ASSESSMENT OF FINANCIAL SECURITY OF AN ENTERPRISE ON THE BASIS OF BEHAVIORAL ECONOMICS

Oleksandr MELNYCHENKO

Abstract


Introduction. The level of the company's financial security is determined not so much by the indicators of its activity on the basis of economic analysis, but by the perception and, as a consequence, professional judgment of stakeholders, experts. The basic approaches to the company’s financial security definition are described and the role of economic analysis in the assessment, which consists not of its complex research, but of the economic indicators, quantitative data on the state of the company’s financial security, is presented. Nevertheless, to speak of a comprehensive and in-depth study of the level of financial security based on economic analysis only would be incorrect and inaccurate. Indices, indicators that are analyzed on the basis of financial or managerial reporting provide only a superficial understanding of the problem or even distort the overall picture, as they are recorded at a particular point in time. When processing data in numerical or visual format, it is rarely possible to present all the information as a whole at the same time. The expert assessment of company's financial security is the most objective method, which, however, has disadvantages related to the cognitive limitations of experts.
Purpose. To substantiate the principles of assessing the company’s financial security based on the principles of behavioral economics Results. The article put forward a hypothesis and proved that the level of the company's financial security is determined not so much by the indicators of its activity on the basis of economic analysis, but by the perception and, as a consequence, professional judgment of stakeholders, experts. The basic approaches to the company’s financial security definition are described and the role of economic analysis in the assessment, which consists not of its complex research, but of the economic indicators, quantitative data on the state of the company’s financial security, is presented. Nevertheless, to speak of a comprehensive and in-depth study of the level of financial security based on economic analysis only would be incorrect and inaccurate. Indices, indicators that are analyzed on the basis of financial or managerial reporting provide only a superficial understanding of the problem or even distort the overall picture, as they are recorded at a particular point in time. When processing data in numerical or visual format, it is rarely possible to present all the information as a whole at the same time. The expert assessment of company's financial security is the most objective method, which, however, has disadvantages related to the cognitive limitations of experts.
Originality. The analysis of financial indicators based on economic analysis data does not allow to assess company’s financial security in an unambiguous and objective way and that its level is determined, rather, on the basis of the perception of those, who evaluate it, as well as that it is impossible to obtain reliability, based solely on subjective judgments, we propose to use the expert method, as the most objective one for assessing company’s financial security.
Such approach is not a new one or unique, because this is how almost the whole, and especially large, business has worked successfully for a long time, creating collegial bodies for decision-making (board, board of directors, supervisory board, etc.). However, this method is characterized by shortcomings and features that are inherent in the principles of behavioral economics, which should be considered in more detail.
It is clear that experts’ perception of the level of this important indicator can not be formed only on the basis of their even significant experience, but should consider the data of objective control of the company on the basis of its financial, management and other reporting – those indices and indicators that reflect the state of financial security for a certain (adequate) period of its functioning.

The key one will be the question of who and for what purpose assesses company’s financial security. The final decision of the experts on determining the level of financial security will depend on the set goals, tasks, as well as their formulations. This is due to the cognitive limitations of each expert group member.
Therefore, the level of company’s financial security is ultimately determined by just two levels of "high enough" and "not high enough" in specific situations when making concrete decisions. This level is defined by a group of people or a person entrusted with such powers of the company. It is possible to determine the level of company’s financial security by a certain digital value, for example, using an integral indicator or a set of indices, coefficients, indicators, using different methods. However, these indicators and their normative values can be thoroughly substantiated, nevertheless, decision-makers will only take them into account and not consider them explicitly as dogma.
Thus, the most important issue is the formulation of the request to decision makers and the justification of its consequences.
Conclusion. The article substantiates that the level of company’s financial security depends not so much on the indicators of its activity, but on its perception of decision-makers and other stakeholders. At the same time, this perception is formed due to the continuous participation of the stakeholder in operations, constant monitoring of financial indicators, the study of current approaches to enterprise management, changes in the environment, market conditions, etc. The role of economic analysis in assessing company’s financial security as a state is not in its complex study, but in the presented economic indicators, the processing of quantitative data on the company’s financial security. Instead, to speak of a comprehensive and thorough study of the level of financial security on the basis of economic analysis only would be incorrect and unreliable. Indices, indicators that are analyzed on the basis of financial or management reporting provide only a cursory view of the problem or even distort the overall picture, as they are taken at a particular point in time. For example, liquidity indicators change in certain groups of businesses and the country's economic or political environment can transform a liquid company with a solid stock of liquidity into absolutely illiquid in a few moments. However, considering the previous data of economic analysis without bearing in mind other aspects, it is possible to make fatal decisions for the company. Although, of course, such a scenario is impossible, since behind each enterprise there are people, whose decisions and experience depend on its further development, and practice shows that such people are not oriented solely to economic analysis data without context, to assess the situation in the economy of the country or the world in general. Their experience and perception of financial security are essencial in decision making. Thus, the paper argues that the method of expert assessment of company’s financial security is the most objective one, which, however, has disadvantages associated with cognitive limitations of people.


Keywords


financial security, economic analysis, behavioral economics, cognitive limitations.

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