State financial security: Comprehensive analysis of its impact factors

. Ensuring the financial security of a country is one of the main tasks in formulating strategic objectives for the development of the financial system. Given that each country has its own characteristics in terms of the financial architecture, which manifests itself in its model, in the state of public finances and their importance for the economic development of a country, etc., the assessment of the financial security status will have its differences not only in the list of indicators, but also in the structural relations among them. Therefore, this study assessed the level of financial security, carried out its structural analysis, and identified the factors influencing it, using the case of Poland and Ukraine. Based on data for 2007–2018, the countries’ financial security is analyzed by four indicator groups that characterize the development level of financial institutions, monetary market, stock market and public finance. Using Harrington’s Desirability Function, an integrated financial security indicator was created for each country. Both countries showed a positive trend to increase the level of financial security, while the value of the financial security indicator corresponds to the desired, satisfactory, level. At the end of the analyzed period, Poland showed a high level of financial security. For factor analysis, the factors were selected that characterized Freedom from corruption, Property rights, Fiscal freedom, Business freedom, Labor freedom, Trade freedom, and Investment freedom. As a result, it was found that, Freedom from corruption and Business freedom had the greatest impact on the level of financial security in Poland, while Business freedom and Trade freedom were the most influential on the financial security of Ukraine.


INTRODUCTION
The level of financial security of a country is an important characteristic that reflects the state of its financial system. This level depends on many factors, which can vary significantly when considering countries with different levels of economic development. The financial system of each country has its own characteristics; they are defined by formulated channels of financial resources flows of all economic agents, the predominance of various financial intermediaries, which is manifested in the concentration of financial flows through stock exchanges, or vice versa banks act as the main financial intermediaries. In addition, public finances play an important role, and their impact on economic development in each country can vary from high enough to low enough. Understanding the state and development trends of the structural elements that shape the indicator of the state's financial security, and assessing the main factors influencing it, allows us to determine and timely adjust the strategic priorities for the development of the country's financial system. Therefore, it is necessary to conduct an in-depth structural analysis and identify the major factors of a country's financial security. The purpose of the article is to determine the level of financial security of the countries, analyze their structure and evaluate factors of influence using financial systems of Ukraine and Poland as an example.

LITERATURE REVIEW
Financial security of a country is the focus of attention of scientists from different countries at different development levels of financial systems. Advanced economies conduct more research related to ensuring their financial stability, due to their role in the global financial architecture and their impact on the financial systems of less economically developed countries. It is obvious that the financial markets of advanced countries and their stability significantly influence the development of the financial markets of states with emerging and border markets (Blahun I. S. & Blahun, I. I., 2020). The World Bank's experts (Demirgüç-Kunt et al., 2012, 2013, based on a study of strengths and weaknesses of the emerging financial architecture Among studies on the financial security of a state, conducted in Ukraine, the work of Koilo (2018) deserves attention.The author analyzes the key characteristics of financial security and proposes an approach to assessing an integral indicator, based on a taxonomic approach with the division of indicators into groups of direct and indirect impact, incentives and disincentives. She also takes into account the assessment of six separate areas (indicators that characterize bank security, debt, budget, foreign exchange, monetary and nonbank market security). The study focuses on government debt security, given that Ukraine is actively attracting loans from international financial institutions (Koilo, 2018).
Later Koilo et al. (2020) have proposed a new methodology for assessing the government debt security based on four indicators such as solvency, liquidity and domestic and external debt for emerging economies. Mataibayeva et al., (2019) conducted similar studies for the Republic of Kazakhstan, given the importance of public debt for the development of the country's financial system and its financial security. Vitlinskyi and Makhanets (2019) also emphasize the importance of monitoring the interplay of financial stability and public finance security. Chetverikova (2020) analyzesthe financial situation of the VisegrádFour countries, including Poland. She point to general economic results and considers them to be the main triggers for the economic development of these countries and the improvement of their financial health. Kozera (2016) examined the relationship between local finance debt levels as part of public debt and the level of financial security of Poland. Based on an analysis of 2007-2013 data, the author concluded that debt in major cities negatively affected financial security and socio-economic development of the country. Gudzovata (2019), focusing on the role of monetary policy in ensuring the financial security of Ukraine, states that the effectiveness of monetary policy is insufficient, which is manifested in the imbalance of monetary circulation, inflation volatility, a significant share of cash in circulation, reduction of cash circulation, decrease in lending activity of banks, etc.Using the principal component method and building a regression model, the author concludes that there is a statistically significant relationship between monetary policy and financial security of the country. Corporate governance exercise a direct influence on bank risk and such a link is directly visible in time of financial crisis, like the crisis of 2008 (Augusto Felicio et al., 2018). Yelisyeyeva (2018) summarizes theoretical foundations ofUkraine's financial security, performs its statistical modeling according to the method proposed by The National Institute for International Securityproblems(Ukraine), anddefines the forecast of changes in the level of financial security for 2012-2016. It is determined that, first of all, it isnecessary to take measures to ensure the stable operation of the banking sector, which is the main financial intermediary for Ukraine, as well as to increase the level of monetarysecurity. The author also points to the need to improve investment attraction tools and reduce the negative trade balance. Study results of (Apostoaie and Bilan, 2019) confirm that shadow banking is prone to macroeconomic conditions and that economic growth positively affects the expansion of this financial sector segment. Bukhtiarova et al. (2018), using regression analysis of factors affecting financial security, found the relationship between the condition of financial intermediaries and the monetary market status.Later, Bukhtiarova, Semenog, Razinkova, Nebaba, and Haber (2020), assessing the level of financial monitoring system efficiency in the banking system of Ukraine through the integral indicator, noted that the level of financial security of a country is largely determined by measures that help counteract legalizing proceeds from crime. Vyhovska, Polchanov, Aldiwani, and Shukairi (2019), and Khalatur, Pavlova, and Zhylenko (2018) studied the ability of the financial system of Ukraine and identified possible areas for strengthening its financial security.Financial security is a function of financial risk information avoidance. Higher level of financial literacy and financial risk information availability increase the level of financial security (Blajer-Gołębiewska et al., 2018). Zachosova, Herasymenko, and Shevchenko (2018) believe setting up financial security at the macro level is largely defined by the conditions created at the micro level and, accordingly, the level of financial inclusion of the population, as well as the access of economic entities to financial products and services. The authors systematized the possible positive effects, problems of financial inclusion and the corresponding risks to the state's financial security.
Ostrowska -Dankiewicz (2019) thinks that the new regulatory and supervisory paradigm of the financial market enforces consumer protection of innovative financial products, including insurance products, thus becomes an opportunity to increase the safety of buyers. As a result of independent and separate supervision appearance, an approach to the protection of consumer rights is also of special importance, strengthened by the application of pro-consumer solutions defined by supervising institutions regarding the reduction of information deficit in the applicable distribution.
Given the literature review, it should be noted that financial stability and financial security studies are conducted in different countries, with different development levels of both the economy and the financial system. The input data used are largely general, and the results obtained characterize the ability of a particular financial system to absorb both external and internal financial shocks and ensure a continuous flow of capital across all economic agents.

DATA AND METHODOLOGY
This study is based on data that describe the state of financial systems of Poland and Ukraine for the period 2007 to 2018. For the calculation, four groups of indicators were developed in terms of both countries, given the special aspects of the existing financial system in Ukraine and Poland, the availability of relevant data for the analyzed period, and their comparability for both countries.The National Bank of Ukraine, the National Bank of Poland, The Polish Financial Supervision Authority and the National Securities and Stock Market Commission (Ukraine) were the source of the data. All indicators were classified into four groups.The first group of indicators characterizes the development of financial intermediaries and includes the asset size of banks, insurance companies, assets of other financial institutions, and the number of ATMs per 100,000 adults as a financial inclusion indicator.The second group describes the situation on the monetary market and includes broad money to GDP, the rate of national currency against the US dollar, the ratio of total loans to deposits, and the amount of loans and deposits to banks by the private sector.The third group of indicators reflects the situation on the stock markets of both countries and includes securities trading, market capitalization of domestic listed companies, and stock price volatility.The fourth group describes the state of public finances: the amount of foreign and domestic debt of the country, the state budget deficit in% of GDP, the amount of foreign exchange reserves, as well as the government bond 10year yield for Poland. Given no similar statistics on Ukraine, the government bond indicator is taken.
Assessing the state of the banking system, Shkolnik, Bukhtiarova, and Semenog (2017) tested the approach used in the current work in terms of the formation of an integral indicator based on Harrington's desirability function. In contrast to this study, Harrington's desirability function was used to analyze the dynamics of bank patterns using a self-organizing Kohonen map.
The study sequence was as follows. First, a system of indicators was identified, represented by the four groups mentioned above, and an input matrix X was formulated: (1) where mdenotesindicators characterizing the country's financial security; Vol.13, No.2, 2020 nis the number of observations, years. Secondly, given that the indicators taken for analysis have a different measurement scale, for comparison, they were normalized using the relative normalization method, and the maximum values in each analyzed indicator are taken as reference vectors.

Journal of International Studies
Third, the existing baseline data were optimized using Harrington's Desirability Function, by specifying partial functions for each metric group. Such calculations are based on the transformation of the natural values of the individual indicators into a dimensionless desirability scale, which is essentially a logistic Scurve, which reflects the objective laws of systems development, and therefore is used to evaluate economic systems, including financial ones. The desirability scale has an interval from 0, which is the worst value, to 1, the best value, and the closer the desirability value is to 0 or 1, the lower the sensitivity. In the range from 0.2 to 0.8, the sensitivity is maximum, that is, with a slight change in parameters, a significant change in desirability can occur, and therefore the possibilities for improving the state of the system under study are high. The quantification is based on the desirability criteria given by the formula: = exp (− exp(−̅̅̅)) (6) where k is the number of indicators used to define desirability; dkis a partial function according to the Harrington scale; and ̅̅̅is a dimensionless indicator.
Fourth, the weighting coefficients werestandardizedusing Fishburn's rule: whereWiis the weight factor of the i-th indicator; N is the total number of indicators; and n is the indicator's weight. Fifth, a generalized indicator for the chosen system of indicators is defined as an integral indicator of the state's financial security, and a forecast is created based on a polynomial of degree 2, which is advisable to use to predict the behavior of economic systems.
The adequacy of the resulting assessment of the desirable level of the state'sfinancial securityis defined based on the following ranges: A complex indicator, which determines the level of financial security, is calculated as follows: where n is the number of parameters that were compared in the system. Sixth, a correlation and regression analysis was conducted, and economic and non-economic factors were found that have the most significant impact on the level of financial security in Ukraine and Poland.For this purpose, the values of integral indicators characterizing the level of development of different economic parameters were analyzed. The source matrix for determining the pairwise correlation included the following indices: Corruption perceptions index, which is usually defined by Transparency International's -theGlobalCoalitionAgainstCorruption for 180 countries (as of 2018). This is a generalized indicator, which is calculated based on statistics and expert assessment.Simultaneously, the level of corruption in the public sector and the economy is defined and the level of corruption in climate change, education, judicial system, health, water sector, and construction is assessed. Also, politicalcorruptionandaccesstoinformation are evaluated.Countries range from 0 to 100, and the closer the index is to zero, the higher the level of corruption in a country. All these components have a hidden effect on the level of the country's financial security, as they indirectly affect the formation of financial flows in both the public and private sectors.
Property rights indexis an indicator that measures how the political and legal environment in the country contributes to the creation of a strong ownership regime for both physical and intellectual property. This index is defined for 129 countries, including Poland and Ukraine.The level of protection of property rights is critical for organizing the financial security of the state, since this affects the development level of both the banking system of the country and the stock market.
Fiscal freedom index is a complex indicator that considers tax pressure on businesses, both through direct and indirect taxes, at the state and local levels, and directly affects the state's financial security, since excessive tax pressure can lead to propelling some of the financial flows into the shadow economy and exacerbate pressure on legal financial flows, including in the stock market and the monetary market.
Business freedom index reflects the regulatory effectiveness of businessby the state and evaluates parameters in the context of business start-up procedures (number of procedures, time (days), cost (% of income per capita), minimum capital (% of income per capita)),licensing procedures (number of procedures, time (days), cost (% of income per capita); and closing-a-business procedures (time (years), cost (% of estate) andrecovery rate (cents on the dollar).
Labor freedom index includes six quantitative indicators characterizing the state of the labor market in a country, namely: Ratio of minimum wage to the average value added per worker, Hindrance to hiring additional workers, Rigidity of hours, Difficulty of firing redundant employees, Legally mandated notice period, andMandatory severance pay.The development of the labor market indirectly affects the financial security of a state and is primarily manifested in the fact that the level of accumulation and consumption of financial resources and investment activity of the population depends on the size of wages received by the population. This is reflected in the size of the deposit base and the crediting of the population for various purposes, including for house-buying or for consumer purposes, as well as in the development of voluntary insurance, which largely determines the state of financial intermediaries in the country.
Trade freedom index characterizes the availability of tariff and non-tariff barriers in the country that stimulate export or import activity. Export and import operations largely determine the exchange rate of the national currency -in this study, the Ukrainian hryvnia and Polish zloty against world currencies. The calculation of this indicator is based on the trade-weighted average tariff rate and non-tariff barriers.
Investment freedom index estimates the economy of a country in terms of certain restrictions to both domestic and foreign investments and includes an impressive list of indicators, which characterize the National treatment of foreign investment, Foreign investment code, Restrictions on land ownership, Sectoral investment restrictions, Foreign exchange controls and Capital controls. Accordingly, capital control and control over currency transactions are directly related to the formation of the country's financial security.

RESULTS
As a result of calculations made according to a certain methodology (interim results for relative indicator normalization and partial normalization of the indicators by the Harrington function are given in Appendices A and B) in the context of Ukraine and Poland, the following results were obtained. Intermediate integral calculations by indicator groups showed different dynamics. In particular, when analyzing the behavior of indicators for Poland (Figure 1), one can find the upward dynamics for indices characterizing financial institutions and the money market. The constructed polynomial trends for these two indicators with a probability of 98.8 and 97%, respectively, indicate further improvements in these indicator groups. Indicators reflecting the stock market condition show a slight downward trend, but the probability of approximation is much lower than the previous ones -67.3%. Of all the indicator groups, the condition of public finances has a strong downward trend. With that, the values of mean square standard deviation of the calculated indicators showed low volatility for the respective groups (Stock Market, Public Finance and Money -3%; Financial Institutions -5%).

Figure 1. Change in values of integral indicators in the context of the analyzed groups, Poland
Source: Author's calculations When it comes to the behavior of integrated indicators by groups for Ukraine (Figure 2), it is worth noting that, compared to Poland, the volatility level is much higher, except for the condition of the monetary market, which has a similar indicator of 3% for Financial Institutions; Stock Market accounts for 6% and Public Finance is 5%.It can be noted that the Financial Institutionsand Money indicators have dynamics similar to the Polish indicators and the high probability of positive dynamics approximation in the future. The behavior of the integral index characterizing the state of the stock market in Ukraine is fundamentally different. This is due to the strategic objectives put forward by Ukraine's financial regulators to clear the stock market from speculative securities. Accordingly, the adoption of many legislative and regulatory acts in 2016-2018 led to a significant decrease in the number of securities in circulation, the review of many companies whose securities were included in the first and second listing level and as a result, a significant decrease in the value of the market capitalization of domestic listed companies. In contrast to Poland, the dynamics of Ukraine's integrated public finance indicator has a moderate upward trend.

Figure 2. Change in values of integral indicators in the context of the analyzed groups, Ukraine
Source: Author's calculations.
Analyzing the dynamic pattern of the calculated integral indicator (Figure 3), which reflects financial security, one can note that, first, the level of financial security of Poland is higher than Ukraine. However, if at the beginning of the analyzed period the gap between the indicators was 0.07 points, then it narrowed to 0.02 points at the end. Secondly, in both countries the value of the desirability function is within the interval of [0.37-0.63], which is characterized as satisfactory. Consequently, there is a high probability that, at low costs, the financial security of countries can be significantly improved and included in the interval that characterizes the value as high. It should also be emphasized that the intervals of the Harrington Desirability Scale attribute a value of 0.63 to a high level. That is, Poland demonstrates a high level of financial security, with the probability of approximation of the obtained results being high and accounting for 87.45% for Poland and 97.42%for Ukraine.  (Table 1)for all selected indicators, it was determined that there was a high level of dependence between financial security and most indices in Poland. Low strength of relationship is characteristic of Labor freedom index and Trade freedom index. However, none of the coefficients showed an inverse relationship. For further calculations, the above indicators will be excluded, and the other ones will be checked for multi collinearity.
Instead, the results of the Pearson coefficient calculations for Ukraine differ significantly by a weak connection for most of the indices studied; besides, the indices such as Freedom from corruption index, Fiscal freedom index, Labor freedom index and Investment freedom index are characterized by inverse weak dependence. Based on the results of these calculations for Ukraine and taking into account the construction of the regression model and determining the degree of factors' influence on the financial security of a company, it is advisable to choose Business freedom index and Trade freedom index.  Source: Author's calculations.
After checking the indicators for Poland for multicollinearity among the Financial security, Freedom from corruption, Property rights, Fiscal freedom, Business freedom and Investment freedom indices, two indicators are identified that will be further used to build a multiple linear regression model -Freedom from corruption and Business freedom; other indicators had multicollinearity.

Figure 4. Correlation matrices for selected variables, Poland
Source: Author's calculations.
The constructed correlation matrices between Financial Security index and Freedom from corruption index, Financial Security index and Business freedom, as well as the formed linear trends show that in the first case the high value of R2 is obtained, i.e. the approximation probability is 78%, in the second case the value is lower, but still quite high. Besides, elasticity coefficients for each factor indicated that a 1% increase in the financial security indicator could lead to a change in factors for 21.2 and 3.4%. That is, the estimated factors have a low degree of elasticity, which may be due to a high level Harrington scale desirability of the integral value of the financial security indicator, and its further growth can be achieved at significant costs.
Overall, the results of calculations for Poland suggest that most of the factors studied were highly correlated with the financial security level being investigated. It is determined that the greatest financial security dependence is observed by the Freedom from corruption indicator.
Similar calculations have been made for Ukraine, but unlike Poland, among the selected factors, the highest degree of correlation is observed for Business freedom (0.82405) and Trade freedom (0.61809). On the other hand, unlike Poland, multi collinearity testing showed a small (only 40%) correlation between the identified factors, and therefore they are more independent.

Figure 5. Correlation matrices for selected variables, Ukraine
Source: Author's calculations.
The correlation matrices for Ukraine show that, unlike Poland, linear trends are built, and the probability of R2 approximation for the selected factors of Business freedom and Trade freedom are significantly lower, amounting to 61% and 43%, respectively.
Based on the calculations, whose initial data are given in Appendix E, the regression equation for Ukraine is obtained. It should be noted that the coefficients b1 and b2, as well as the values of the free term are quite insignificant, which is consistent with the Pearson correlation coefficient. Y = -0,107 + 0,003*x1 + 0,006*x2.
An unadjusted multiple determination coefficient of 57% indicates the average level of communication and the average impact of Business freedom and Trade freedom factors on the financial security in Ukraine. The obtained elasticity coefficients for this model, in contrast to the results obtained for Poland, indicate that the financial security indicator responds much more strongly to the change in Business freedom (3.4% for Poland and 26% for Ukraine), and has more than 90% elasticity for Trade freedom.
Thus, the financial security of Ukraine is determined by Business Freedom and Trade freedom. All other factors, unlike Poland, have a negligible effect, and half of them are inversely related.

CONCLUSION
This research allows formulating the following conclusions: Todate, the scientific literature proposes many approaches to studying the level of financial security of countries, but they differ in the list of indicators taken as baseline data. This is due to the nature of the financial architecture in the country and the level of its economic and financial development.
The study of financial security in Poland and Ukraine, on the basis of 2007 to 2018 data, showed that the groups of indicators characterizing development of financial institutions, the monetary market, the stock market and public finances show unstable dynamics and significant volatility. Despite this, the calculated integral indicators using the Harrington Desirability Function for each country showed a gradual improvement in financial security. In 2018, Poland demonstrated a high level of financial security, while Ukraine was in the middle range, and its financial security was assessed as satisfactory. Given the results, -0.63 for Poland and 0.61 for Ukraine, both countries have high potential for improving financial security and combating external and internal shocks.
The use of the multiple linear regression model revealed that, among the factors selected for the analysis -Freedom from corruption, Property rights, Fiscal freedom, Business freedom, Labor freedom, Trade freedom and Investment freedom -two factors with the highest influence on the country's financial security were identified: for Poland -Freedom from corruption and Business freedom, due to high correlation between all factors and the signs of multi collinearity; and for Ukraine -Business freedom and Trade freedom, due to low correlation among all factors.
Given the emergence of a new factor -the coronavirus pandemic -which has a significant negative impact on economic development at the global level, further studies will analyze its impact on the financial security status in the context of the countries studied.

APPENDIX А
Normalized values of selected indicators using the relative normalization method