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Risks
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Financial Risk Management in SMEs
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Financial Risk Management in SMEs

A special issue of Risks (ISSN 2227-9091).

Deadline for manuscript submissions: closed (1 April 2022) | Viewed by 31432

Special Issue Editor

Dr. Grzegorz Zimon

E-Mail Website
Guest Editor
Faculty of Management, Rzeszow University of Technology, 35-959 Rzeszow, Poland
Interests: working capital management; accounting; costs management
Special Issues, Collections and Topics in MDPI journals

Special Issue Information

Dear Colleagues,

Management of financial risk in enterprises is a necessity, especially today during the Covid-19 pandemic. It manifests itself in the implementation of appropriate risk management principles in the company, or a selected policy or strategy for managing a company. Today, managers of entities classified as SMEs should select and adapt such financial risk management tools in an enterprise to avoid the risk of losing financial liquidity, reduce credit risk, the risk of lowering financial results, the risk of reducing revenues and increasing the possibility for further development of the enterprise.

Considering the above, this Special Issue looks for outstanding research and development results, case studies, and review papers in topics that include but are not limited to the following:

  • financial risk management
  • risk models
  • risk measures
  • risk analysis
  • risk management in multi-entity organizations
  • the covid -19 pandemic and financial risk in SMEs
Dr. Grzegorz Zimon
Guest Editor

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Risks is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1800 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • risk management
  • financial risk
  • financial liquidity
  • credit risks
  • SMEs
  • the Covid-19 pandemic

Published Papers (7 papers)

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Research

24 pages, 773 KiB  
Article
Is the Financial Report Quality Important in the Default Prediction? SME Portuguese Construction Sector Evidence
by Magali Costa, Inês Lisboa and Ana Gameiro
Risks 2022, 10(5), 98; https://0-doi-org.brum.beds.ac.uk/10.3390/risks10050098 - 05 May 2022
Cited by 7 | Viewed by 2537
Abstract
This work analyses whether financial information quality is relevant to explaining firms’ probability of default. A financial default prediction model for SMEs (Small and Medium Enterprises) is presented, which includes not only traditional measures but also financial reporting quality (FRQ) measures. FRQ influences [...] Read more.
This work analyses whether financial information quality is relevant to explaining firms’ probability of default. A financial default prediction model for SMEs (Small and Medium Enterprises) is presented, which includes not only traditional measures but also financial reporting quality (FRQ) measures. FRQ influences the decision-making due to its impact on financial information, which has repercussions on the accounting ratios’ informativeness. A panel data of 1560 Portuguese SMEs in the construction sector, from 2012 to 2018, is analysed. First, firms are classified as default or compliant using an ex-ante criterion which allows us to identify signs of financial constraints in advance. Then, the stepwise method is employed to identify which variables are more relevant to explain the default probability. Results show that FRQ measures, namely accruals quality and timeliness, impact firms’ defaulting, supporting their relevance in predicting financial difficulties. Finally, using a logit approach, the accuracy of the model increased when FRQ variables were included. Results are confirmed using “new age” classifiers, namely the random forest methodology. This work is not only relevant to the extant financial distress literature but has also relevant implications for practice since stakeholders can understand the impact of financial reporting quality to prevent additional risks. Full article
(This article belongs to the Special Issue Financial Risk Management in SMEs)
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23 pages, 628 KiB  
Article
How Do Financial Distress Risk and Related Party Transactions Affect Financial Reporting Quality? Empirical Evidence from Iran
by Hossein Tarighi, Zeynab Nourbakhsh Hosseiny, Mohammad Reza Abbaszadeh, Grzegorz Zimon and Darya Haghighat
Risks 2022, 10(3), 46; https://0-doi-org.brum.beds.ac.uk/10.3390/risks10030046 - 23 Feb 2022
Cited by 7 | Viewed by 4756
Abstract
The paper aims to investigate the effects of financial distress risk (FDR) and related party transactions (RPT) on financial reporting quality (FRQ) in an emerging market called Iran. In this study, the ordinary least squares regression (OLS) method is employed to test the [...] Read more.
The paper aims to investigate the effects of financial distress risk (FDR) and related party transactions (RPT) on financial reporting quality (FRQ) in an emerging market called Iran. In this study, the ordinary least squares regression (OLS) method is employed to test the hypotheses; moreover, Jones’ discretionary accruals model is used to assess the financial reporting quality (FRQ). The results show financially distressed companies have a lower financial reporting quality because they try to mislead other stakeholders about the corporate actual performance to attract more investors and lenders. Consistent with the “tunneling” or “conflict of interests transaction” assumption, our findings confirm there is a positive association between related party transactions through loan and accrual-based profit management. In other words, Iranian managers participate in loan-related party transactions to expropriate their firm’s resources and then manipulate financial statements to mask such expropriation. Finally, additional analysis indicates that financial reporting quality is seen well among firms having higher sale growth and more institutional owners, whereas the variables of ROA and financial leverage negatively affect financial information quality. Full article
(This article belongs to the Special Issue Financial Risk Management in SMEs)
15 pages, 2238 KiB  
Article
An Analysis of the Financial Liquidity Management Strategy in Construction Companies Operating in the Podkarpackie Province
by Grzegorz Zimon, Joanna Nakonieczny, Katarzyna Chudy-Laskowska, Magdalena Wójcik-Jurkiewicz and Konrad Kochański
Risks 2022, 10(1), 5; https://0-doi-org.brum.beds.ac.uk/10.3390/risks10010005 - 29 Dec 2021
Cited by 9 | Viewed by 4904
Abstract
The activity of each construction company in conditions of high competitiveness is exposed to a number of risks that make it difficult to maintain high financial liquidity. In order to provide the continuity of ongoing economic processes and to be able to develop, [...] Read more.
The activity of each construction company in conditions of high competitiveness is exposed to a number of risks that make it difficult to maintain high financial liquidity. In order to provide the continuity of ongoing economic processes and to be able to develop, entities are forced to build optimal financial management strategies for them. Enterprises can choose between a conservative, moderate and aggressive strategy, which is largely determined by the way they manage their current assets and short-term liabilities. In the case of construction companies, it is also not without significance that they are particularly sensitive to fluctuations in the economic situation and changes in the macroeconomic environment, which imply the availability of funds. The purpose of this paper is to analyze the financial liquidity management strategy of construction sector Polish enterprises from the Podkarpackie Province in 2017–2019 and the impact of this strategy on the profitability of the surveyed entities. In order to achieve the goal, the issues related to the classification of financial liquidity and individual liquidity management strategies are discussed. The issues and the goal set determined the choice of research methods. Literature studies, the Mann–Whitney U test, cluster analysis and Ward’s method were used. The research was carried out on a group of the 10 largest construction companies from the Podkarpackie Province. The selection of entities for the research was deliberately based on enterprises that submit their financial statements to the National Court Register. The conducted research showed that small and large enterprises applied different liquidity management policies even though they operate in the same industry and region. The small entities preferred a conservative strategy, while large entities preferred a moderate strategy. The existence of an inverse relationship between the phenomenon of financial liquidity and profitability of economic entities was also confirmed. Full article
(This article belongs to the Special Issue Financial Risk Management in SMEs)
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20 pages, 568 KiB  
Article
Does Working Capital Management Influence Operating and Market Risk of Firms?
by Ahsan Akbar, Minhas Akbar, Marina Nazir, Petra Poulova and Samrat Ray
Risks 2021, 9(11), 201; https://0-doi-org.brum.beds.ac.uk/10.3390/risks9110201 - 08 Nov 2021
Cited by 9 | Viewed by 7104
Abstract
Extant empirical studies have predominantly focused on the nexus between working capital management (WCM) and corporate profitability. While there is a dearth of literature on the nexus between WCM and a firm’s risk, the present study examines Pakistani-listed firms coming from 12 diverse [...] Read more.
Extant empirical studies have predominantly focused on the nexus between working capital management (WCM) and corporate profitability. While there is a dearth of literature on the nexus between WCM and a firm’s risk, the present study examines Pakistani-listed firms coming from 12 diverse industrial segments to observe this association for a time span of ten years (2005–2014). To ensure robustness, we employed a System Generalized Method of Moments (SGMM) regression estimation to investigate the influence of WCM on the operational and market risk for firms. Empirical testing revealed that higher working capital levels were associated with lower volatility in firms’ stock price, which shows that shareholders prefer a conservative working capital policy. Moreover, firms with better cash positions were subject to lesser stock market volatility. In contrast, excess working capital and a larger net trade cycle were associated with increased volatility in the operating income. Besides, firms with lower working capital levels relative to their respective industry experienced fewer fluctuations in their operating profits. Our findings assert that short-term financial management has important ramifications for firms’ operating and market fundamentals. Practical implications are discussed for corporate managers and relevant stakeholders. Full article
(This article belongs to the Special Issue Financial Risk Management in SMEs)
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21 pages, 1443 KiB  
Article
COVID-19 Interruptions and SMEs Heterogeneity: Evidence from Poland
by Monika Wieczorek-Kosmala, Joanna Błach and Anna Doś
Risks 2021, 9(9), 161; https://0-doi-org.brum.beds.ac.uk/10.3390/risks9090161 - 01 Sep 2021
Cited by 12 | Viewed by 2631
Abstract
This study contributes to the emerging stream of the literature on the COVID-19-related risks and their impact on businesses’ performance. The growing evidence within is, however, missing the uniqueness of country-level settings, as well as lacking the voice of SMEs solely. The extant [...] Read more.
This study contributes to the emerging stream of the literature on the COVID-19-related risks and their impact on businesses’ performance. The growing evidence within is, however, missing the uniqueness of country-level settings, as well as lacking the voice of SMEs solely. The extant literature provides some evidence on SMEs’ vulnerabilities to the crisis, but it commonly compares SMEs with large firms. To cover this gap, the main aim of this study is to analyze the perception of COVID-19 interruptions by various groups of Polish SMEs. Thus, this work adds primarily by revising the perceptions of COVID-19 risks, given the heterogeneity of SMEs if we consider their size, age, legal form of organization and status of a family firm. Based on the survey results on SMEs operating in Poland, we employ ANOVA and k-means ranks to provide strong evidence that COVID-19’s impact was perceived as more interruptive by micro and very young firms, as well as by the firms that perform as sole proprietorships. We have also found evidence that family firms do not differ from non-family ones in the perceptions of COVID-19 impacts. Full article
(This article belongs to the Special Issue Financial Risk Management in SMEs)
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21 pages, 437 KiB  
Article
An Empirical Study on the Financial Preparation for Retirement of the Independent Workers for Profit in Poland
by Teresa H. Bednarczyk, Ilona Skibińska-Fabrowska and Anna Szymańska
Risks 2021, 9(9), 160; https://0-doi-org.brum.beds.ac.uk/10.3390/risks9090160 - 01 Sep 2021
Cited by 6 | Viewed by 1955
Abstract
Modern pension schemes are based on the delegation of responsibility for pension provision from state institutions to individuals, which implies voluntary retirement saving. Workers for profit (independent workers in household market enterprises) hold much greater personal responsibility for financing their pensions than workers [...] Read more.
Modern pension schemes are based on the delegation of responsibility for pension provision from state institutions to individuals, which implies voluntary retirement saving. Workers for profit (independent workers in household market enterprises) hold much greater personal responsibility for financing their pensions than workers for pay. The main aim of this study was to provide an empirical identification of economic and social factors that would determine the propensity toward long-term saving for pensions by independent, for-profit workers in Poland. Additionally, the study recognizes the level of saving accumulated by them as well as preferred forms in which this saving is made.In order to select determinants of pension saving, a logistic regression model was used. The data come from the direct survey conducted in 2020 by CAWI method (Computer-Assisted Web Interview) on a random nationwide sample of Poles. The analysis of the data also used other methods of descriptive and mathematical statistics. The conducted research showed that the respondents’ individual decisions concerning saving for retirement are affected by such factors as gender, age, family situation, amount of revenue, share of revenue from business activity in total revenue, and subjective assessment of the respondents’ financial situation. The respondents declared holding various, though not high, savings. Moreover, it turned out that independent workers for profit in Poland opt for non-conventional forms of gathering pension savings. Full article
(This article belongs to the Special Issue Financial Risk Management in SMEs)
26 pages, 616 KiB  
Article
Earnings Management, Related Party Transactions and Corporate Performance: The Moderating Role of Internal Control
by Grzegorz Zimon, Andrea Appolloni, Hossein Tarighi, Seyedmohammadali Shahmohammadi and Ebrahim Daneshpou
Risks 2021, 9(8), 146; https://0-doi-org.brum.beds.ac.uk/10.3390/risks9080146 - 17 Aug 2021
Cited by 31 | Viewed by 6181
Abstract
The primary purpose of this study is to investigate the impacts of earnings management (EM) and related party transactions (RPTs) on corporate financial performance in an emerging market, Iran. This paper also aims to examine the moderating role of internal control weakness (ICW) [...] Read more.
The primary purpose of this study is to investigate the impacts of earnings management (EM) and related party transactions (RPTs) on corporate financial performance in an emerging market, Iran. This paper also aims to examine the moderating role of internal control weakness (ICW) in the relationship between them. The study sample includes 108 Iranian manufacturing companies listed on the Tehran Stock Exchange (TSE) between 2013 and 2018, and panel data with random effects are used to test the hypotheses. When an accounting-based measure called ROA is defined as a proxy for corporate performance, the results show that there is a negative association between real earnings management (REM) and corporate financial situation, while accrual-based earnings management (AEM) and firm value are correlated positively. However, when Tobin’s Q index is defined as a proxy for corporate performance, we do not find any significant association between them. Consistent with the tunneling hypothesis or agency theory, our findings confirm RPTs damage corporate value (ROA and Tobin’s Q) because managers probably consider it a mechanism to exploit enterprise resources owing to existing conflictual interests. Moreover, purchase-related party transactions lead to lower ROA, whereas sale-related party transactions and Tobin’s Q are correlated negatively. Moreover, weak internal control has a positive moderating influence on the linkage between AEM and Tobin’s Q index. Finally, we provide robust evidence that there is a positive association between sale growth and institutional owners with ROA and Tobin’s Q, although financial leverage and mergers and acquisitions (M&A) have a destructive effect on corporate value. Full article
(This article belongs to the Special Issue Financial Risk Management in SMEs)
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