Academic journal article European Research Studies

Institutional Tool of Financial Policy: Contractual Policy

Academic journal article European Research Studies

Institutional Tool of Financial Policy: Contractual Policy

Article excerpt

Up to this time, financial and economic science and practice haven't had a unified approach to generally accepted definition of financial policy of economic subject. Despite active use of this category in modern scientific society, the issue of its sense is still debatable.

Some authors think that financial policy of an economic subject is developed according to the corporate ideology. A vivid representative of such approach is H. Ulrich, who thinks that the stages of formation of financial policy "are formulation of financial and economic goals, determination of enterprise's potential, and development of strategies of development" [10, p. 139].

According to E.S. Vylkova and M.V. Romanovskiy, the main elements of financial policy are accounting policy, credit policy, policy of money assets management, costs management policy, and dividends policy [4].

Other authors connect financial policy to the form of management of a certain complex of measures for targeted formation and use of resources. In particular, A.S. Makarov defines financial policy as "methods and models of management of organization's finances, tools of realization of managerial decisions at various stages of subject's functioning" [7, p. 54-55].

These treatments of financial policy show inhomogeneity of definitions. Based on the notions of financial policy, given by various authors, it is possible to conclude that effectiveness and realization of financial policy is determined by its elements and total actions on finance management.

According to the authors, financial policy should denote concepts of development (the most rational and important settings; values) and envisage main directions of the use of finances of economic subject, development of specific instrumentarium, oriented at achievement of the set goals. Figure 1 shows components of the model of formation and realization of financial policy of economic subject.

The financial strategy of entrepreneurial activities, denoted by the owner and other stakeholders, predetermines selection of one of the two following directions of financial policy:

* satisfaction of short term material needs of the owner, i.e. increase of net profit for payment of the maximum of dividends (interest) in each covered period;

* stabilization of functioning in the long term, attraction of additional financial resources for the purpose of development of economic subject, strengthening of its competitiveness, etc.

Entrepreneurial activities could be presented in the form of incoming flow of financial (investment) resources of creditor and investors, which is transformed into capital and labor, with the help of which the issues of financial products is ensures, and goods, works, and services are formed into outgoing flows of financial resources with the help of the concluded deals. These flows are distributed among creditors and investors, and then are returned into the turnover.

Modern financial policy of economic subject must include consideration of contractual policy.

In this subject area, institutional issues of formation of contractual policy are very important.

While studying contractual policy as an object of institutional analysis, special attention should be paid to its institutional structure.

The micro-institute of contractual policy consists of three components: formal rules, for which a contract is concluded; informal limitations and practices which influence the facts of coordination of formal rules by economic agents; mechanisms of coercion to execution of liabilities for the contract.

Formal rules mean that effectiveness of contractual policy of economic subject is determined not only by corresponding laws but a capability of an economic subject to perform liabilities. According to Article 8 of the Civil Code of the RF, contracts and other agreements, envisaged by the law, and contracts and agreements that are not envisaged by the law but that do not contradict it create civil rights & obligations and legal arrangements of the deal members. …

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