Authors: Evangelos Koumanakos, Stavroula Skiadopoulou

Title: Enforcement actions and corporate tax avoidance

Abstract

How do corporations respond to enforcement actions? Although the literature on the effectiveness of enforcement initiatives has recently expanded, empirical evidence from businesses remains limited. Given the rampant tax avoidance and evasion in Greece, in this paper we investigate the ex post consequences of tax authorities’ audits on Greek firms behavior. To do so we combine two unique datasets: administrative corporate tax-return data with the outcomes of actual tax audits over the period 2006-2014. Rather surprisingly, applying an event study design, we find that firms significantly increase their tax aggressiveness after being audited.

Keywords: Tax enforcement; corporate tax avoidance

Jel: H26 Tax avoidance and evasion

Authors: Kyriaki Kafka, Pantelis Kostis

Title: The Effects of Culture and Institutions on Economic Development

Abstract

The requirements of the co-evolution of the institutional and cultural background are critical to the economic development process. When the institutions and the cultural background co-evolve, that is, evolve simultaneously and in the same direction, the process of economic development is facilitated. Conversely, when deviations from this co-evolution exist, their asynchronous or in different direction movement may lead to a series of failed attempts to implement a modernized developmental framework. Thus, the purpose of the paper is to highlight whether the institutional and cultural background function in a complementary or substitute way in terms of their role in economic development. The data used in the analysis refer to an unbalanced panel dataset for 113 countries for the last four decades (1981-2019). After a descriptive foundation of the complementary or substitute relationship between cultural and institutional background for economic development, an empirical analysis takes place, through a two ways fixed effects assessment, with different intercepts between the examined economies and using time dummies for the seven total waves of data released from the World Values ​​Study (WVS) and the European Values ​​Study (EVS). Additionally, country specific clustered robust estimates of the standard errors are used. Robustness analysis of the results is also performed which includes: i) the addition of various combinations of control variables to the base model, ii) an alternative way of estimating the basic model using a dynamic GMM method (Arellano – Bond) which takes into account the possible endogeneity between cultural background and economic development, and (iii) the relaxation of the boundaries for the descriptive analysis, in order for more countries to enter the analysis. The main conclusions of the analysis are the following: a) There is a complementary relationship between the institutional and the cultural background regarding their role in economic development (descriptive and empirical analysis). a1) When both notions are at a strong level this leads to the highest level of economic development, while when at least one of both or both are at a weak level economic development is lower. a2) The effect of the institutional background on economic development is doubled when the role of the cultural background is simultaneously included in the analysis. a3) The effect of the cultural background becomes statistically significant when it enters the analysis simultaneously with the role of the institutional background. a4) The interaction term of the two quantities has a positive and statistically significant effect on economic development in all regressions performed. b) The same institutional background (strong) can have a different effect on economic development depending on the prevailing cultural background. This explains why economic policies are effective in some countries and ineffective in others. c) The institutional background seems to have a greater impact on shaping the level of economic development than the cultural background.

Authors: Panagiota Orfanakou, Evangelos Chytis

Title: Corporate Governance Mechanisms and Banking Risk

Abstract

The 2008 financial crisis highlighted the financial institutions’ weaknesses in the implementation of corporate governance and triggered significant regulatory reforms. Coordinated interventions which took place at a global level (OECD – Basel Committee), led to the establishment of new corporate governance obligations, recognizing at the same time their particular importance to the risk management function.

This paper assesses the level to which Greek banks have adapted to the principles and provisions of corporate governance, as well as its relation to bank risk.  It is worth noting that, although there is an extensive international research and bibliography on this specific subject, , no similar interest is identified  to date in Greece.

For this purpose, a unique database was created, which includes financial data as well as quality data of corporate governance. The data derived primarily from the annual and semi-annual financial statements of the four systemic banks and cover the period between 2012-2019, while for the calculation of banking risk, the methodology of Laeven & Levin (2009) was adopted.

The research concludes that Greek systemic Banks although exposed to significant risks, have at the same time obtained a satisfactory compliance level with the new corporate governance regulatory framework and continue to attribute increasing emphasis to risk management.

Following the variation analysis of banking risk in relation to the number of Board Members, and the percentage of shareholders holding over 5% of the Banks share capital, statistically significant differences occurred only in relation to the shareholders having more than 5%, and a smaller risk was demonstrated in cases where the percentage is less than 33.33%.

The paper is structured as follows: Initially, corporate governance principles and the relevant regulatory framework are presented. A bibliographical review and the calculation of bank risk (z-score) follows. Statistical data relating to banking risk and its relation with selected corporate governance indicators are then presented and analyzed. The paper ends with useful conclusions for the regulatory and supervisory authorities, financial markets as well as banking analysts. As a follow up to the research, its expansion to the overall banking sector, including the cooperative banks, is proposed.

Authors: Maria Kalpakoglou, Aggeliki Konstantoglou, Dimitris Folinas, Thomas Fotiadis, Vasiliki Sirakouli

Title: Paros Island is also an ideal gastronomic destination!

Abstract

Paros Island is a very famous tourist destination with many visitors preferring it every year either as a destination of relaxation or as a destination of special interest. However, despite the high demand from thousands of tourists who visit the island every year, there is no corresponding increase in revenues in the local community and the tourist season is rather limited. This outdated image of Paros, i.e. “island, sun and sea”, brings at the same time insecurity to the businessmen of the island and an uncertain future for tourism. The possibility of developing a sustainable alternative form of tourism, such as gastronomic tourism, can extend the tourist season.

Based on the advantages of the two data collection approaches -qualitative and quantitative -we conducted primary research on tourists in Paros and secondary research using data from previous scientific articles. The main objectives of this paper were to highlight Paros as a gastronomic destination to combat seasonality and achieve the extension of its tourist season while at the same time becoming clear and understanding that this island has the potential not only to be a gastronomic destination but a competing “different” gastronomic destination. These goals demolish the aforementioned and still existing obsolete image and tourist model of the island, highlighting its real potential in the modern tourist present.

Authors: Stylianos Floropoulos, Maria Tsipouridou, Charalambos Spathis

Title: Book-tax conformity and earnings management: review of recent research

Abstract

A tax system must be fair, simple, transparent and efficient. Corporations use two different sets of financial statements: a financial statement that reports «book profits» to the capital markets, investors and shareholders and a separate financial statement that reports «tax profits» to the government and tax authorities. These two statements have mirror-image goals: firms want to maximize the income reported to investors while minimizing the taxable income reported to the tax authorities (paying less taxes). Additionally, the dual nature of corporate profit reporting may be creating a lose-lose situation — less meaningful profit numbers for capital markets, lowered corporate tax revenue for the government and the allocation of resources to exploiting the opportunities created by this curious system. Defenders of the book-tax divide have argued that a unified system cannot accommodate these differing objectives. Moreover, when the links between financial reporting and tax become stronger (i.e., stronger book-tax conformity) the informational role of accounting earnings is reduced. On the other hand, corporations in countries with higher required book-tax conformity have fewer opportunities to avoid taxes without decreasing reported earnings. The potential advantage of shifting to a book income tax base with adjustments is to improve the transparency of the tax base (the whole purpose of the conformed system would be to tax a base of true economic income) and help restore the integrity of the financial accounting system. Studies examining earnings management across countries provide mixed evidence regarding the impact of book-tax conformity. Earnings management is only one aspect of earnings quality. Some managers may take advantage of their reporting discretion to report accounting earnings opportunistically when book-tax-conformity is lower. The propensity to engage in opportunistic behavior is predicated on tax and non-tax cost considerations and on a manager's incentives. Managers' strategies include (1) managing book and taxable income (taxes) in an opposite direction; (2) managing book income while keeping taxable income (taxes) constant; and (3) managing taxable income (taxes) while keeping book income constant. Some researchers mention that higher levels of book-tax conformity are associated with higher, not lower, overall levels of earnings management (i.e. upward and downward) across the world and tax avoidance (i.e. non-conforming and conforming) behavior (tax-induced earnings management). Likewise, higher conformity between accounting and tax reporting in a jurisdiction is associated with more earnings management as a response to an upcoming tax reform that decreases the corporate tax rate. Additionally, firms more widely act according to the income shifting incentive when book-tax conformity is stronger. Conversely other studies claim that book-tax conformity can prevent the earnings management activity. Furthermore, high book-tax conformity is associated with lower levels of earnings management and tax avoidance. Additionally, in a conformed system, managers have weaker incentives to engage in earnings management because upward earnings management will yield higher taxes. The paper analyses the proponents and opponents of high/low book-tax conformity and the association between earnings management and book-tax conformity. Our review can be used in research studies, when accounting principles and book-tax conformity are altering or/and tax reform (tax rates are changing) takes place.

Authors: Stefanos Dourtmes, Andreas Andrikopoulos

Title: The impact of social banking on economic development

Abstract

The impact of financial growth on economic development has attracted a significant amount of research and despite the conflicting outcomes, we focused on a certain segment of the financial sector that stands out, due to its unique significance, social banking. The importance of this nexus lies within the extraordinary resilience that these ethical banks presented during the recent financial crisis of 2007-2008 and the amount of customers they have attracted, mainly due to their substantially transparent and less speculative practices.

In order to build the data set, we used all the widely available data regarding social banking activity from the site of Global Alliance for Banking on Values (https://www.gabv.org/), from where we retrieved macro-economic and financial metrics that concern 31 economies from around the world and then we classified them into two sub-samples according to the countries’ level of income. The samples cover the period between 2014 and 2018, when most economies had recovered from the financial crisis of 2007-2008 and the results of ethical banking were observable.

To investigate the association between social banking and economic development we proceeded with estimations of panel regressions of the whole sample and the two sub-samples that we built based on the figures of the 31 economies that we collected, by using a random effects model. More specifically, our regression comprised of the GDP per capita growth, which was the dependent variable, the growth of total credit provided by social banks, the growth of size of social banks which was represented by total assets growth and the DGP deflator growth. In this manner we were able to interpret the footprint of ethical banking on sovereign economic development, by measuring the accumulated activity and level of presence of the social banking institutions and their economic impact and studying the statistical significance between these variables.

Overall, it is safe to conclude that social banking operates in favour of economic development when referring to the total sample. Specifically, our empirical results for lower income economies sub-sample (which mostly comprises countries located in Asia, Latin America and Africa) provide stronger empirical evidence of the ethical banking on economic growth in that regions. The economies of this sub-sample do not share notable economic bonds or characteristics, but they all present faster economic growth and higher financial sector growth (in terms of social banking).

However, regarding the more developed regions that comprised the higher income subsample (Europe, USA, Canada and Japan), they do not exhibit a significant association between economic growth and social banking ,although this should not keep us from examining this association with a bigger sample that covers more economies, a bigger period and possibly include more variables, in the near future. Moreover, the benefits of social banking cannot be explored by measuring the size or the credit provided by ethical institutions alone. There are more aspects and contributions to global economy that should be examined and be widely presented.

Authors: Filippos Ioannidis, Kyriaki Kosmidou, Iordanis Kalaitzoglou, Kostas Andriosopoulos, Emilios Galariotis

Title: INVESTING IN BRIDGING FUELS: THE UNIT COMMITMENT PROBLEM OF PUBLIC VS PRIVATE VENTURES

Abstract

Natural gas is broadly considered as the bridging fuel that is leading the way throughout the global energy transition. This paper investigates the efficiency of public versus private natural-gas-fired units in managing their unit commitment problem in the electricity market of Greece. The continuous liberalization and decarbonization processes are gradually transforming the country into an important energy hub of the Southeast Europe, with both public and private sector aiming to take advantage of the increased penetration of natural gas into the electricity mix. By utilizing a unique hourly dataset for the period 2015-2019, our analysis based on risk-weighted performance metrics indicates a clear superiority of public units. Yet, both groups increase their efficiency over the years with private units achieving it at a greater pace. This clearly suggests that market liberalization assists competition in the Greek electricity market.

Authors: Speranca Reka, Chrysanthi Balomenou

Title: The impact of capitalization on bank performance: The case of Albania

Abstract

Bank capital is essential in preserving the safety and efficiency of the banking sector in general and serves as a buffer in case of economic turmoils. This paper aims to examine the influence of capital level on the performance of eight commercial banks in Albania. The study utilized quarterly secondary data sourced from the AAB, during the period 2012-2018. It also looks into other bank-specific characteristics of deposit to asset ratio, liquidity, and the size of the bank, that are hypothesized to affect bank performance, as measured by return on assets. The data analysis employed is the Panel Data Method, of the Ordinary Least Square regression method. The findings revealed that banks that have a high level of capital have a severe direct impact on the performance of Albanian banks, and all the other variables are significant as hypothesized.

Keywords: bank performance, capitalization, deposit ratio, liquidity, Albania.

Authors: Chrysoula Tsirimokou, Clive Richardson, Theodosios Palaskas

Title: Greek family-business management performance: Emotionally intelligent or Machiavellian?

Abstract

Although the investigation of emotional intelligence levels and personality traits such as Machiavellian behavior of the manager and the family firm’s workforce, is critical in understanding the role of emotions in family business dynamics and in drawing conclusions regarding their effects on the overall business performance, the subject has not been examined adequately. Utilizing modern tools, this paper aims to measure and evaluate the qualitative characteristics of family business managers’ behavior and the interpersonal relations within the family, and to analyze their influence on the firms’ performance. In particular, it examines whether emotional intelligence and Machiavellianism determine the efficiency of the management in Greek family businesses’ performance. For this purpose, a structural equation model was specified and applied to fieldwork data to test the statistical validity of the hypothesis. The findings strongly statistically suggest that, while emotional intelligence plays an important role, Machiavellian personality does not.

 

Keywords

emotional intelligence, Machiavellianism, personality, family business, management, performance

 

JEL classification: D9 Micro-Based Behavioral Economics

Authors: Vasileios Nastas, Paraskevi Boufounou

Title: A Two-phase Optimal Portfolio Selection Using Sharpe Index Model Applied to the Athens Stock Exchange

Abstract

Although, in the literature numerous multivariate models have been applied for optimal portfolio selection based on either market or accounting stock characteristics, whereby plenty of technical and/or fundamental criteria have been proposed, the problem is yet to be solved. This paper enhances a two-phase analysis that combines both fundamental and technical criteria, in order to overcome the aforementioned shortcomings. Initially, the fundamental characteristics of 25 stocks from 11 industries/sectors with the largest market capitalization, are compared to the performance of the Athens Stock Exchange FTSE/XA Large CAP Index, and hence a scoring table is formed, and the best performing stocks are selected. Subsequently, for these stocks, based on weekly data covering a 3-year period, the Sharpe Index Model is applied and the best performing portfolio is selected. The Sharpe Index Model (SIM) estimated, reveals that there are several opportunities to optimize return and diversify risk in an efficient manner, outperforming the FTSE Large Cap Index.