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Large or increasing stocks of non-performing loans in the banking sector constitute threats to financial stability. This paper considers to which extent various macroeconomic and macro-financial factors may serve as leading indicators for the dynamics of the ratio of non-performing loans to total loans.

The paper estimates panel data models for all EU countries and two groups of EU countries using quarterly data over approximately 20 years.

The estimations show that many macroeconomic and macro-financial variables are leading indicators for non-performing loans in the EU countries, even years ahead. Higher GDP growth, lower inflation and lower debt are robust leading indicators of a lower ratio of non-performing loans in the future. The current account balance and real house prices are important indicators for the Western European group but not for the Central and Eastern European group.

The estimations are carried out for panels of EU countries and the effects may hence be seen as averages for the countries in the particular panel and may not apply for individual countries.

National and international authorities have brought in systems to detect and address imbalances and emerging problems in the financial sectors. Many of the measures operate with long lags, and so it is important to assess whether various macroeconomic and macro-financial variables may serve as leading indicators for future developments of non-performing loans.

The main contribution of the paper is that it estimates models meant expressly for predicting non-performing loans several years ahead. The results are thus of practical use for national and international authorities which typically have access to measures that operate with a long delay. The analysis also includes more macroeconomic and macro-financial variables as leading indicators than have typically been used in earlier studies.

The Great Leveraging was an episode of rapid credit growth and booming housing markets leading up to the global financial crisis. It is important to identify the key drivers of the Great Leveraging and, to this end, the purpose of this paper is to model the relationship between domestic credit and net foreign liabilities in the EU countries most affected by the crisis.

The analyses show that domestic credit and net foreign liabilities were cointegrated one-to-one for Greece, Italy, Portugal and Spain, while there was no cointegration for Ireland. Estimation of vector error correction models (VECMs) shows that the adjustment to deviations from the cointegrating relationship took place through changes in domestic credit for Greece and Italy, while the adjustment was bidirectional for Spain and maybe also for Portugal.

These results suggest that external factors in the form of foreign capital inflows were important drivers of the pre-crisis leveraging in the southern crisis countries, although to varying degrees across the countries.

Key novelties include the use of stock variables instead of flow variables and the estimation of VECMs for the countries individually instead of in a panel.

Purpose — The chapter assesses the linkages between unreported economic activities and different individualistic and non-individualistic motives as perceived by firm management.Design/methodology/approach — The empirical research is based on a survey of the management of firms operating in the Baltic States. The survey contains information on the perceived extent of unreported activities and on a large number of firm-, sector-, and country-specific factors. A principal component analysis identifies clusters of motives for unreported activity. Regression analyses ascertain the importance of motives individually and as principal components on the extent of unreported activities.Findings — Both individualistic and non-individualistic motives are important for the prevalence of unreported activities. The individualist motives refer to the management being solely profit-oriented and self-interested. Among possible non-individualist motives, measures of government performance and perceptions of reciprocity towards the government appear to play important roles for the extent of unreported activities, but broader societal norms may also play a role.Research limitations/implications — The study considers the perceptions that managers have of unreported activities and other features. These perceptions are subjective and subject to substantial uncertainty. All results should be interpreted in light of the subjective nature of the survey answers.Social implications — Taken literally, the results suggest that stronger government performance is associated with a reduction in unreported activities, at least as perceived by the management. Broader societal developments may also be of importance.Originality/value — The inclusion of variables capturing individualistic as well as non-individualistic motives gives a comprehensive picture of factors behind unreported activities. We employ principal component analysis which allows us to cluster individual survey answers and to produce composite measures of different explanatory factors.

The economic life is often hindered by problems that can be successfully solved by tapping into concepts of social sciences. Herein, basic assumptions uniform people’s behavior but these may also create problems and thus, nowadays the economy meets the consequences of the so-called “soft issues” for various reasons. In this light, the aim of the volume is to show what kind of influences may turn out from honesty and dishonesty to management and the economy, in general. These effects generate an ensemble where factors could affect and be affected by each other in several ways.

Isaac O. Amoako is a researcher at the Centre for Enterprise and Economic Development Research (CEEDR) and lecturer in enterprise and small business at the Department of International Management and Innovation, all at Middlesex University Business School, UK. He completed his Ph.D. in 2012 in the same university and his paper on “alternative institutions” used by exporting SMEs in Ghana has been accepted and forthcoming in International Small Business Journal (ISBJ). His research interests include enterprise and small business start-up and management, interorganizational trust, culture and organizations, and international business management. Prior to his academic career he was an entrepreneur starting and managing his own businesses for over 20 years.

The paper aims to investigate the impact of financial liabilities on households’ holdings of financial assets. The debt-to-income ratio of the household sector increased from 75 per cent in 2000 to 99 per cent in 2010 in the euro area on average, and the rapid accumulation of household debt has induced the need to study how indebtedness affects the behaviour of households beyond their borrowing decisions.

The paper uses the first wave of the Household Finance and Consumption Survey from 2009-2010 covering euro area countries. The paper estimates a system of equations for households’ financial liabilities and assets, taking account of endogeneity and selection bias.

The results indicate that higher household liabilities are related to lower holdings of financial assets. The results are confirmed by a large number of robustness tests. The findings support the hypothesis that credit availability reduces precautionary savings as income shocks can be smoothed by borrowing, meaning fewer assets are held for self-insurance against consumption risk.

The results are obtained from a recession period when households faced aggregate shocks, whereas credit constraints were tighter than during good times. The implications of lower incentives to keep financial assets by indebted households is that they are actually more vulnerable to aggregate shocks, as they have fewer resources available when they are hit by a negative shock.

This is the first paper to investigate the effect of liabilities on financial assets using household level data. The paper takes a holistic view and models financial assets and liabilities jointly while controlling for endogeneity and selection bias.

The authors examine the performance of individual global equity funds in Central and Eastern Europe (CEE) and separate the skill of their fund managers from luck.

The authors use cross-sectional bootstrap simulations to study the monthly net and gross returns of 175 funds over the period September 2005 to December 2019. Simulations are applied to three, four, and five-factor asset pricing models, and to regressions run on fund-specific benchmark indexes. The authors also examine the value added by all funds and by fund size groups.

Using multifactor models, a majority of the individual funds fail to deliver alpha, both net and gross of fees; whereas, most of the negative alphas appear due to poor skills, not bad luck. Relative to benchmark indexes, about 5% of the sample shows skill only gross of fees, indicating that fund management fees absorb this skill. As a whole, global equity funds in CEE add more economic value than they destroy, gross of fees, which is largely driven by large funds.

Market-tracking passive indexes are the most reliable choice for investors who want to maximise their risk-adjusted returns at the lowest possible cost. However, investors with a high level of risk appetite might prefer small actively managed funds in CEE when market conditions are stable or growing. Investors who are less risk tolerant might prefer large actively managed funds.

This is the first study to shed light on the presence of skill in mutual fund returns in CEE.

Gender inequalities in higher education have attracted interest in the academic literature. The paper aims to discuss this issue.

The author uses standardized high school final exam results and probit regression analysis to contribute to this highly important discussion.

Based on secondary, non-survey data, female students tend to outperform males in subjects requiring creativity. Consistent with this comparative advantage, female students also tend to be more affected by their abilities in choosing and preferring the related field of humanities as a higher education. In line with female students’ choices, the results presented in the paper confirm that men are more inclined toward exact and natural sciences, even though they do not prove to have stronger abilities in related subjects. In addition, men are also more influenced by their abilities in obtaining a professional higher education. The choice of social sciences is quite similarly affected by the academic abilities of men and women. The paper also provides evidence that, on average, individuals choose their field of study according to their academic abilities.

For evidence, a data set that makes it possible to relate quantitative measures of very different academic abilities to all major academic disciplines is used in the paper. This unique approach has so far been lacking in the literature due to data limitations. In other words, instead of concentrating on a specific area, such as science, technology, engineering, and mathematics (STEM), the author takes a broader view.

Employment law reform enforced in Estonia in mid-2009 provides a good opportunity to examine the outcomes of employment protection legislation (EPL). The purpose of this paper is to evaluate the effects of the reduction in EPL on labour reallocation.

The author exploits the micro-data of the Labour Force Survey to estimate the probabilities of one-year worker flows with probit models, and uses a difference in differences (DID) approach to identify the effects of the EPL reform.

The author finds that the reduction in EPL seems to have increased the probability of transitions out of employment. At the same time, she does not find any significant effect of this reform on the probability of flows into employment. The evaluation also gives evidence of a lowered probability of job-to-job transitions resulting from the reduction in EPL.

In this paper, the DID estimation is conducted by using Lithuanians as the control group for Estonians. However, it should be noted that this approach assumes strong similarities between these countries in order to obtain reliable estimates.

The findings of this paper raise the possibility that the reduction in EPL alone may not have been sufficient for achieving a better reallocation of labour and this is important to consider in the context of further developments in other labour market institutions.