Financial Risk and Financial Imbalances

The study of the financial imbalances of companies is a common topic for academics and practitioners because bankruptcy affects financial stability and modifies the investors' behavior. Since the 1960s, financial ratios have been used as diagnostic tools and also as independent variables within models aimed at quantifying firms' financial risk (e.g., Altman's Z-Score). In parallel, the strategic theory has developed theoretical constructs to explain why competitiveness is empirically heterogeneous. The resource-based view argues that companies can outperform rivals if they manage scarce, expensive, and hard-to-imitate resources. Ultimately, outperformers should be able to avoid (or overcome) financial imbalances. This chapter intends to analyze whether IT resources modify firm performance and financial risk. To do that, the authors collected data from a random sample of Galician SMEs, combining questionnaires, focused interviews, and public financial data. Hypotheses are explored by applying parametric statistical methods.

The Role of Financial Inclusion

This chapter highlights the importance of financial education, its link with financial decision-making process, comparative status of different countries, and efforts to improve current situation. Unfortunately, there is no standard definition for neither financial education nor measures to quantify it. Therefore, this chapter first aims to provide a comprehensive definition in order to explain how financial knowledge affects the decision-making process. Then, financial literacy measures from previous studies over different countries would be discussed to show financial illiteracy problem is global. Lastly, solutions and recommendations would be discussed at three different levels: younger people, individuals, and national strategies.

Effect of Venture Capital on the Growth of Information and Communication Technology University Spin-Offs

The creation of university spin-off firms (USOs) to commercialize the academic research outputs contributes to the economic development of the regions. These firms are often resource-constrained, which may hamper their growth. However, the involvement of venture capital (VC) partners in their management can partly counterbalance their traditional lack of resources. Within the USOs created in Portugal and Spain, around one-third operate in the information and communication technology industry (ICT-USOs). This chapter aims to explore the effect of VC partners on the ICT-USOs' growth by using a sample of 127 Spanish and 176 Portuguese ICT-USOs over the period 2007–2013. The results show that the effect of VC on the ICT-USOs' growth depends not only on the country, but also on how firm growth is measured; whereas a weak positive effect on the sales growth is found, a negative one is obtained in the case of the employment growth.

Tool for the Financial Inclusion of Informal Retailers in Colombia

One of the structural problems in Colombia is the informality of economic activities. Indeed, there is a high proportion of informal retailers in large cities of the country. This chapter propounds a tool, Credit Scoring, for the financial inclusion of this population. The tool is designed for obtaining resources at lower financial costs, and it aims at improving the commercial activities of these agents. In this way, informal financing, which increases poverty, is avoided. Also, in connection with this subject, surveys conducted among a thousand informal retailers in five Colombian cities—Bogotá, Cúcuta, Ibagué, Villavicencio and Arauca—were taken into account.

Financial Contagion and Shock Transmission During the Global Financial Crisis

After the recent financial crisis, the analysis of shock transmission across the financial system has received a great deal of attention. In particular, the role of financial contagion as a shock propagation mechanism has been studied in detail. The globalisation of financial and banking markets has increased the connections and relationship between them. Hence, recent crises have spread all around the world. The stability of linkages between financial assets across different market conditions cast doubt upon the benefits of portfolio diversification. This chapter reviews the extant literature on financial contagion during the global financial crisis and thus provides information for both portfolio managers (when optimizing their investment portfolios) and policymakers (when designing their strategies in order to mitigate spillover effects during crisis periods).

Recent Developments in Mortgage Loans in Spain and the Effects of the Subsequent Legislative Reforms

This chapter analyses the evolution of the mortgage loan in Spain during the present century. The economic development of Spain is described with its great connection to mortgages. The text centres on the new conditions incorporated in the loans in the years before the crisis, which were subsequently demonstrated to be unfair terms and caused serious problems for consumers and a lack of confidence in the financial sector. This provoked the reaction of legislators. This chapter studies the effectiveness of the subsequent mortgage laws in their intention to minimize the asymmetrical positions that the lender and the borrower occupy in the contractual relationship. Among the conclusions of the chapter, the authors highlight how each law is more precise but its effectiveness is lacking if the banking culture is not changed in terms of the relationship between to clients.

Are the New Sources for Financing SMEs a Reality or a Chimera?

Small and medium-sized enterprises (SMEs) are a key pillar of the European economy because they play an important role in generating growth, employment, and value added. However, SMEs cannot access funding from sources such as issuing securities because they do not meet the listing requirements of official markets. This is why these firms are forced to cover their financial needs by borrowing from banks and reinvesting profits. For this reason, several alternative markets have been launched in Europe. In the Spanish case, two alternative markets have been created (one equity trading market and one debt market). In this chapter, these markets are presented for the purpose of analyzing to what extent they are a real solution to the financing problems faced by Spanish SMEs. This research shows that these two markets follow different paths, although for the time being, they are not capable of reaching a large number of companies.

The Financial Function in Era 4.0

The global system evolves at high speed. Megatrends emerge, and they develop, interact, multiply, and transform into a continuous and increasingly crazy movement. Companies have to dance this rhythm. It's not just about adapting, but about doing it the right way. SMEs also share these similarities even if they have their own casuistry. Due to the important weight that SMEs have in the globalized global economy, there is a growing interest in studying them and the way they create value. In this context, the figure of the financial director has acquired great relevance. The last major financial crisis has confirmed its important work in SMEs and also that his role is evolving to become an essential key to increase the value of the company. In this chapter, the authors discuss the role of the financial director and the challenges they have to take on in the new technological context.

Evaluating Financial and Fiscal Knowledge for an Inclusive Society

Financial education and fiscal awareness are considered two fundamental branches of knowledge in the training of citizens from the first stages of learning. Thus, it is necessary to teach them in order to know the different savings products that can be acquired in a bank, to understand the basic information related to savings and the means of payment, or to differentiate between investment and risk. This work seeks to analyze the factors that determine the degree of financial knowledge and also fiscal knowledge of the current population. As a case study, the authors have selected a small sample of young people between 9 and 19 years at middle schools in the region of A Coruna (Spain). Findings reveal the low level of both financial and fiscal knowledge of the youngest population.

The Economic and Social Value of Financial Literacy

The main objective of this chapter is to provide new insights into the economic and social value that financial literacy has for individuals and societies. Financial literacy has implications that are relevant both at a micro (especially for households) and macro-level (for the financial system and for the national economy as a whole). On the one hand, a lack of financial literacy put households a risk from making sub-optimal financial decisions and prevent them to maximize their wellbeing. On the other hand, financial literacy favors a better allocation of resources, reduces the risks associated with episodes of financial instability, and therefore, contributes to the increase of social welfare. The analysis and the empirical evidence showing the benefits (costs) of financial literacy (illiteracy) allows to conclude that policymakers have a key role to play implementing initiatives aiming to improve financial literacy of the population at all stages of life.