CAPITAL IMPLICIT EXPENSES IN THE SHADOW ECONOMIC REVENUE
In many countries related to emerging markets (EM), there is a high proportion of the shadow economy. The main source of shadow incomes replenishment are incomes that are actually generated in the official sector of the economy, however, they are withdrawn to the shadow segment. The article is dedicated to solving the actual task of income amount estimating that flows from the official sector of the economy to the shadow one. The paper shows that the amount of annual profits that "poured" into the shadow sector corresponds to the size of the hidden (implicit) payment for capital. The problem of shadow payment for capital is closely connected with the shadowing of profits, salaries and payments for the resources usage.
The causal relationship between risk premium, shadow economy and key macroeconomic parameters of individual countries are shown in the article. The average income to GDP per capita ratio in Ukraine and other EM countries is significantly lower than in developed countries. In addition, there is a low share of staff costs in the structure of costs of enterprises. Thus, in the EM countries, the orientation of the business to the interests of the shareholders is clearly manifested and the interests of the stakeholders are ignored. In emerging markets, an increase in risks primarily leads to an increase in the risk premium and the shadowing level, to rising prices and to a substantial reduction in real salaries.
For the estimation of real capital expenditures, it is advisable to use indirect methods, especially modification of capital assets pricing model (CAPM), adapted to the conditions of the EM. The proposed modification (hybrid crisis model) involves minimum usage of the data from the local financial market. It includes the following parameters: global risk-free rate of return, global market premium for risk, country risk premium, beta-factor, calculated on the basis of the analogue approach, and premium for specific risks of investing in a particular asset. According to our assumption, the shadow interest rate on capital is the difference between the expected return by CAPM and the averaged ROE that follows from the official reporting. Thus, the size of annual profits, "transferred" into the shadow sector, corresponds to the size of the implicit capital charge. The calculations made have showed a stable relationship between the level of country risks and the size of shadow revenues in the country.
Damodaran, A. (2017). Country risk premium. [Electronic resource]. Retrieved from http://pages.stern.nyu.edu/~adamodar/. [in English].
Emerging from the shadows. (2017). The shadow economy to 2025 (2017). The Association of Chartered Certified Accountants. [Electronic resource]. Retrieved from http://www.accaglobal.com/content/dam/ACCA_Global/Technical/Future/pi-shadow-economy-report.pdf. [in English].
Godfrey, S., Espinosa, R. (1996). A practical approach to calculating costs of equity for investments in emerging markets. Journal of Applied Corporate Finance, No. 9 (3), 80–90. [in English].
Lessard, D. R. (1996). Incorporating country risk in the valuation of offshore projects. Journal of Applied Corporate Finance, No. 9 (3), 52–63. [in English].
Pereiro, L. E. (2006). The practice of investment valuation in emerging markets: Evidence from Argentina. Journal of Multinational Financial Management, No. 16 (2), 160–183. [in English].
Schneider, F. (2016). Estimating the Size of the Shadow Economies of Highlydeveloped Countries: Selected New Results. CESifo DICE Report, No. 4, 44-53. [in English].
Tereshchenko, О. (2015). Pragmatics of the discount rate calculation during the financial crisis. Journal Finance of Ukraine, No. 6, 58-71. [in Ukrainian].
By submitting an article to the editorial writer (s) automatically provide editorial pravo edit, print and post the journal article on the official website of the Bulletin of Polonia University. But the author retains the right to reproduce the article content in teaching, uses the article content in any other work created by authors, post a copy of the article on your website or online institution where the author works with an indication of the source data of the article no earlier than one month after its publication in the magazine.