Sample Paper on research on Types of Financial Impacts

Abstract

The research paper seeks to carry out a comprehensive research on types of financial impacts including; natural disasters, changes in market conditions, competition, weakness of the general economic conditions, and products disasters and their implications on the business finances both in the short and long-term financial periods. Financial innovations such as money and finances have controlled the economic activities of human beings for a long time. However, the degree of sophistication of these innovations has increased over the centuries due to rapid globalization, changes in government regulations, and growth in technology, especially in information and communication technology. This research paper deals with a brief review of various financial innovations, challenges experienced when executing new innovations, and their impact on the business finances.

 

 

Focusing on Financial Impact and Innovation

Introduction

Most organizations and businesses use financial data to distribute and allocate resources to their departments. The financial data is mostly based on the departmental expenditure correlated with its output. Thus, in this case, financial impact can be described as a term used to refer to the cost or profit loss that occurs due to natural disasters, market conditions, product disasters, and other events that are beyond the management’s control. These lead to expenses that cannot be generated or covered after their occurrence and thus they have the capability of making a company obsolete (Evans & Thygerson, 1997). On the other hand, financial innovation can be defined as the act of fashioning and popularizing new financial instruments, as well as new financial technologies, institutions, and markets in order to suit and boost an organization’s total output and increase their long-term profits. Such innovations include; hedge of funds, private equity, and retail structured products. Exchange traded funds and family bonds are some of the financial innovations that help keep an organization relevant in the financial market. Financial innovation is a continuous process that requires a continuous development of products, services, and technology to convey products (Tufano, 1989). Thus financial innovation represents a systematic process of change in instruments, measures, institutions, and operating policies that signify a financial system (Tufano, 1989)

Financial Impacts

Financial implications, which refers to the profit loss or extra cost incurred over the usual recurring and predicable cost due to varying unpredicted disasters that are beyond the management control can be grouped into; natural disasters, changes in market conditions, product failure or product disaster, and changes in the economic environment. Such factors are unforeseen and they have great implications on the business finances such as reduced revenue, reduced product output, and general reduction of the institution operations hence causing great losses in the financial markets. As a result, in the institution can go out of business if such disasters persist and the institution cannot cover the losses.

Natural disasters have significant and severe both short and long-term financial impacts on businesses, they also have adverse consequences for development and economic growth. These also hinder poverty reduction and the capabilities of an institution to conduct business thus lowering revenue and increase profit loss due increased cost of doing business without a parallel increase in profit margins. Such natural disasters may include; floods, hurricanes, and unforeseen drought. A study conducted showed that in the Caribbean and Bangladesh, there is affirmation of reducing sensitivity to tropical storms and floods due to increased awareness of public action and economic transformation. Natural disasters lead to significant budgetary pressure which narrows the fiscal short-term financial impact and causes wider long-term progress implications. However, disasters have little impact on trends in aid flow as reallocation is the primary fiscal response to disaster (Tufano, 1989).

Unfavorable market and economic conditions adversely affect business, financial conditions, and outcomes of operations. Competition is a dynamic process; competitors gradually and continually come up with new strategies with the aim of conquering and taking a potential market share. Studies show that the cost and profit analysis changes due to completion are below forecast. It is cumbersome for a business entity to accurately foresee and predict the changes and impact of new government regulations. The outcome of these regulations is mostly the increase of doing business thus resulting to a fall in profits. In addition, weakness and general fracture of the economy can cause great reductions in revenue. Changes in economic the environment are largely caused by insecurities in the market thus making it hard for investors to invest in such harsh economic environments. Existing businesses may also fall due to reduced profit margins and increased cost of production (Evans & Thygerson, 1997)

Product disaster is mainly experienced in the life cycle of a product, which encompasses product development, growth, maturity, and decline. The characteristics defining each stage differ in response to the specific requirements of the product as it moves about its life cycle. Through the life cycle, products may experience unforeseen and unbudgeted changes that pose severe implications on the financial capabilities of an institution. Product failure occurs when its presence in the market leads to withdrawal from the market, inability of the product to realize the expected market share in order for it to remain relevant in the market, and the failure of the product to achieve profits. However, product failure is not correlated with substandard engineering but change with the consumer preference due to presence of substitutes in the market.

Financial Innovation

These can be grouped as new products such as hedge funds and subprime mortgages or services such as mobile and table banking which are introduced by organizations, especially banks, to respond better in the changing markets and improve their service delivery and efficiency to their customers. Financial innovations that have occurred in the last two decades are of different categories which include new products, new production processes, new services, and new organizational designs. Different institutions have introduced various innovated products to remain relevant in the market and attain a higher competitive niche in turbulent economic times. For example, Banks have innovated savings accounts which are flexible and customer-friendly. These accounts include mobile saving accounts, as well as children accounts (Tufano, 1989)

Mortgage is another product that has undergone years of innovation (Cascio, 2004). In the past, mortgages were offered by thrift organizations, unlike in the modern days whereby commercial banks have also flocked in the business of offering various types of mortgages at customer-friendly terms and conditions. Money market mutual funds is another product established in the 1970s; it currently controls a high part of individual total investments, bank investments, industry players, and insurance agencies (Thygerson, 1995).

Competition in the current markets has led to increased innovativeness in service delivery among various business institutions, organizations, and companies as they try to maintain, improve, and increase their market and business niche to meet their customers’ demand and expectations, which are dynamic. Advancements in information technology processes have created enormous innovation in service delivery to customers by various business organizations. These include Automated Teller Machines, debit cards, credit cards, mobile money, and electronic money services (Cascio, 2004)

Many businesses have come up with cost-effective technologies in order to improve their operating processes while maintaining the quality of their products. Such processes encompass operational and maintenance processes. For example, various organizations conducting business engage in automated teller services in order to deal with the large volume of customers enquiring in their help desk. Such processes and services improve customer care while maintaining the standards of an organization’s products and services (Thygerson, 1995).

Various new organizational forms have emerged over the past few decades due to changes in the type of technology used such as internet banking. This has been made possible by the high number of individuals using the internet (Henderson & Pearson, 2010). Nonetheless, over the last few decades, businesses have integrated their services and products in order to invest maximally with the benefits that come with diversification. This type of innovativeness is highly experienced in banks whereby they only not offer banking services but also offer services such as money transfers, insurance services, payment of utility bills, and stocks brokerage services among others (Thomas et al., 2006)

Innovation of financial systems or financial institutions affects the financial sector as whole. It also relates to changes in legal and supervisory frameworks. Examples of such innovations include group mechanism in retail financial services, formalized informal financial systems such as; table banking and completely setting up new service structures to accommodate formalized informal sectors. In the long run, financial innovations ease the capabilities of an institution doing business as it saves time and reduces on costs. Financial innovations such as table and group banking have increased access to credit and capital for individuals who on their own cannot meet the standard set aside to access loans. This, in the long run, largely contributes to the general economic growth, poverty eradication, as well as contributing to personal development.

By financial institutions offering mortgages in different spectrums at different affordable packages for various individuals with varying income rates, it has enabled people from different economic backgrounds to become homeowners. With the short period required for implementation of new innovations, businesses are uncertain of the costs to be incurred and thus the requirement for systemic technology solutions and integrated and costly consumer and customer outreach. The initial cost of advertisement falls on financial institutions to overcome a low customer response rate. Many organization have the uncertainty of the legal requirements that new innovations bring with them as legal measures are complex and need more time for procedural following. It is certain that several jurisdiction lead to a breach of privacy rules.

Conclusion

Financial implications, which are disasters that go beyond an organizations ability to mitigate may render a corporation out of business. However, these implications can be mitigated by various financial innovations in the long run. Thus financial innovations presents convenient and more cost-effective measures to overcome various financial implications caused on business finances by various unforeseen disasters.

 

 

References

Evans, G. L., & Thygerson, K. J. (1997). The financial institutions Internet sourcebook. New York: McGraw-Hill. Retrieved from: http://lexicon.ft.com/Term?term=financial-innovation

Cascio, W. F. (2004). Costing human resources: The financial impact of behavior in organizations. Cincinnati, Ohio: South-Western College Publ.

Thygerson, K. J. (1995). Management of financial institutions. New York: HarperCollins Retrieved from: http://www.sb.iub.edu.bd/?courses=management-of-financial-institutions

Tufano, P. (1989). Financial innovation and first mover advantages: An empirical analysis. Boston, MA] (Soldiers Field, Boston MA 02163: Division of Research, Harvard Business School. Retrieved from: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=6567

Thompson, A. A., Strickland, A. J., & Gamble, J. (2006). Strategic management: Concepts and cases. Maidenhead: McGraw-Hill Education. Retrieved from: https://www.researchgate.net/publication/31704994_Strategic_Management_Concepts_and_Cases_FR_David

Henderson, B. & Pearson, N., (2010). The dark side of financial innovation: a case study of the pricing of a retail financial product”. Journal of Financial Economics. Retrieved from: https://experts.illinois.edu/en/publications/the-dark-side-of-financial-innovation-a-case-study-of-the-pricing