optimization of time schedules, which brings about savings in time. People don’t want to waste their time waiting for some events. Their time is very expensive and well-set schedules can save a significant amount of time every day. Each person has personal preferences, which often differ from the preferences of other persons. During the creation of a schedule, it is important to consider personal preferences. This paper presents an algorithm based on a graph coloring method combined with restrictions and user preferences. The final form of the schedule is affected by many factors. Usually, these factors are not negligible. The first factor is a human failure. Some study plans for a semester have many subjects and it is difficult to make sense of the many seminars and possibilities of setting a timetable. This factor is the main motivation for this study in how to facilitate the design. Some students live in college, and they are without a job. But some students commute from their place of residence and have a job or study at another university. These students need the smallest delay between seminars and study days to eliminate wasting their time. The next point is the selection of specific seminars for personal reasons, like previous experience. The goal of this paper is to find a solution when there are overlapping events, which is one of the main issues. A graph coloring computation method is used; this is one of the many disciplines of graph theory

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(Przybyło Jakub, 2015). Suppose a graph is described by G(V,E), where V represents a set of vertices and E represents a set of edges connecting the vertices. Let (G) denote the smallest number of colors needed to color the graph so that no vertex v1 has the same coloration as any distance vertex v2 that is connected to it by an edge. This can be used, for example, in the partial encryption of medical images.(Moumen et al., 2015) In the present paper, the vertices represent the seminars and lectures of timetable and the edges will connect individual seminars that you cannot take together because they overlap in time. The data which is used has been loaded by the REST service in JSON format (Ong et al., 2015).

Problem Definition In this specific timetable scheduling problem, the events of the schedule are seminars and lectures. Lectures mostly do not have mandatory attendance, but some of the students want to attend. Students have both compulsory and optional subjects. In the same field of study, they have same compulsory subjects but different optional ones. So an important part of the design of a good timetable is the individual choice by the student of their preferences like a selection of time slots and teachers or a deletion of events that they don’t want to attend. All time slots have fixed time ranges.

Related works There are a many existing papers which solve the timetable problem. It can be solved in different ways, such as using a hyper-heuristic selection, which is a combination of low-level heuristic methods (Ahmed et al., 2015) to find the most adequate solution. (Al-Yakoob and Sherali, 2015) studies a high school timetabling problem in Kuwait. They used two different approaches: mixed-integer programming and a column generation solution process. Using the second method, 16.39% fewer teachers were required for the schedule generated. The timetabling problem can be solved without some specific method. For example, it can be done by only defining the time slots and choosing a valid time-plan from the set of all plans (Ahmad and Shaari, 2016). There is the method of focusing on particles, where each particle searches for a potential solution and responds to its own previous experience and the experience of its neighbors. An- other way is using the quadratic assignment approach (Ahmad et al., n.d.). The exam with the highest number of students has the biggest priority across all faculty courses and it includes other criteria like the room size or the number of students from different faculties. On this topic, there are more studies primarily intended for schools than for students as individuals. Schools have the financial ability to acquire it. It is a solution for school institutions for many years, but a student studies at a university for only a few years. There are studies focusing on students too, like the combination of creating a schedule and a heuristic method to assign students to classes at the same time (Head and Shaban, 2007). This method was used at the University of the United Arab Emirates and reduced the required number of classes by 10%. Unfortunately, the research was intended for students but they cannot create a schedule individually. (Cheong et al., 2009) is the most relevant paper. It is a planning of the examination dates for university subjects. The challenge is to optimize the continuity of exams, minimizing the length of the schedule, and fulfilling the hard constraints such as capacity and non-duplication of individual tests. For this, it is good to use a multi-objective evolutionary algorithm, such as graph coloring. Its advantage is the fact that it requires no prior information about the length of the schedule.

Proposed Solution Nowadays it is modern to create applications for smart devices. However, these methods are difficult to implement on these devices due to the illegibility of the information. There is insufficient space on mobiles to display the large number of seminars and lectures of a timetable, and tablets are not used by a big community of users. Therefore, the result of this study is a computer application which is readable

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and understandable to use. The solution process is described by the flowchart in Figure 1. It is inspired by related research and tries to combine useful techniques. The first step is to load the data and information about the subject. Universities have different information systems, so this part cannot be same in all environments. For this study, the Representional Stage Transfer (REST) service of the University of Hradec Králové was used to get information about the events, specifically about the name, teacher, classroom, and the time frame in which the seminar or lecture take place. After that, it is displayed for users in a understandable form. The next step is to set the parameters and time frame for the student attending the university. This ensures a reduction of the events to be computed by the algorithm. The priority can be set as an evaluation of each event. The maximal value means removing the other events for that subject; the minimal value means removing that event itself. The main part is the evaluation of the data. In the first stage, events are removed depending on their priority or being outside of the time horizon. For the remaining events, possible timetables are created by variation with repetition. The graph coloring method is used on it, the timetables are evaluated, and the ten top timetables are displayed. If these offerings are not satisfactory, the flowchart is repeated from the second step.

Fig. 1: Flowchart of the algorithm

Implementation This chapter describes the implementation of the method. The implementation process is divided into three main parts. These parts have to be realized consecutively.

Loading of subjects Information about the subjects and their seminars and lectures can be loaded by the REST service in JSON or XML format. This data is converted to the necessary form with important characteristics like: whether the event is a seminar or a lecture the teacher of the event capacity date and time classroom default priority

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Evaluation and Design of Timetables Removing of unnecessary events The first step is the selection of the events meeting the student’s criteria, like the following: if the event isn’t in the student’s time range, it is removed; if the seminar has maximal priority, all other seminars are removed; if some subjects have only one remaining seminar, all other events in that time are removed; To not miss some condition, after everyone is removed, the cycle returns to the beginning. Variation with repetition The next step is creating all possible options to build a timetable by a modified variation with repetition algorithm. These options are saved into the options list. The algorithm gets the set of characters and a length, which should have a string. However, the subjects do not the same number of events, so some options are unnecessary and should be removed. For example, in a schedule with two subjects, where the first subject has one seminar and the second subject has three, the algorithm saves three solutions ([0,0];[0,1];[0,2]). Other chains, where a higher index is in the first subject, are not used because the first subject does not contain such a number of seminars. Graph coloring The last step is defining a graph G(V, E), where V represent a set of subjects and E represents a set of overlaps between subjects. From this graph one obtains (G) to find the number of overlaps in the timetable schedule.

Output After performing all necessary operations, the top ten timetable schedules are created. The evaluation of the schedules is declared by properties in this order: (G) number of edges number of days spent at school number of hours spent at school range of days spent at school where (G) represents the number of maximum overlapping events, the number of edges represents the number of overlapping throughout the schedule, the number of hours and days is the length of time spent in the school, and the range of days means the difference between the first and last day of the schedule (e.g., the difference between Monday and Wednesday is 3). Figure 2 is an example of a timetable. At the left are all the scheduleed events, at the right is one of the top ten schedules from over 30 million possible combinations.

Computational Complexity In the following lines the computational complexity of the algorithm is studied. A description of the algorithm is in Section 4.

Terminology n - number of subjects c - number of classes (of a subject) p - number of subjects with only one possible class

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Fig. 2: Result In the first step of algorithm, selected classes are deleted based on the user preferences. Its complexity is quadratic, (nc)2 nc n. It is also necessary to move lectures into a separate list. The reason for this step is because variation with repetitions has to be done only on classes: lectures have only one unique term. Its complexity is linear, nc. The overall complexity of the first step is

thus, the maximal complexity is

In the second step, all combinations of classes are found by variation with repetition. Its complexity is cn−p. If the number of classes c were to be changed, the complexity algorithm will change polynomially. If the number of subjects n is changed, the complexity of algorithm will change exponentially. Each created schedule is evaluated by the algorithm for graph coloring. This step consists of the following parts: Adding lectures back to the schedule Lectures had been removed during the previous steps. Now it is added back into the schedule in order to conduct the graph coloring.

Creation of the graph which will be colored In this step, for each class and lecture (a schedule action—the number of actions is 2n), it is necessary to add them into a graph. If any of the schedule actions overlaps with any other, there exists an edge between them, and thus the complexity of finding covering actions is

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3. Application of greedy coloring algorithm Now we have a prepared graph containing the schedule actions, so we can use a greedy coloring algorithm in order to evaluate the final schedule. The basic complexity of the greedy coloring algorithm is (n2). Thus, in our case, the complexity of this step is 4.During the evaluation process, the ten best solutions are saved into the list and at the end of the process this is presented to the user. This step has a constant complexity, because each result is compared with a list containing The overall complexity of all the steps is

thus the maximal complexity is

Example The practical use of this algorithm is presented in the following example. The setup of this algorithm was designed to also present non-optimal distributions of subjects. The maximal and minimal number of classes for a given subject has a large impact on the algorithm’s efficiency. In the example, different numbers of classes were tested: 3, 4, 5, 7, and 7. In the last two setups, there is the same number of subjects but the number of classes for the subjects substantially differs. See Table 1 Table 1: Tested combinations of subjects and classes List of subjects with Number of subjects Necessary options All options number of classes

Time

[2,4,2]

3

16

32

0.01 sec

[6,13,11,2]

4

1 716

28 561

0.07 sec

[6,13,17,8,11]

5

116 688

1 419 857

1.19 sec

[2,6,13,17,11,8,15]

7

3 500 640

[8,9,9,9,9,8,8]

7

3 359 232

410 338 673 34.38 sec 4 782 969

18.32 sec

Conclusion The presented algorithm is more suitable for problems where there are not big differences between the numbers of classes for each subject. As can be seen from Table 1, there is the same number of classes but the number of possible variations and the time necessary for running the algorithm is very different. This is because there are a lot of variations which are computed in the beginning of the algorithm. All variations have to be created, but only the suitable ones are saved into the options list. This paper presented a novel approach for the optimization of time schedules. It includes a combination of user parameters and a graph-color algorithm. The tests were realized in a student timetable

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environment. There are several avenues for future work. This method tests all schedule options by variation with repetition. This can be replaced by a more efficient way, to compare only a few of the best options, for the sake of a quick evaluation. After small modifications, the study can be used for other issues with similar problems in their planning processes.

References Ahmad, A., Shaari, F., 2016. Solving University/Polytechnics Exam Timetable Problem Using Particle Swarm Optimization, in: Proceedings of the 10th International Conference on Ubiquitous Information Management and Communication, IMCOM ’16. ACM, New York, NY, USA, pp. 46:1–46:4. https://doi.org/10.1145/2857546.2857593 Ahmad, F., Mohammad, Z., Hassan, H., Rose, A.N.M., Muktar, D., n.d. Quadratic assignment approach for optimization of examination scheduling. Appl. Math. Sci. 9, 6449–6460. Ahmed, L.N., Özcan, E., Kheiri, A., 2015. Solving high school timetabling problems worldwide using selection hyper-heuristics. Expert Syst. Appl. 42, 5463–5471. https://doi.org/10.1016/j.eswa.2015.02.059 Al-Yakoob, S.M., Sherali, H.D., 2015. Mathematical models and algorithms for a high school timetabling problem. Comput. Oper. Res. 61, 56–68. https://doi.org/10.1016/j.cor.2015.02.011 Cheong, C.Y., Tan, K.C., Veeravalli, B., 2009. A Multi-objective Evolutionary Algorithm for Examination Timetabling. J Sched. 12, 121–146. https://doi.org/10.1007/s10951-008-0085-5 Head, C., Shaban, S., 2007. A heuristic approach to simultaneous course/student timetabling. Comput. Oper. Res. 34, 919–933. https://doi.org/10.1016/j.cor.2005.05.015 Moumen, A., Bouye, M., Sissaoui, H., 2015. New secure partial encryption method for medical images using graph coloring problem. Nonlinear Dyn. 82, 1475–1482. https://doi.org/10.1007/s11071-015-22534 Ong, S.P., Cholia, S., Jain, A., Brafman, M., Gunter, D., Ceder, G., Persson, K.A., 2015. The Materials Application Programming Interface (API): A simple, flexible and efficient API for materials data based on REpresentational State Transfer (REST) principles. Comput. Mater. Sci. 97, 209–215. https://doi.org/10.1016/j.commatsci.2014.10.037 Przybyło Jakub, 2015. Asymptotically optimal neighbour sum distinguishing colourings of graphs. Random Struct. Algorithms 47, 776–791. https://doi.org/10.1002/rsa.20553

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Strategic Capabilities for Rapid Internationalization: Conceptualization and Measurement Mohammad Falahat, Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman (UTAR), Selangor, Malaysia, Email: [email protected] Ramayah Thurasamy, School of Management, Universiti Sains Malaysia (USM), Penang, Malaysia, Email: [email protected] Zizah Che Senik, School of Management, Universiti Kebangsaan Malaysia (UKM), Selangor, Malaysia, Email: [email protected]

Abstract The aim of this paper is to develop a conceptual model on strategic capabilities that causes the firm to internationalize at a high speed. We surmise that the empirical discovery of a set of dynamic capabilities will empower these firms to develop cutting-edge knowledge-intensive products, paving the way for their accelerated market entry. The proposed model of the factors on born global’s dynamic capabilities will be a set of practical guidelines for young SMEs, business owners, and top management that have yet to internationalize and aim to export their products or services into foreign markets. This study will contribute to new knowledge and valuable insights that will benefit firms in the context of rapid internationalization. Additionally, the findings shall also serve as valuable input for policymakers to facilitate exports and re-evaluate policies to give firms the extra edge in their ability to export and grow internationally.

Keywords: Born global, strategic capabilities, rapid internationalization, conceptualization and measurements.

Acknowledgment This research is supported by the Malaysia Ministry of Higher Education (MOHE) under FRGS scheme (FRGS/1/2017/SS01/UTAR/02/3).

Introduction The global business environment is encountering unprecedented changes, was triggered by rapid developments in communication and information technology, trade liberalization, trade-related support services and cross-border capital flows (Koh et al., 2009). This changes required rapid expansion in global market that many firms internationalize in a rapid manner, and sometimes from inception. The speed of internationalization depends on the company’s ability to leverage its capabilities from one market to another (Loane, Bell, & McNaughton, 2007). Certain companies internationalize gradually due to lack of knowledge about foreign markets, high-risk aversion, high-perceived uncertainty or similar

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factors (Korhonen et al., 1996; Madsen and Servais, 1997), others, known as born globals, internationalize from their inception or shortly after inception. Distinguish feature of the born global firm is that its origins and fundamental orientation are strongly international. To a large extent, the rise of these firms coincided with the emergence of the modern era of globalization. Recognizing the significant role played by born globals in the nation’s economic development, this study is initiated to identified strategic organizational capabilities for rapid expansion that are being adopted by born global firms in gaining access to international market. Consequently, this article constitutes a reaction to the research questions that what capabilities leads to early internationalization of young entrepreneurial firms.

Literature Review From the perspective of resource-based view (RBV), Barney, (1986) demonstrated that firms having different behavior and action in the same industry due to their differences in possessing resources (Barney, 1986). Penrose, (1959) stated that RBV is born originally as a perspective in strategy management. However, a study (Oviatt & McDougall, 2005; Knight & Cavusgil, 2004) challenges that RVB may not suitable for born globals, due to the nature of born global is resources scarcity, small in size and young in age but internationalize from inception. It is also being questioned that RBV is seems to be more applicable for MNEs rather than SMEs because traditionally only large firms can afford the resources to engage in international market (Falahat et al., 2013). However, RBV are widely used by researchers in the born global literature nowadays. Nevertheless, many scholar studies consistently indicated that born globals could internationalize right from inception and stay operating basically because of the internal resources associated with key orientations, capabilities and strategies (Tabares et al., 2015). Particularly, Amit and Shoemaker (1993) broaden the RBV concept into capabilities as a source of sustained competitive advantage. In order to analyze the set of inner organizational resources, these assets become potential sources of competitive advantage in the firm (Barney, 1991; Grant, 1996; Knight and Cavusgil, 2004). Consequently, we argue that early internationalizers recognize the vital role of internal organizational capabilities as determinants of performance (Barney, 1991). Hereinafter, after briefly presenting the RBV as a basic support of conceptual framework for this research, we review the relevant literature of explanatory variables and propose a model for strategic organizational capabilities that leads to early internationalization. Organizational capability refers to strategic management in adapting, integrating, and re-configuring intangible knowledge-based capabilities depends on the pace of dynamic environment. Ideally, Teece et al. (1997) explain organization capabilities reflecting the managers’ ability to renew the firm’s competences, as to achieve correspondence with the changing business environment. Nurturing the capabilities via the integration of professional and specialist knowledges are to enhance organizational routines and competences (Teece and Pisano, 1994). Similarly, a firm’s marketing resources and capabilities are instrumental in enhancing its organization capabilities and to provide a strong potential for competitive advantage, for the competitive advantages likewise difficult to identify, reproduce, and transfer between firms (Kozlenkova et al., 2014). As such, capabilities are a set of special assets, skills and knowledge that, over time, become firms’ routines and practices and enable them to use resources efficiently and achieve completive advantage (Teece et al. 1997; Guan, Ma 2003; Gunday et al. 2011; Oura et al. 2016). The capabilities that generally observed in born global and SME literature for internationalization are marketing capability, innovation capability, digital capability, organizational learning capability and networking capability (Kor and Mesko, 2012; Roudini and Osman, 2012; Hao and Song, 2016). We extend the domain of organizational

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capabilities based on the dimensions that are discussed below. Lastly, we argue that these dimensions are key driving capabilities that leads to small firm’s early internationalization.

International Entrepreneurship Capability In order to understand the role of capabilities in internationalization, there are studies that attempted to conceptualize the international entrepreneurship capability. Roudini and Osman (2012) propose five dimensions of international entrepreneurial capabilities e.g. international networking capabilities, international marketing capabilities, innovation and risk taking capabilities, international learning capabilities and international experience. Through a systematic meta analysis of 209 articles, Øyna and Alon (2018) found that the capabilities stream of international new venture and born global research focuses on few types of capabilities e.g. networking capabilities, marketing capabilities, learning capabilities and innovation capabilities. They also found that majority of research in capabilities studies are conceptual and case based. Rialp, Rialp, and Knight (2005) suggest the term “international capability” which it is a mix of intangible resources with complex interaction among them, therefore can be the source of competitive advantages for the firm to internationalize. Ibrahim, Abdullah and Ismail (2016) conducted an exploratory interview with nine expert panels to explore the key themes of international business competence. The significant key themes for international business competence suggested from this study are creation, customers, environment, innovative and skills. Miocevic and E Morgan (2015) carried out a quantitative study with 117 exporting SMEs in Croatia to explore a few capabilities for the growth of exporting SMEs. The findings show that market-sensing capabilities are related to opportunity recognition capacity and increase the rate of opportunity exploitation. Adaptive capabilities and innovation capabilities are playing the role as moderators between opportunity exploitation and firm’s growth. Weerawardena et al. (2007) conceptualize that accelerated internationalization is a function of marketfocused learning capability, internally-focused learning capability, networking capability, marketing capability and knowledge intensive product. Hao and Song (2016) found that the technology capabilities, marketing capabilities, market-linking capabilities and IT capabilities are positively associated with firm performance. For technology-driven strategy in their study, information technology capability is found more influential than market-linking capabilities. It reflects different capabilities are supporting different competitive strategies that implemented by the firm. Kor and Mesko (2012) conceptualize three elements of dynamic managerial capabilities e.g. managerial human capital, social capital and cognition for evolutionary fit performance. Efrat et al., 2018 suggested four dimensions for dynamic export capabilities e.g. export adaptability, export innovativeness, export unpredictability and export task-flexibility. Kaleka (2002) observed that informational, customer relationship building, product development and supplier relationship building will lead to better export performance.

Innovation Capability According to OECD Oslo Manual, 3rd edition (2005), innovation is categorized into four types e.g. product innovation, process innovation, marketing innovation and organizational innovation. Innovation capability is defined as a firm’s ability for application of ideas that are new to the firm, to create added value either directly for the enterprise or indirectly for its customers, whether the newness and added value are embodied in products, processes, services, or in work organization, management or marketing systems (Weerawardena, 2003). Innovation capabilities play important role and a key to drive born global firm’s early internationalization (Knight and Cavusgil, 2004). Innovation is linked with born global phenomenon (Knight & Cavusgil,

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2004). Innovation capability is essential for the success of born global firm as it leads to offering new product and developing new market (Knight & Cavusgil, 2004). Innovative capability is one of the important factors which allows born global firm to accelerate internationalization process despite scarce resources. Both technological and non-technological innovation can lead to sustained competitive advantage (Weerawardena, 2003). For example, innovation resource-capability complementarity enhances a firm’s ability to develop innovative products and increase their speed in introducing the products to the market (Sok and Cass, 2011). Many factors contribute to a firm’s innovation. A firm with balancing in stability and openness of their managerial team can facilitate the learning process and it is beneficial for firm’s innovation (Hagen and Zucchella, 2014). Scholars of “open innovation” suggest that the current environment is favourable for sourcing of external sources of knowledge in innovation, thus the firm is not only depending on their internal R&D for innovation (Brunswicker and Vanhaverbeke, 2015). However, the managerial focus on strategic and operation aspects is a factor that may affect the open innovation activities of the firm. The “absorptive capacity” e.g. the ability of the firm to discover, assess, absorb and adopt the external knowledge is important to ensure the external sources of knowledge can bring results to innovation (Brunswicker and Vanhaverbeke, 2015). A firm with better learning capability can facilitate their external sourcing of knowledge to accelerate their firm’s innovation. In a study of 398 firms from Malaysia, Abu Hassim et al. (2011) found that an organizational innovation is positively associated with firm business performance. Prange and Pinho (2017) investigated the relationships between personal drivers, organizational drivers and SME international performance of 120 exporting SMEs in Portugal. The finding shows that organizational innovation mediates both personal and organizational driver-performance relationship, and the effect is stronger in organizational driverperformance link. Oura, Zilber and Lopes (2016) measure innovation capacity as a multidimensional construct consists of R&D capacity, marketing capacity, manufacturing capacity, learning capacity, organisational capacity, resource exploitation capacity and strategic capacity. Their study on 112 SMEs suggests that influence of international experience on export performance is greater than innovation capacity in Brazilian context. Wu, Chen and Jiao (2016) found that dynamic capability is a mediator between international diversification and innovation performance in emerging economy from the study of 179 manufacturing firms in China. Song, Nason and Di Benedetto (2008) propose that the implementation of innovation strategy requires different types of capabilities. For prospectors, technical and IT capabilities are important and for defenders, the market-linking and marketing capabilities should be built. This argument is supported by the data from 709 firms across United States, China and Japan. Fernández-Mesa and Alegre, (2015) measures the innovation capability as a function of product innovation effectiveness, process innovation effectiveness and project innovation efficiency. Sok and Cass, (2011), used firm’s activities, routines, business processes and behaviors for measuring innovation capabilities such as exploiting the most-up-to-date technology available ,developing new products, Extending the firm's product range, improving existing product quality, improving production flexibility. Whereas Weerawardena, (2003) measures organizational innovation intensity as product innovations, production process innovations, managerial innovations, and marketing innovations.

Networking Capability Relational resources are concluded as an important factor for born global to compete internationally (McDougall and Oviatt, 2003; Freeman and Cavusgil, 2007). Born global uses networks to overcome the constraints of scarce resources. The strong relationships with local authorities, investors, business

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partners, suppliers, distributors, customers, multinational enterprises can help born global to create sustainable competitive advantages. In view of the criticality of relational resources in internationalization process, Johanson & Vahlne (2009) have proposed a business network model which emphasizes the role of trust and commitment in the internationalization business relationship. Freeman, Edwards, & Schroder (2006) proposed that born global firms with poor access to economies of scale and lack of financial and knowledge resources, can overcome the constraints through network and alliances. They suggested 5 workable strategies in order to achieve this outcome e.g. use of personal network, collaborative partnerships, client followership, use of advanced technology and multiple modes of entry. Felzensztein, Ciravegna, Robson, & Amorós (2015) observed that the network plays a role in determining the internationalization scope. Zhou, Wu, & Luo (2007) also found that social networks affect the internationalization orientation and firm performance. Hagen & Zucchella (2014) stated that strategic partnership is one of the main differentiators in born global’s growth patterns regardless the industry type. According to Freeman, Hutchings, Lazaris, & Zyngier (2010), network also a source of new knowledge for smaller born global firms. Network also allows born global to source for complementary resources and capabilities which the firm is lacking through outsourcing of the tasks to reliable alliances (Madsen and Servais, 1997). Born globals can reach new business space faster by using the large channels provided by MNC partners (Gabrielsson and Manek Kirpalani, 2004). Idris and Saridakis (2017) found that local interpersonal networks increase the likelihood of SME internationalization. SME receives advice and information from their network and increase their propensity to exporting. When the firm grows, the influence from informal interpersonal networks such as family is weaker, but the formal business network (such as accountant) is stronger. The role of relational resources is well recognized in earlier discussion (Johanson and Vahlne, 2009), but it will not create much result without the networking capability to leverage the effects from the available resources. Networking capability is defined as the ability to establish, manage and maintain the value-adding relationships with different actors within the network. It is known that born global firm usually has limited resource, but their capability to sense and seize the potential complimentary resources from their networks make them possible to gain specific type of competitive advantage for accelerated internationalization (Weerawardena et al., 2007). Grant (1991) also mentioned that sometimes firm may acquire complementary resources externally in order to develop their competitive advantages if the required resource is not available internally. The capability to establish and maintain good relationships with business partners will facilitate born global internationalization process (Freeman, Edwards and Schroder, 2006; Cao and Ma, 2009; Cavusgil and Knight, 2015; Ismail et al., 2017). In a multi case study of 10 born globals SME in Malaysia, it was found that networks, both formal and informal relationships have contributed to the internationalization process in all 10 cases (Kaur and Sandhu, 2014). The study has included sample from service and manufacturing sector. This indicates that the ability of a firm to develop and maintain constructive networks can translate into better international performance, for both service and manufacturing industries. Social networking through effective supplier integration facilitates information and knowledge sharing and the synergy with supplier was found moderates the relationship between resource-capability complementarity and first product advantages (Ahmadi, Cass and Miles, 2014). Suppliers are the source of innovation in product co-commercialization (Ahmadi, Cass and Miles, 2014). Parida et al. (2017) emphasize the importance of networking capability because many network relationships fail due to lack of ability to manage and maintain the relationships. Parida et al. (2017) suggest that networking capabilities such as coordination, relationship skill, partner knowledge, internal communication etc. affect innovativeness of the firm. Pham, Monkhouse and Barnes, (2015) conceptulised the networking capability as a relational capability and measure it through (1) the ability to create relationships with new partners, (2)the ability to maintain

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relationships with existing partners (3) the ability to develop mutual trust with strategic partners (4) the ability to develop mutual commitment and goals with strategic partners (5) the ability to build on the partner’s strengths (6) the ability to effectively communicate with partners (7) the ability to work on joint problem solving (8) the ability to achieve targets when negotiating (9) the ability to achieve win-win rewards.

Marketing Capability Marketing capability is defined as integrative processes designed to apply the collective knowledge, skills, and resources of the firm to the market-related needs of the business, enabling the business to add value to its goods and services and meet competitive demands. Several processes used by firms in their efforts to reach target customers with value-added products and services will be measured in this construct. (Weerawardena, 2003) Born global scholars suggest marketing orientation is one of the important organization culture that provide foundation for better market-focus strategies that lead to better performance in international market (Knight and Cavusgil, 2004). Marketing capability is the strategic capability (Lenz, 1980) for a market-oriented firm. Positive association also found in technology-driven firm (Hao & Song, 2016). The ability of the firm to perform traditional marketing activities like proper segmentation-targetingpositioning of market, and develop highly effective marketing strategies allow them to rapidly enter the international market (Weerawardena et al., 2007). Marketing capability helps a firm to gain sustained competitive advantage (Kamboj, Goyal, & Rahman, 2015; Weerawardena, 2003). Weerawardena (2003) found that marketing capabilities also affect the innovation intensity for the firms implementing innovation-based competitive strategy. A firm with marketing capabilities achieves better financial performance compared with those firms only with operational capabilities (Kamboj, Goyal and Rahman, 2015). Ahmadi, Cass and Miles (2014) found that deployment of marketing capabilities together with marketing resources such as financial support in promotion, helped new technology venture in India to demonstrate the product advantages to the market, brought better first product performance. Takahashi et al. (2016) studied higher education industries in Brazil and the results shown that marketing capability mediates the relationship between dynamic capabilities and organizational performance. A firm with marketing capability knows how to differentiate their products or services from their competitors and able to create value of its offering. The ability to identify, connect and serve specific niche market also brings opportunities and leads the firm to better positioning in competitive market (Takahashi et al., 2016). Weerawardena, (2003) measures marketing capability as (1) the quality of customer service (2) the effectiveness of promotional activities (e.g. advertising) in gaining market share/sales growth (3) the quality of sales persons (4) strength of distribution networks (5) advertising expenditure as percentage of sales (6) firm’s market research efforts (7) ability to differentiate products (to boost the image of products by attributes other than prices such as superior quality, image or service) marketed by the firm (8) speed of new product introduction (9) extent to what does firm sub-contract marketing activities to external agencies.(10) extent to what has firm’s marketing capabilities enabled it to successfully compete with its competitors. Hao and Song, (2016), operationlised marketing capability as (1) knowledge of customers (2) knowledge of competitors (3) integration of marketing activities (4) skill to segment and target markets.

Learning Capability Learning capability is the bundles of interrelated routines and processes firms have in place to undertake learning-related activities. These activities relate to areas such as diagnosing staff training needs,

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analyzing the firm's unsuccessful activities, communicating the lessons learnt from past experiences across the entire firm and learning new and relevant knowledge (Sok & Cass, 2011). The role of learning capability is essential to ensure the continuity of existing competitiveness in international market (Johanson and Vahlne, 2009). A firm without learning capability is difficult to sustain in long run because of failure to develop the capabilities required for a sustainable competitive advantage in facing future challenges (Grant, 1991; Teece, Pisano and Shuen, 1997). It is necessary to develop and maintain market-focused learning capability and internally-focused learning capability for accelerated internationalization, these capabilities will enable the firm to develop knowledge intensive products (Weerawardena et al., 2007). Technological learning capability provides the advantages of quick response to market needs and therefore able to increase financial returns (Zahra, Ireland and Hitt, 2000). New venture with minimal knowledge and information of foreign market needs to leverage their learning capability to overcome all possible challenges during internationalization process (McDougall and Oviatt, 2003). Knowledge acquisition is positively related to foreign market commitment. When a firm has successfully acquired sufficient information of the foreign market, it has better commitment for internationalization activities and lead to better international performance (Armario, Ruiz and Armario, 2008). As mentioned in the study of “open innovation”, the firm’s capability to learn from open resources is favourable for their innovation activity (Brunswicker and Vanhaverbeke, 2015). A firm with learning capability is more likely to achieve better innovation-based performance because it has the capacity to execute innovationfocused strategies such as develop more new products or achieve better productivity (Sok and Cass, 2011). Based on a study of 111 firms in Spain, Prieto and Revilla (2006) found that learning capability improves the organizational non-financial performance. Although learning capability does not affect the organizational financial performance directly, the non-financial performance affects the organizational financial performance. From a study of 139 SMEs in Australia, Evangelista and Mac (2016) found that foreign market learning has a significant effect on export performance. Sok and Cass, (2011) measures the learining capability through activities, routines, business processes and behaviors of firm in (1) diagnosing staff training and educational needs (2) improving the firm's knowledge base and skills (3) learning new and relevant knowledge to undertake the firm's business activities (4) analyzing the firm's unsuccessful activities (5) communicating the lessons learnt from the firm's past experiences across the entire firm. Fernández-Mesa and Alegre, (2015) conceptualized the learning capability as function of experimentation, Risk taking, interaction with the external environment, dialog and communication, and participative decision making.

Technology Capability / R&D Capability Drawing from the organizational innovativeness, firms innovate new creation and improve products by leveraging advanced technology, as well as to adapt the foreign markets demand. Overall, similar to most of the companies, information and communication technology promotes the marketing process in bornglobal firms, as well as accelerated learning about customers and competitors, efficient channel interaction, and other benefits. In similar, Knight and Cavusgil (2004) posit that global technological competence is a function for marketing orientation, as well as entrepreneurial orientation which leads to the superior performance. The empirical results from Langseth, Odwyer, and Arpa, (2016) illustrate that technological advancement is significant in empowering rapid internationalization, in particular to relate in innovative processes and product uniqueness development.

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Technology capability refers to the ability in designing, developing and manufacturing of product ( Ahmadi, Cass and Miles, 2014). The capacity of the firm’s technology capability supports the product innovation, a technological capable firm can produce low-cost or differentiated product that meeting the customer needs. Technology capabilities and technology resources complementarity contribute to the first product performance in a study of 142 new technology ventures in India (Ahmadi, Cass and Miles, 2014). Morgan-Thomas and Bridgewater (2004) found that firms that able to make sophisticated use of technology are more successful in exporting through virtual export channels. R&D capability is often used as an example of a firm-level innovativeness capability (Oura, Zilber and Lopes, 2016). Skilled R&D staff is important resource to absorb external knowledge, and further to create competitive advantages instead. For technological oriented firm, the new product development capability, as well as other issues such as product uniqueness, technological sophistication, ability to meet customer specifications and quality control process are important source of competitive advantage (Crick, 2009). Oura, Zilber and Lopes, (2016) measures R&D capacity as a (1) development of technologies by investing in R&D (Research and Development) (2) acquires new technologies (3) recognizing products that are technologically superior (4) product development, and (5) employs some of the most qualified industry experts in the country. Hao and Song, (2016) measures technology capabilities as (1) new product development capabilities (2) manufacturing processes (3) technology development capabilities (4) ability of predicting technological changes in the industry and (5) production facilities

Quality control capability Quality control capability refers to the ability of the firm to develop products or services that meet or exceed customer expectations with respect to features and performance (Knight and Cavusgil, 2004). In a quantitative research on 310 Australian and New Zealand born global and non-born global firms, Gerschewski, Rose and Lindsay (2014) shown that quality product or service is positively associated with international performance. The organizational capability to ensure product or service quality is viewed as critical resource for a firm to get a place in foreign market. Knight and Cavusgil (2004) suggested that quality focus is a key component for born global firm performance. Customers appreciate superior quality products and this lead to a better pricing position when they compare the offerings among local and overseas suppliers. Innovative and knowledgeintensive firms can leverage their capabilities to produce good quality products that satisfy and exceed their customer expectation and this can happen throughout the value-adding process (Knight and Cavusgil, 2004). Gerschewski, Rose and Lindsay, (2014) measures the product and service quality through three items such as praise for product/service quality by international customers, better product/service quality than major competitors and international customers’ conviction of company’s high product/service quality offering

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Big Data and Data Quality Dimensions Yanty Rahayu Rambli, Faculty of Information Management, University Teknology MARA, Shah Alam, Malaysia, [email protected] Mohd Sazili Shahibi, Faculty of Information Management, University Teknology MARA, Shah Alam, Malaysia, [email protected] Zaharudin Ibrahim, Faculty of Information Management, University Teknology MARA, Shah Alam, Malaysia, [email protected] Mohd Nasir Ismail, Faculty of Information Management, University Teknology MARA, Shah Alam, Malaysia, [email protected]

Abstract Many academicians, researchers, industries and governments around the globe have extensively attracted into a great attention to big data. Big data is a huge volume of data that comes with various formats including structured and unstructured data. Big data plays important roles as it propagate the discovery of insights and future prediction of the data that being processes. Significance of big data have widely impact various industries around the globe. Understanding of the characteristics of big data ‘V’s plays a major role in various types of industries. In another aspect of data for instance, data quality is one of the importance area that need to consider as it measured the fit of use to route for a better decision makings. Hence, data quality dimensions are also need to be aware of in order to ensure ‘fit to use’ of the data for a better decision makings. Keywords: big data, big data characteristic, data quality, data quality dimensions.

Introduction Big data is become the global trending theme in the whole globe including research community and industrial practices nowadays. Big data is not all about data or the volume of how huge is the data will be. It is all about insights. In a research study by Dal-woo et al. (2015), the desire to unlock valuable insights of combating big data is now a key theme in the heart of modern business world. Academicians, researchers and Industries realized that big data provides insights that largely benefit their business performance and started to propagate big data technologies and platforms into multiple disciplines. In a research study by Jules (2013), Seref & Duygu (2013), Munesh & Pooja (2014) and David et al. (2015) mentioned that a big data is not a small data that become inflated but it is a massive data sets for instance, terrabytes up to zettabytes, that having large and complex structure that no longer suitable to fit in the traditional databases and also become difficult to process using database management tools. Therefore, big data analytics technologies are used to reveal hidden patterns and secret correlations in the process of researching into massive amount of data which is also supported by a study by Seref & Duygu (2013). There are several popular big data analytics platforms that are used for the purpose of big data analytics. The first and most common popular platform is Apache Hadoop, which is the 9 years old open-source data-processing platform that used by the Internet giants including Facebook and Yahoo. In 2008, Cloudera introduced commercial support for interprises followed by MapR in 2009 and Hortonworks in 2011. Hence, IBM and EMC-spinout Privotal which is the data-management incumbents, introduced its own Hadoop distribution. Another platform that provide complementary software and first-line support for Hortonworks’ platform that support by Microsoft and Teradata. In a study by Doug (2014) also mentioned that other platforms include Oracle that resells and supports Cloudera, HP, SAP, IBM, 1010data, Actian, InfiniDB/Calppont, Infobright, Kognitio, HP Vertica

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and Amazon Web Service. There are also alots of big data platforms and big data analytics software in the market for our choices. Some organization decided to the well-established company/branded, in terms of costs and prices that involved, compatibility with the current IT infrastructure and existing products, ease of use and others criteria that involves.

Big Data Characteristics There are three characteristics which they called it as “V’s that define as volume, variety and velocity (Jules, 2013). These three characteristics or so called the dimensions of big data used at the early stage of big data implementation and also in the present year. But various researchers investigated big data have more than 3 ‘V’s. Figure 1 shows the 3 ‘V’s of Big Data. 3 ‘V’s Big Data

Volume

Variety

Velocity

Figure 1: 3 ‘V’s of Big Data Volume refers to the large amount of data. The huge amount of data is created from the wide range of sources such as transactions, unstructured streaming from text, audio, video, VoIP, sensors, images, including machine-to-data (Nir, 2014; Avita, et al., 2013; Dhana et al., 2015). Variety is data comes in multiple formats such as structured, numeric data in traditional database and unstructured text documents; email, audio, video, complex records and financial transactions (Jules, 2013; Nir, 2014; Avita, et al., 2013; Dhana et al., 2015). Another study done defines variety slightly difference as the heterogeneity of data acquisition, data representation, and semantic interpretation (Donatella et al., 2015). But they are more less the same. Velocity is defines as the content of the data is constantly changing and time-sensitive. Data that is collected, stores and analyzed need to be acted promptly (Jules, 2013; Nir, 2014; Avita, et al., 2013; Dhana et al., 2015). Various common studies used 3’V’s in their study. Comparing to other studies that used the big data ‘V’s, it has add into a new dimensions. 5 ‘V’s used in the study done by Xiaolong et al. (2015) and Dhana et al. (2015). The 5 ‘V’s are volume, variety, velocity, veracity and value. 4 ‘V’s used by a study done by Ikhbal et al. (2015), which is Volume, variety, velocity, veracity. It can be concluded that, as recent studies most of them use 3 ‘V’s and 4 ‘V’s depending on the big data ‘V’ criteria that most critical to measure with the types of data that involves for data analytics. Velocity refers to the speed of the data that is generated from the various sources. These include the speeds of incoming data and speed at which the data flows which is used in various studies by Jules (2013), Nir (2014) and Avita, et al. (2013). In a study by Dhana et al. (2015) mentioned that value is actionable information that gathers from the analysis of the data where else, variability refers to the inconsistency of the data flow. This is associated with the social media trends. Finally, Jules (2013), Nir (2014) and Avita et al. (2013) mentioned that Complexity is data comes from multiple sources including link, matching, cleansing and transforming across systems.

Significant Of Big Data Big data resulting many significance to various areas. Xiaolong et al. (2015) mentioned that big data are significance to national development, industrial upgrades, scientific research, emerging interdisciplinary research, helping people better perceive the present and predict the future. The following figure 2 shows the big data significance.

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National Development Scientific Research

Industrial Upgrades Big Data

Interdisciplinary Research

Significance Perceive

Predict

Present

Future

Figure 2: Big Data Significance National development give significant in terms of the arising extensively the Internet of Things, Internet, Social media, cloud computing and other data that become complex to analyze. Secondly significant to scientific research, big data has caused the scientific community to reconsider it is open to the eyes of scientific researcher to a new scientific thinking methods and methodology. A new theoretical will be originated and solving a lots of practical issues. Significant to interdisciplinary research is bring about more focus among academia in performing interdisciplinary research. Fourthly, significant to perceive present, big networked data that contains a wealth of information society and can easily viewed as a network mapped to society. Therefore, by analyzing big data and finding the insights can assist people to perceive the present much more better. Significant to industrial upgrades, it brings challenges and competitive advantages to the digitization and informational industries. Lastly, the significant to predict the future, big data provides widely future predictions in promoting a better development of economy and society of the country. People could be able to predict the future trends and provides beneficial for long terms entrepreneur. These can be resulted as an umbrella of what will be predicted in future.

Big Data Quality Data must be fitness to use. Data quality is important whether it is in the traditional environment or in big data environment. It should be no more issues pretending data quality when it comes to big data, but still the issues persisting. A high quality of data is crucial to a company’s success. It should be tackle at the point of first stage of data processing before it comes to data analytics. Bad data that is using during the analytics process will caused inaccurate in producing good decision making in organization. Data quality is another important area that needs to be focus with. Study done by David et al. (2015) found that quality control procedures for data-driven sciences are the same quality control procedures applied to traditional data. Therefore, big data quality will also embark with the same quality control procedure using data quality dimensions in order to measure data quality. International Organizational for Standardization/International Electrotechnical Commission (ISO/IEC) 25012 contains a data quality model with a set of characteristics that data from any information system must fulfill to attain adequate levels of data. Besides that, ISO/IEC 25024 provides general measures to quantify quality of data with compliance to the characteristics from ISO/IEC 25012. Although, these standard cannot be applied straight into big data project due to it devised for classic environments. Rather, they must be understood as “reference guides” that must be tailored and implemented accordingly to the particular technological environment to analyze data quality which is also mentioned by a study done by Merino et al. (2015).

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Data Quality Dimensions Accuracy Completeness

Data Quality Dimensions

Timeliness Credibility

Consistency Figure 3: Data Quality Dimensions Figure 3 shows the five data quality dimensions that used in this study. Each of the data quality dimensions are defines as follows. Accuracy is defined as the accuracy degree of the data values that describes the meaning of the so called the value of the ‘real-world’ data. The data is also the degree of the values that conform to the business and accuracy is also describes as the accuracy degree of the data that has the attributes that able to represent the true value of the attributes in a specific context of use of a particular event or concept (Ikbal et al., 2015; ISO/IEC 25024, 2015; Suraj, 2015; Abdullah et al., 2015; Sharona, 2015; Missier et al., 2015; Seung & Duke, 2013; Carlo & Monica, 2006). Completeness is defined as the completeness degree of sufficient scope, depth and breath of the data for the particular task. Hence, complete is also described as the degree of the data in order to ensure the column, schema and population completeness. Besides that, completeness is also defined as the degree in which the associated data expected values with a target entity has it target entity in a specific context of use (Ikbal et al., 2015; ISO/IEC 25024, 2015; Suraj, 2015; Abdullah et al., 2015; Sharona, 2015; Missier et al., 2015; Seung & Duke, 2013; Carlo & Monica, 2006). The third dimension which is consistency is defined as the consistency of the degree of data in terms of consistency in its definition and treatment both within and across the database in order to avoid the inconsistency, duplication and etc. This dimension is also describes as the degree to which the data has the attributes that are free from any contradiction and are coherent with any other data in the context of specific use. They can be both or either within the data of one target entity or across similar data for comparable target entities of the specific context use (Ikbal et al., 2015; ISO/IEC 25024, 2015; Suraj, 2015; Abdullah et al., 2015; Missier et al., 2015; Seung & Duke, 2013; Carlo & Monica, 2006, Danette, 2008). The next dimension is timeliness/currentness. Timeliness is defined as the degree to which the data is promptly updated. It also describes as the degree which of the current data is relative to any specific task. Hence, timeliness is also to which the data in a specific use has it attributes that are of the right age (Ikbal et al., 2015; ISO/IEC 25024, 2015; Suraj, 2015; Abdullah et al., 2015; Missier et al., 2015; Seung & Duke, 2013; Danette, 2008). Lastly, credibility/relevance is defined as in which the degree of the data is helpful and applicable for the use and needs. It also defined as a degree of the data of a specific context of use that has it attributes that are regarded believable and true by the users (Ikbal et al., 2015; ISO/IEC 25024, 2015).

Big Data Technology From a technology perspective, big data technology is showed a package of new and advanced technology solutions which is highly capable in handling big data in terms of effectively and efficiently. A research study by Shim & Sum (2016) mentioned that a dedicated statistical tools and techniques have been developed to deal with a specified level of confidence or intervals with the big data uncertainty and unreliability. Big data has showed many opportunities and significant change in various aspects of professions and practices. With the statistical tools that used in analysing big data, it has produce accuracy in terms of predictions, real time data and information that helps everyone produce good decisions makings. Assumptions and estimations will now being supported by accurate facts and figures. These provide many beneficial to an individuals, business and organizations.

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Conclusions Data are rapidly growth and increasing day after day without waiting for any minutes on the clock. Many technologies have emerging for big data in discovering the beneficial of using data to find insight and discover future predictions. Something needs to be done for the existing and current data to enquire trending and predictions as data is the main assets of the organization. Make use of the data or else we will beyond far away from competitive advantage challenges in the market. Big data and the needs of the quality are no more a trending. It was there from the beginning and it is a need to ensure quality of analysis to ensure the result of the analysis can be trusted and used in any of organization decision makings.

Acknowledgement We could like to thank the Ministry of Education of Malaysia and University Technology MARA (UiTM) to give us the opportunity to conduct this research.

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