Issue 3, 2019

The ever-increasing implementation of the concept of sustainable business development changes the market focus of many companies. This is the result of striving to serve a specific market segment with strong development potential – the "sophisticated" customers’ market. The principle idea is that "sophisticated" customers have high ethical consciousness and intense sustainable consumption. This article attempts to determine whether a segment of "sophisticated" customers can be identified in a specific branch of the Bulgarian economy (sale of carbonated soft drinks) and what its characteristics are. On this basis, an original model (SMF-model) of customer profiling has been developed which reflects the concept of customer sophistication. The abovementioned model can be useful for optimizing the customer portfolios of the companies and for more effective financial planning.
JEL: M31

The study of the employment intensiveness of economic growth has become topical in the light of observed high inequalities in Bulgaria, as well as demographic challenges and tightening of the labour market in recent years. To study it, we estimate the elasticity of employment and total hours worked with respect to GDP. We find that economic growth has impact on both indicators of the labour input with a lag of 3 quarters. However, the employment elasticity of GDP (0.81) is much higher than the elasticity of the hours worked with respect to GDP (0.29), which is attributed to a certain inertia in the dynamics of the latter.
Our results furthermore suggest that the relationship between economic activity and labour weakens during economic crises. There even seems to be a disconnect between economic activity and employment after the global economic crisis. The latter conclusion is drawn based both on the insignificance of the parameters estimating labour elasticity after the crisis and on an analysis of the breakdown of the GDP per capita growth by productivity and employment growth, where the contribution of extensive employment growth to the increase of the GDP per capita significantly subsides after the global crisis.
Finally, estimating the employment elasticity of GDP, we find that it is highly unstable in time and depends on the structure of value added in Bulgaria, but also on labour supply, size of the informal economy and, more generally, on the phase of the business cycle. Taking into account the non-registered sector, in particular, we find that the responsiveness of employment to GDP becomes much higher, quicker and does not essentially change during economic downturns.
JEL: E24; E26; E27; J23; C22

This paper presents a research performed on financial statement fraud in the Republic of Bulgaria. The results of the questionnaire used to collect information have helped prepare a model applicable to the country. The model considers the role of different stakeholders in the organization, namely management, internal audit, board/directors and external audit and parties in the outside environment in the face of government and supporting institutions. Moreover, the main issues that have been identified in regard to each party have been summarized and linked with potential solutions that can be implemented in practice. Namely: more independence of board members and audit function in organizations, limited non-audit services by external auditors, increasing the consequences from such fraud and leveraging the benefits of professional organizations.
JEL: G00, G30

The present research employs a vector autoregression (VAR) approach to assess the degree of business cycle synchronization between the new member states (NMS), which have not adopted the single European currency, and the Euro area (EA). The main fiscal and monetary factors affecting the business cycle coordination between the NMS and the EA have been identified. The causality between the business cycle convergence of the NMS and the EA and the implemented fiscal and monetary policies has been investigated in the short and in the long term. Recommendations and conclusions on the readiness of the NMS to join the EA have been made.
JEL: E32; E42; E50

The current study examines the social cohesion between the Western Balkans, Bulgaria and the EU within the context of the labor market. It represents an overview of the more well-known theoretical concepts, relevant to the understanding of the social cohesion, as well as of the tools for its measuring. The achieved level of convergence between the surveyed countries is evaluated, based on the analysis of the indicators related to the labor market dynamics. The main EU strategies and policies are presented for promoting the accession of the Western Balkan countries on the way to their future membership. Critical points are identified for the necessity of key reforms in national policies to strengthen the social cohesion in the labor market context as an important link in the social cohesion policy chain.
JEL: O52; O57; J60; F68; F66; E60

The treatment of banking services as VAT exempted is a dominant model and common practice among EU member countries mainly due to the technical difficulties of calculating value added and applying the general credit - invoice method of VAT taxation. Not charging VAT on banking sector results in overtaxation of business customers and undertaxation of final consumers, and creates serious distortions in the economy.  With this study and empirical assessment made, we seek to address some of the problems that have not been solved so far and to contribute, at least to a certain degree, to the ongoing academic debate on whether financial services need and should stay VAT exempt. By using a modified mobile-ratio method the current paper explores and assesses economic effects of including banking sector in the range of VAT taxable supplies. To identify the potential gains and losses that could have been generated under a hypothetical case of applying VAT to banking services in Bulgaria we provide a quantitative estimate for the period 2008 through 2016 at two separate levels: (1) banking system, and (2) business consumers of banking services. Finally, we estimate the volume of revenue that could has been accumulated to the State budget during the period under review if banking services were subject to VAT.
JEL: H20; H22; H25; G2

The study presents the results from empirical research on the profiling of the companies operating in Bulgaria in terms of the pricing strategy adopted by them: cost-based pricing, competition-based pricing and value-based pricing. It includes a literature review of the theoretical and empirical research on pricing strategies, studies the most common pricing strategies used by the companies operating in Bulgaria and suggests the main criteria used to profile companies in terms of the pricing strategy adopted by them.
JEL: M39; D47

Effective implementation of EO attributes represents an important factor of SMEs’ success on the target market, and significantly determines its long-term existence.
The aim of this paper was to define and quantify the significance of EO factors influencing SMEs business orientation. In connection to the defined target, separate research was conducted using a questionnaire in the Czech Republic attended by 1,141 enterprise owners within the SME segment. The method of regression analysis was used to quantify the significance of respective factors and to determine their statistical significance.
The results of the research indicate that SMEs’ entrepreneurial orientation is mostly affected by the following factors: Investing finances into development of new methods and technologies (EO₁₃), Conducting risky projects for the purpose of increasing the enterprise’s performance (EO₂₃), Initiative on the target market (EO₃₂), and Activities performed towards competition (EO₄₃). Subsequently, it was determined that factors such as Enterprise’s risk strategy (EO₂₁), Creating entrepreneurial environment within the scope of the enterprise (EO₃₃), Aggressive activities towards competition (EO₄₂), and Reputation for being an autonomous enterprise (EO₅₁) do not affect the overall degree of entrepreneurial orientation.
The results of this research may serve as an inspiration for further research in the field of SMEs entrepreneurial orientation.
JEL: L26; O16; G21