ASSESSMENT OF FINANCIAL SECURITY OF AN ENTERPRISE ON THE BASIS OF BEHAVIORAL ECONOMICS
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.
Ardalan, K. (2018). Neurofinance versus the efficient markets hypothesis. Global Finance Journal, 35, 170-176. https://doi.org/10.1016/j.gfj.2017.10.005.
AXA & Eurasia Group Future Risks Report. October 2019. Retrived from https://www-axa-com.cdn.axa-contento-118412.eu/www-axa-com%2F744a1c88-b1a7-4103-a831-a84f72578a0f_1910-15+future+risks+report+final.pdf
Belyanin, A. V. (2018). Richard Thaler and behavioral economics: From the lab experiments to the practice of nudging (Nobel Memorial Prize in Economic Sciences 2017). Voprosy Economiki, 1: 5–25.
Bochulia, T., & Melnychenko, O. (2019). Accounting and analytical provision of management in the times of information thinking. European Cooperation, 1(41), 52-64. https://doi.org/10.32070/ec.v1i41.21.
Bochulia, T., & Yancheva, I. (2017). Scenario maps of management as effective concept for sustainable development of enterprise. European Cooperation, 8(27), 44 – 52.
Breno G. Tavares, Carlos Eduardo S. da Silva, Adler D. de Souza. (2017). Risk Management in Scrum Projects: A Bibliometric Study. Journal of communications software and systems, 13(1), 1-8. http://dx.doi.org/10.24138/jcomss.v13i1.241.
Czyżewski, B., Matuszczak, A., & Miśkiewicz, R. (2019). Public Goods Versus the Farm Price-Cost Squeeze: Shaping the Sustainability of the EU’s Common Agricultural Policy. Technological and Economic Development of Economy, 25(1), 82-102. https://doi.org/10.3846/tede.2019.7449
Drozdz, W., Marszalek-Kawa, J., Miskiewicz, R., & Szczepanska-Waszczyna, K. (2020). Digital Economy in the Comporary World. Torun: Wydawnictwo Adam Marszalek.
Drozdz, W., Miskiewicz, R., Pokrzywniak, J., & Elzanowski, F. (2019). Urban Electromobility in the Context of Industry 4.0. Torun: Wydawnictwo Adam Marszalek.
Dzwigoł, H., Dzwigoł–Barosz, M., Zhyvko, Z., Miskiewicz, R., & Pushak, H. (2019). Evaluation of the Energy Security as a Component of National Security of the Country. Journal of Security and Sustainability Issues, 8(3), 307-317. http://doi.org/10.9770/jssi.2019.8.3(2)
Dzwigol, H., Dzwigol–Barosz, M., & Kwilinski, A. (2020). Formation of Global Competitive Enterprise Environment Based on Industry 4.0 Concept, International Journal of Entrepreneurship, 24(1), 1-5.
Dzwigol, H., Dzwigol-Barosz, M., Miskiewicz, R., & Kwilinski, A. (2020). Manager Competency Assessment Model in the Conditions of Industry 4.0. Entrepreneurship and Sustainability Issues, 7(4), 2630-2644. https://doi.org/10.9770/jesi.2020.7.4(5)
Dzwigol, H. (2020). Innovation in Marketing Research: Quantitative and Qualitative Analysis. Marketing and Management of Innovations, 1, 128-135. http://doi.org/10.21272/mmi.2020.1-10
Dzwigol, H. (2020). Methodological and Empirical Platform of Triangulation in Strategic Management. Academy of Strategic Management Journal, 19(4), 1-8
Dźwigoł, H. (2019). Research Methods and Techniques in New Management Trends: Research Results. Virtual Economics, 2(1), 31-48. https://doi.org/10.34021/ve.2019.02.01(2)
Dźwigoł, H., Shcherbak, S., Semikina, M., Vinichenko, O., & Vasiuta, V. (2019). Formation of Strategic Change Management System at an Enterprise. Academy of Strategic Management Journal, 18(SI1), 1-8.
Dzwigol, H. (2019). The Concept of the System Approach of the Enterprise Restructuring Process. Virtual Economics, 2(4), 46-70. https://doi.org/10.34021/ve.2019.02.04(3)
Dźwigoł, H.; & Wolniak, R. (2018). Controlling w procesie zarządzania chemicznym przedsiębiorstwem produkcyjnym [Controlling in the Management Process of a Chemical Industry Production Company]. Przemysl Chemiczny, 97(7), 1114—1116. https://doi.org/10.15199/62.2018.7.15
Economic Security, International Committee of the Red Cross. Geneva, November 2013, p. 2.
Five big things that have made Apple. Retrived from https://www.bbc.com/news/business-45044963
Girchenko, T., & Kossmann, R. (2016). Implementation and development of digital marketing in modern banking business. European Cooperation, 12(19), 68 – 85.
GirchenkoT., SemeniukI., & GirchenkoL. (2020). Blockchain technology: features, prospects. European Cooperation, 3(47). https://doi.org/10.32070/ec.v3i47.86
Hacker, J. S. (2011). Catch My Fall: Income Risk and the Welfare State in Rich Democracies. IARIW OECD Conference on Economic Insecurity Paris, France, November 22–23.
Howell, R. T., Kurai, M., & Tam, W.Y.L. (2012). Money buys financial security and psychological need satisfaction: testing need theory in affluence. University of Wollongong, Research Online.
Kalakoski, V., Henelius, A. Oikarinen, E. Ukkonen, A., & Puolamäki, K. (2019). Cognitive ergonomics for data analysis. Experimental study of cognitive limitations in a data-based judgement task. Behaviour & Information Technology, 38:10, 1038-1047, https://doi.org/10.1080/0144929X.2019.1657181.
Kahneman, D. (2011). Thinking, Fast and Slow. Farrar, Straus and Giroux. New York, NY, 499 p.
Kwilinski, A., Vyshnevskyi, O., & Dzwigol, H. (2020). Digitalization of the EU Economies and People at Risk of Poverty or Social Exclusion. Journal of Risk and Financial Management, 13(7), 142. https://doi.org/10.3390/jrfm13070142
Miendlarzewska, E. A., Kometer, M., & Preuschoff, K. (2019). Neurofinance. Organizational Research Methods, 22(1), 196–222. https://doi.org/10.1177/1094428117730891
Melnychenko, O. (2019). Application of artificial intelligence in control systems of economic activity. Virtual Economics, 2(3), 30-40. https://doi.org/10.34021/ve.2019.02.03(3).
Melnychenko, O., & Hartinger, R. (2017). Role of blockchain technology in accounting and auditing. European Cooperation, 9(28), 27 – 34.
Melnychenko, O. V. (2015). Application of Methods of the Waiting Line Theory in Economic Analysis of Operations with Electronic Money. THE PROBLEMS OF ECONOMY, 1, 274 – 279. ISSN 2222-0712.
Melnychenko, O. (2020). Is Artificial Intelligence Ready to Assess an Enterprise’s Financial Security? Journal of Risk and Financial Management, 13(9), 191. https://doi.org/10.3390/jrfm13090191
Melnychenko, O. (2020). Principles of artificial intelligence application in control of the enterprise. Bulletin of the Cerkasy Bohdan Khmelnytsky national university. Economic sciences, 1, 100-108. https://doi.org/10.31651/2076-5843-2020-1-100-108
Miśkiewicz, R. (2019). Challenges Facing Management Practice in the Light of Industry 4.0: The Example of Poland. Virtual Economics, 2(2), 37-47. https://doi.org/10.34021/ve.2019.02.02(2)
Miskiewicz, R. (2017a). Knowledge in the Process of Enterprise Acquisition. Progress in Economic Sciences, 4, 415-432. https://doi.org/10.14595/PES/04/029
Miskiewicz, R. (2017b). Knowledge Transfer in Merger and Acquisition Processes in the Metallurgical Industry. Warsaw: PWN.
Miśkiewicz, R. (2018). The Importance of Knowledge Transfer on the Energy Market. Polityka Energetyczna, 21(2), 49-62. http://dx.doi.org/10.24425%2F122774
Miśkiewicz, R, & Wolniak, R. (2020). Practical Application of the Industry 4.0 Concept in a Steel Company. Sustainability, 12(14), 5776. https://doi.org/10.3390/su12145776
Pająk, K., Kvilinskyi, O., Fasiecka, O., & Miśkiewicz, R. (2017). Energy Security in Regional Policy in Wielkopolska Region of Poland. Economics and Environment, 2(61), 122-138. Retrieved from https://www.ekonomiaisrodowisko.pl/uploads/eis%2061/11_pajak.pdf
Pohl, R. F. (2004). Cognitive Illusions. Hove and NY: Psychology Press, 450 p. ISBN 1-84169-351-0.
Peterson, R. L. (2010). Neuroeconomics and neurofinance. In Baker, H. K., Nofsinger, J. R. (Eds.), Behavioral finance (pp. 73–93). New York, NY: John Wiley. http://doi.org/10.1002/9781118258415.ch5.
Raczkowski, K. (2014). Bezpieczeństwo finansowe, [w:] J. Płaczek (red.), Ekonomika bezpieczeństwa państwa w zarysie, Difin, Warszawa 2014, ss. 299–324.
Shkodina, I., Melnychenko, O., & Babenko, M. (2020). Quantitative easing policy and its impact on the global economy. Financial And Credit Activity: Problems Of Theory And Practice, 2(33), 513-521. http://dx.doi.org/10.18371/fcaptp.v2i33.207223
Sustainability Report 2018 of Ping An Insurance (Group) Company of China, Ltd. Retrived from http://www.pingan.cn/app_upload/file/official/2018ESGReport_EN.pdf.
Thaler, R. H. (2015). Misbehaving: The Making of Behavioral Economics. New York: W. W. Norton.
Vatamanyuk-Zelinska, U., & Melnychenko, O. (2020). The effectiveness of financial and economic regulation of land relations in the context of stimulating entrepreneurial activity in the regions of Ukraine. Problems and Perspectives in Management, 18(3), 11-27. http://dx.doi.org/10.21511/ppm.18(3).2020.02
Yilmaz, D. (2007). Financial Security and Stability, Measuring and Fostering the Progress of Societies. The OECD World Forum on Statistics, Knowledge and Policy, Istanbul, 27–30 June 2007, s. 6.
- There are currently no refbacks.