Springer Proceedings in Business and Economics Taufiq Choudhry Jacek Mizerka Editors Contemporary Trends in Accounting, Finance and Financial Institutions Proceedings from the International Conference on Accounting, Finance and Financial Institutions (ICAFFI), Poznan 2016 Springer Proceedings in Business and Economics More information about this series at http://www.springer.com/series/11960 fi Tau q Choudhry Jacek Mizerka (cid:129) Editors Contemporary Trends in Accounting, Finance and Financial Institutions Proceedings from the International Conference on Accounting, Finance and Financial Institutions (ICAFFI), Poznan 2016 123 Editors Taufiq Choudhry JacekMizerka Southampton ManagementSchool Department ofCorporate Finance University of Southampton Poznań University of Economics Southampton Poznań UK Poland ISSN 2198-7246 ISSN 2198-7254 (electronic) SpringerProceedings in Business andEconomics ISBN978-3-319-72861-2 ISBN978-3-319-72862-9 (eBook) https://doi.org/10.1007/978-3-319-72862-9 LibraryofCongressControlNumber:2018934946 ©SpringerInternationalPublishingAG,partofSpringerNature2018 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpart of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission orinformationstorageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilar methodologynowknownorhereafterdeveloped. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publicationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfrom therelevantprotectivelawsandregulationsandthereforefreeforgeneraluse. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authorsortheeditorsgiveawarranty,expressorimplied,withrespecttothematerialcontainedhereinor for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictionalclaimsinpublishedmapsandinstitutionalaffiliations. Printedonacid-freepaper ThisSpringerimprintispublishedbytheregisteredcompanySpringerInternationalPublishingAG partofSpringerNature Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland Preface The field of finance is very broad. It includes both macroeconomic (e.g. public finance, monetary policy) and microeconomic issues (e.g. corporate finance, accounting,investmentdecisiononcapitalmarket).Thefieldoffinanceisalsovery vital.Thisisevidencedbyresearchundertakenbycontemporaryresearchers.Some of the results of these researches were presented during the International Conference on Accounting, Finance and Financial Institutions. Theory Meets Practice (ICAFFI), which took place in Poznań, on 19–21 October, 2016. A part ofthepapersdiscussedduringICAFFIhavebeenpresentedtothewideaudiencein this book. We tried to choose this volume articles representing a broad scope of financial issues. The issues related to decisions taken in the capital market are represented by three articles: Leszek Czapiewski, Jarosław Kubiak, Investor Reactions to Dividend Announcements of Companies Listed on the Warsaw Stock Exchange,KrzysztofPiasecki,Joanna Siwek,Two-Asset Portfolio with Triangular Fuzzy Present Values—An Alternative Approach, Szymon Stereńczak, Stock Market Liquidity and Company Decisions to Pay Dividends: Evidence from the Warsaw Stock Exchange. The paper of L. Czapiewski and J. Kubiak concerns the impactofchangesinthequalityofdividendspaidandchangesinthedividendrate on the return of excess rate of companies whose shares were listed on the Warsaw Stock Exchange (WSE) in 1996–2014. The article written by K. Piasecki and J. Siwek proposes an alternative approach to the characteristics of a two-asset portfolio in a case of present value estimated by a triangular fuzzy number. The goal of Sz. Stereńczak’s paper is to investigate the relationship between stock liquidity and both companies’ propensities to pay dividends, and the level of div- idend payments. Two articles concern corporate finance: Józefa Gryko, Managing of Financial Flexibility and Sanjeev Kumar, K. S. Ranjani, Financial Constraints and Cash FlowSensitivitytoInvestmentinIndianListedManufacturingFirms.Thepaperof J. Gryko focuses on showing the importance offinancial management in creating the flexibility of the company and identifying conditions affecting the decision on thecompany’sfinancialflexibility.ThearticleofS.KumarandK.S.Ranjaniisan effort to test the validity of cash flow sensitivity to investment as a measure of v vi Preface financial constraints in Indian manufacturing firms using panel data for 768 listed firms over a period of 6 years (2010–2016). A paper proposed by A. Wójcicka, Credit-Risk Decision Process Using Neural Networks in Industrial Sectors, concerns the assessment of credit risk. The author focuses on factors determining credit risk; she proposes using neural networks in the process of credit-risk management. The paper of K. Charoontham and T. Amornpetchkul, Impact of Pay-for- PerformanceonRatingAccuracy,discussestheroleofcreditratingagencies(CRAs). Theauthorsanalysewhetherthepay-for-performanceschemecanencouragetoissue accurateratingsunderaninvestor-paymodel. The article of M. D. Stasiak, Modelling of Currency Exchange Rates Using a Binary-Temporal Representation, proposes methodical point of view. The author presents a new method for modelling exchange rates with a binary-temporal representation. The fieldofpublic financeisrepresented bythearticle The RoleofTaxHavens inTaxAvoidancebyMultinationalswrittenbyM.Kutera.Themainpurposeofthis publication is to present the scale of tax avoidance by multinational firms and the possible impact of that avoidance on the capital flows in the global economy. Astonishing, but interesting, research problem was taken by A. Pavković, K. Dumičić, and B. Žmuk in the article Number of Automated Teller Machines in Selected European Countries: Exploration of Trends and Development Indicators Impacts.Theauthorsdiscoveredandcomparedvariabilityandtrendsinthenumber of automated teller machines (ATMs) in the recent history in the European Union memberstates.Theyalsostudiedtheinfluenceofselectedfactorsonthenumberof ATMs. The paper of I. Pyka and A. Nocoń, ‘Repolonization’ Process of Domestic Banks. Analysis ofConditions andOpportunities, hasamore journalistic character andconcernsthe‘hot’issueoftheso-calledrepolonizationofthebankingsectorin Poland. Finally,wewouldliketothankallthecontributingauthorsandthereviewersfor their contribution to this book. We also wish an interesting reading to academics and practitioners. Poznań, Poland Jacek Mizerka Southampton, UK Taufiq Choudhry January 2018 Contents Investor Reactions to Dividend Announcements of Companies Listed on the Warsaw Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . 1 Leszek Czapiewski and Jarosław Kubiak Two-Asset Portfolio with Triangular Fuzzy Present Values—An Alternative Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Krzysztof Piasecki and Joanna Siwek Stock Market Liquidity and Company Decisions to Pay Dividends: Evidence from the Warsaw Stock Exchange . . . . . . . . . . . . . . . . . . . . . 27 Szymon Stereńczak Managing of Financial Flexibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Józefa Gryko Financial Constraints and Cash Flow Sensitivity to Investment in Indian Listed Manufacturing Firms. . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Sanjeev Kumar and K. S. Ranjani Credit-Risk Decision Process Using Neural Networks in Industrial Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Aleksandra Wójcicka Impact of Pay-for-Performance on Rating Accuracy . . . . . . . . . . . . . . . 83 Kittiphod Charoontham and Thunyarat Amornpetchkul Modelling of Currency Exchange Rates Using a Binary-Temporal Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Michał Dominik Stasiak The Role of Tax Havens in Tax Avoidance by Multinationals . . . . . . . . 111 Małgorzata Kutera vii viii Contents Number of Automated Teller Machines in Selected European Countries: Exploration of Trends and Development Indicators Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Anita Pavković, Ksenija Dumičić and Berislav Žmuk ‘Repolonization’ Process of Domestic Banks. Analysis of Conditions and Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Irena Pyka and Aleksandra Nocoń Investor Reactions to Dividend Announcements of Companies Listed on the Warsaw Stock Exchange Leszek Czapiewski and Jarosław Kubiak Abstract Theaimofthearticleistoassesstheimpactofchangesinthequalityof dividends paid and changes in the dividend rate on the return of excess rate of companies whose shares were listed on the Warsaw Stock Exchange (ESE) in 1996–2014.Followingthetheoryofthedividendinformationcontent,accordingto whichthedividendvalueisasignaltoinvestorsthathigherratesofreturnshouldbe expected in the case of companies which increase the dividend value or rate. The event analysis method was used as that most often used in this type of research, withthecumulativesurplusreturnrateCAARasameasureofinvestorresponseto change in the value of dividends paid. Three models were used as a benchmark: index,marketandCAPM.Theconductedstudiesdonotgiveaclearpictureofthe results,howeverinthecaseofcompaniesforwhichthedividendratewasgrowing a positive reaction can be observed in the event window. The published research results contain data for all cases in which a change in dividend values could be stated from year to year by companies listed on the WSE in 1996–2014. (cid:1) (cid:1) Keywords Dividend policy Dividend rate Signalling theory Event analysis TheresearchwasfinancedbytheresearchprojectfundsgrantedbytheNationalScienceCentre (2015/19/D/HS4/01950). L.Czapiewski(&)(cid:1)J.Kubiak CorporateFinanceDepartment,PoznanUniversityofEconomicsandBusiness, Poznań,Poland e-mail:[email protected] J.Kubiak e-mail:[email protected] ©SpringerInternationalPublishingAG,partofSpringerNature2018 1 T.ChoudhryandJ.Mizerka(eds.),ContemporaryTrendsinAccounting,Finance andFinancialInstitutions,SpringerProceedingsinBusinessandEconomics, https://doi.org/10.1007/978-3-319-72862-9_1 2 L.CzapiewskiandJ.Kubiak 1 Introduction Dividend policy is one of the most important areas of financial decisions in an enterprise.Inthecaseofpubliccompanies,theinvestorpreferenceforthepayment of dividends and capital gains should be taken into account when making this decision. A number of theses presenting the “pro-dividend” and “anti-dividend” positionscanbefoundintheliterature.Thispaperexaminestheapproachrelatedto the theory of dividend information content, according to which the dividend value is a signal to investors, indicating the managers’ predictions relating to the future financial situation of the company. Therefore, the dividend is treated as a signal determining the company’s quality. The purpose of the article is to examine the impact of changes in the dividend policy of non-financial companies whose shares were listed on the WSE in 1996– 2014 for the amount of excess return rates. This impact will be studied using the methodology of event study analysis. The message about the decision of the General Meeting of Shareholders (GMS) about the amount of dividends per share will be the event. 2 Dividend Payments and Market Reaction—A Brief Literature Review Viewsonthereactionofstockpricestothechangeinacompany’sdividendpolicy are related to the dispute over the impact of dividends on a company’s value. Advocates of the “pro-dividend” approach say that companies paying relatively high dividends will show a higher market value than companies with a similar profile of activity but typified by a low dividend rate. M. J. Gordon (1959) and J.Lintner (1956)arguedthatinvestorsaremorelikelytovalueaguaranteeddollar which they receive from a dividend than one from expected capital profits. The fundamentals of the “pro-dividend” approach can also be sought in other theories, especiallyregardingtheshapingofthecapitalstructure,for exampleintheagency theory(Jensen1976).Usually,thepositivemarketreactiontothedecisionstoshare profits with shareholders is explained in the context of signalling theory. Inaccordancewiththetheoryofdividendinformationcontent,theirlevelisasignal forinvestorswhichindicatesthemanagers’predictionsrelatingtothefuturefinancial situationofthecompany.Theinitiationofadividendpayment,oranincreaseintheir value,isapositivesigndeterminingthecompany’squality(Bhattacharya1979;Miller and Rock 1985). It should be noted that investors often react not to the dividend amount, but to its change. Recent studies (Pettit 1972; Aharony and Swary 1980; Brickley1983;HealyandPalepu1988;Michaelyetal.1995)mostlypointtoapositive correlationbetweenachangeinthedividendvalueandtheshareprice.Inaddition,a sharepriceincreaseisobservedintheeventoftheinitiationofdividendpayments,and adecreaseintheeventofceasingdividendpayments.