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1
Gopalan, Radhakrishnan, Fenghua Song, and Vijay Yerramilli. "Debt Maturity Structure and Credit Quality." Journal of Financial and Quantitative Analysis 49, no. 4 (August 2014): 817–42. http://dx.doi.org/10.1017/s0022109014000520.
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AbstractWe examine whether a firm’s debt maturity structure affects its credit quality. Consistent with theory, we find that firms with greater exposure to rollover risk (measured by the amount of long-term debt payable within a year relative to assets) have lower credit quality; long-term bonds issued by those firms trade at higher yield spreads, indicating that bond market investors are cognizant of rollover risk arising from a firm’s debt maturity structure. These effects are stronger among firms with a speculative-grade rating and declining profitability, and during recessions.
2
Chen, Xian, Jakob Arnoldi, and Xin Chen. "Chinese culture, materialism and corporate supply of trade credit." China Finance Review International 10, no. 2 (July 15, 2019): 197–212. http://dx.doi.org/10.1108/cfri-11-2018-0147.
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Purpose The purpose of this paper is to investigate how cultural value in materialism affects corporate supply of trade credits. Design/methodology/approach Using a sample of 14,710 firm-year observations of Chinese listed firms from 1998 to 2012, the authors examine the influence of regional materialism on accounts receivable. Findings The authors find that listed firms within more materialistic tend to extend less trade credit to their customers, in particular in long-term categories of trade credit. Such negative effects can be significantly mitigated by state control, suggesting the effects are more pronounced in privately controlled listed firms. The negative effects of materialism still hold after controlling for other regional factors, such as trust, GDP per capita or institutional development. Research limitations/implications The authors show materialism as a cultural construct varies across Chinese regions, and it could have important impact on corporate supply of trade credits, besides the previous found effects on consumer use of credit. Originality/value This paper expands the literature about the influence of materialism on economic decision making from the individual level to the corporate level.
3
Rosaria Della Peruta, Maria, Francesco Campanella, and Manlio Del Giudice. "Knowledge sharing and exchange of information within bank and firm networks: the role of the intangibles on the access to credit." Journal of Knowledge Management 18, no. 5 (September 2, 2014): 1036–51. http://dx.doi.org/10.1108/jkm-06-2014-0255.
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Purpose – The purpose of this paper is to theoretically develop the idea that the intangible value of the collaboration between firms and the banking system can influence the probability of default (PD) on the part of firms and, therefore, their rating. The authors also propose that collaboration between banks and firms has a positive effect not only on the access to credit but also on the innovation activities and on the intervention of foreign capital in the ownership of Italian businesses. Design/methodology/approach – As pointed out by the literature on smaller businesses finance, investments widely rely on credit availability. Tests using data on a sample investigation involving 5,587 firms, operating in 17 manufacturing sectors in Italy, support the majority of the proposed ideas. Findings – The empirical investigation shows that only some aspects of the collaboration between enterprises and banks influence the PD, the investments in R&D and the internationalisation of ownership of the enterprises. In particular, the three stated variables are positively influenced both by the intensity of the credit relationship and by the level of information exchange with the credit system. Research limitations/implications – Further development of this research, as more empirical data become available, should allow explaining why the level of information exchange with the credit system has the greatest influence on the dependent variables analyzed. Originality/value – This paper aims to extend the current understanding on how the local banking system is developed and is able to increase access to credit after gathering all the information about firms asking for funds.
4
Abuhommous, Ala’a Adden. "Partial adjustment toward target accounts payable ratio." International Journal of Islamic and Middle Eastern Finance and Management 10, no. 4 (November 13, 2017): 484–502. http://dx.doi.org/10.1108/imefm-01-2017-0019.
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Purpose This paper aims to test for a potential target accounts payable ratio and the determinants of accounts payable ratio. Design/methodology/approach The author use data from 104 firms over the period 2000-2014 and analyse these data using the system-generalised method of moments methodology. Findings The author find that Jordanian firms have a target accounts payable ratio and more than 65 per cent of the deviation from target is closed within a year. He find a positive impact of growth, positive growth and supply of credit on the accounts payable ratio. Furthermore, large firms use less trade credit to finance their purchases. Research limitations/implications A number of limitations affect this study to be considered in future research. Future researchers could cover longer period of time. To generalise the results, non-listed firms may be included in the sample. Practical implications In addition to extending the finance literature, this study has managerial implications regarding trade credit policy. There is strong evidence that the trade credit policy is affected by firm’s access towards capital market funds. Thus, regulators and policy maker should bear in mind that the banking system should help firms to achieve their target accounts payable ratio. In addition, firm’s management should be aware of the importance of trade credit to finance sales growth. All of these results should assist firm managers to find the factors that affect the target accounts payable ratio, which ultimately may affect the firm value and performance. Originality/value To the best of author’s knowledge, this is the first study on the partial adjustment model and determinants of accounts payable in Jordan. Thus, the authors aim to contribute to the existing literature, as there are very few studies test for target trade credit policy.
5
Liu, Qing, Yanchao Zhang, Langxing Li, and Shuaihang Li. "The Interactive Impact of Trade Policy Uncertainty and Credit Constraint Heterogeneity on Firms’ Export Margins: Theory and Empirics." Journal of Systems Science and Information 9, no. 6 (December 1, 2021): 575–607. http://dx.doi.org/10.21078/jssi-2021-575-33.
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Abstract This paper develops a simple trade model of heterogeneous firms, which incorporates the dual heterogeneity of credit constraints at the firm and industry levels and reveals the effects of the interaction mechanisms of trade policy uncertainty and credit constraint heterogeneity on exporters’ behaviour. The model confirms that the higher the level of industrial credit constraints, the greater the interaction of trade policy uncertainty and credit constraint heterogeneity, but firms with lower levels of credit constraints within a specific industry are more affected by this interaction. Then, based on the highly dis-aggregated trade data of China’s firms from 2000 to 2013, this paper provides empirical evidence for the main predictions and mechanisms of the theoretical model.
6
Kammerer, Louisa, and Miguel Ramirez. "Did Smaller Firms Face Higher Costs of Credit During the Great Recession? A Vector Error Correction Analysis with Structural Breaks." Research in Applied Economics 10, no. 3 (August 7, 2018): 1. http://dx.doi.org/10.5296/rae.v10i3.13476.
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This paper examines the challenges firms (and policymakers) encounter when confronted by a recession at the zero lower bound, when traditional monetary policy is ineffective in the face of deteriorated balance sheets and high costs of credit. Within the larger body of literature, this paper focuses on the cost of credit during a recession, which constrains smaller firms from borrowing and investing, thus magnifying the contraction. Extending and revising a model originally developed by Walker (2010) and estimated by Pandey and Ramirez (2012), this study uses a Vector Error Correction Model with structural breaks to analyze the effects of relevant economic and financial factors on the cost of credit intermediation for small and large firms. Specifically, it tests whether large firms have advantageous access to credit, especially during recessions. The findings suggest that during the Great Recession of 2007-09 the cost of credit rose for small firms while it decreased for large firms, ceteris paribus. From the results, the paper assesses alternative ways in which the central bank can respond to a recession facing the zero lower bound.
7
Kisgen, Darren J. "Do Firms Target Credit Ratings or Leverage Levels?" Journal of Financial and Quantitative Analysis 44, no. 6 (October 19, 2009): 1323–44. http://dx.doi.org/10.1017/s002210900999041x.
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AbstractFirms reduce leverage following credit rating downgrades. In the year following a downgrade, downgraded firms issue approximately 1.5%–2.0% less net debt relative to net equity as a percentage of assets compared to other firms. This relationship persists within an empirical model of target leverage behavior. The effect of a downgrade is larger at downgrades to a speculative grade rating and if commercial paper access is affected. In particular, firms downgraded to speculative are about twice as likely to reduce debt as other firms. Rating upgrades do not affect subsequent capital structure activity, suggesting that firms target minimum rating levels.
8
Ruan, Ping, Yung-Fu Huang, and Ming-Wei Weng. "Impact of COVID-19 on Supply Chains: A Hybrid Trade Credit Policy." Mathematics 10, no. 8 (April 7, 2022): 1209. http://dx.doi.org/10.3390/math10081209.
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The COVID-19 pandemic has affected all sectors of the world’s economy and society. Firms need to have disaster recovery and business sustainability plans and to be able to generate profits in order to develop. Trade credit may be a good way for firms to free up cash flow and finance short-term growth. Extensions of payment will provide firms with low-cost loans under the COVID-19 credit guarantee scheme. Implementation of hybrid trade credit activities has been shown to improve the financial crisis of many firms, and the effects are particularly evident within two-echelon supply chains. An economic order quantity (EOQ) model is derived under conditions of deteriorating items, an upstream full trade credit or cash discount, and downstream partial trade credit in a supply chain. A computer program is developed to provide a numerical solution and a numerical example is used to show the solution’s form and verify that the solution gives the minimum total cost per unit time.
9
León-Ledesma, Miguel A., and Dimitris Christopoulos. "Misallocation, Access to Finance, and Public Credit: Firm-Level Evidence." Asian Development Review 33, no. 2 (September 2016): 119–43. http://dx.doi.org/10.1162/adev_a_00075.
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Using a database of 23,000 firms in 45 economies, we test the quantitative importance of access to finance and access to public and private credit for the determination of misallocation. We first derive measures of factor market and size distortions, and then use these measures within a regression framework to test the significance of self-declared access-to-finance obstacles as well as the effect of access to a credit line issued by either a government-owned or private bank. We find that access-to-finance obstacles and private credit increase the dispersion of distortions. Public credit has a very small effect. For firms that do not face financial obstacles, public credit increases the dispersion of distortions; for firms that face financial obstacles, it slightly decreases dispersion. Public credit does not appear to compensate for the distortions that exist in private credit markets. Quantitatively, however, financial variables explain a very small part of the dispersion of factor market and size distortions.
10
Zhong, Ninghua, Mi Xie, and Zhikuo Liu. "Chinese Corporate Debt and Credit Misallocation." Asian Economic Papers 18, no. 1 (March 2019): 1–34. http://dx.doi.org/10.1162/asep_a_00652.
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This paper analyzes various data, especially that of 4 million Chinese manufacturing company samples during the period of 1998 to 2013, to present detailed evidence regarding two questions of China's leverage issue. First, where is the leverage? We find that within the 16-year period, most sample firms have been significantly deleveraged, with the average leverage ratio declining from 65 percent in 1998 to 51 percent in 2013. In contrast, only several thousand companies have significantly leveraged, mostly large-scale, state-owned, listed firms. Second, has the change of leverage been supported by the firms’ fundamentals? We find that for private firms, changes of firm characteristics are consistent with their leverage changes, whereas firm-level factors can hardly explain the leverage of state-owned enterprises. We provide further evidence from aggregate-level data, which suggest that the huge amount of credit being allocated to the state sector is the reason for the declining credit efficiency in China.
11
Kisgen, Darren J., Jordan Nickerson, Matthew Osborn, and Jonathan Reuter. "Analyst Promotions within Credit Rating Agencies: Accuracy or Bias?" Journal of Financial and Quantitative Analysis 55, no. 3 (March 28, 2019): 869–96. http://dx.doi.org/10.1017/s0022109019000243.
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We estimate Moody’s preference for accurate versus biased ratings using hand-collected data on the internal labor market outcomes of its analysts. We find that accurate analysts are more likely to be promoted and less likely to depart. The opposite is true for analysts who downgrade more frequently, who assign ratings below those predicted by a ratings model, and whose downgrades are associated with large negative market reactions. Downgraded firms are also more likely to be assigned a new analyst. These patterns are consistent with Moody’s balancing its desire for accuracy against its corporate clients’ desire for higher ratings.
12
Kerimov, Pavlo. "Cost of credit and profitability of large industrial firms in Ukraine." Ekonomìka ì prognozuvannâ 2022, no. 2 (June 30, 2022): 53–73. http://dx.doi.org/10.15407/eip2022.02.053.
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Lending in Ukraine is usually studied from the creditor’s perspective, and based on the macroeconomic-level data, due to statistics availability. This potentially leaves out the problems that exist on microeconomic level, and leads to one-sided conclusions regarding, for instance, justification for certain levels of cost of credit based exclusively on minimal required profitability. In order to complement these conclusions, it is expedient to use microeconomic data-based analysis performed on a representative selection of firms, and thus the aim of this study is to evaluate credit availability for large firms in Ukraine in 2006-2020. Within the framework of the designated aim, liabilities structure, expected costs of financial resources, both credit and equity-based, have been analyzed for a selection of firms, and then compared to their respective profitability ratios. The main conclusion is that an average large industrial firm in Ukraine in 2006-2020 was not profitable enough to attract either loans or investments on market terms, and it is unlikely the situation has changed now. Individual firms, mainly of agricultural, mining, mechanical engineering, food and trade industries, are the exception to this rule. The reason for this is abnormally high profitability volatility, and in many cases – loss-making of large industrial firms, which in turn raise their risks (and thus the cost of financial resources for them); in other words, an average industrial firm has to pay elevated cost for credit due to its low creditworthiness. The practical conclusion is that the average large industrial firm in Ukraine is maladapted to market-based economy, and thus they should not be the centerpiece for planning of an economic development policy. Due to the tendency of such firms to bias any form of aggregated statistics in their favor, it is advisable to exclude them altogether, and aim to use representative selections based on medium and small firms instead. In particular, such approach must be used for aggregation of industry-specific capital structure, as well as for evaluation of costs of credit, equity and of their underlying risks. This would allow for setting a better scale in estimation of costs of financial resources.
13
Demchuk, Andriy, and Rajna Gibson. "Stock Market Performance and the Term Structure of Credit Spreads." Journal of Financial and Quantitative Analysis 41, no. 4 (December 2006): 863–87. http://dx.doi.org/10.1017/s0022109000002672.
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AbstractWe build a structural two-factor model of default where the stock market index is one of the stochastic factors. We allow the firm to adjust its leverage ratio in response to changes in the business climate for which the past performance of the stock market index acts as a proxy. We assume that the firm's log-leverage ratio follows a mean-reverting process and that the past performance of the stock index negatively affects the firms target leverage ratio. We show that for most credit ratings our model may explain actual yield spreads better than other well-known structural credit risk models. Also, our model shows that the past performance of the stock index returns and the firm's assets beta have a significant impact on credit spreads. Hence, our model can explain why credit spreads may be different within the same credit rating groups and why spreads are lower during economic expansions and higher during recessions.
14
Boden, Rebecca, and Salima Yassia Paul. "Creditable behaviour? The intra-firm management of trade credit." Qualitative Research in Accounting & Management 11, no. 3 (September 23, 2014): 260–75. http://dx.doi.org/10.1108/qram-08-2012-0032.
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Purpose – This paper aims to explore the reasons for the apparent failure of many UK firms to achieve the competitive advantages indicated in largely positivist literature through the management of their trade credit positions. Design/methodology/approach – The paper utilises data from a set of semi-structured interviews with trade credit managers in firms and is the first substantial qualitative study of the intra-firm aspects of trade credit management in the UK. Through this approach, we explore the reasons why the theoretical promise of trade credit may or may not be realised. Findings – The principal findings relate to the importance of three organisational attributes (skills/awareness, communication and structural position of the activity in the firm). That is, trade credit management should be regarded as a relational activity and not merely a narrow technical function. The paper finds that there is no generic formulation of these attributes that can deliver on the promise of trade credit identified in the extant literature. Rather, individual firms must adapt themselves to suit their circumstances. Practical implications – This paper will be of interest to and is relevant for companies, accounting professionals and policymakers. Trade credit represents a significant area of commercial risk, and the problems experienced with its effective management have previously proved somewhat intractable. Originality/value – This paper reports on the first substantial piece of UK work to look at the actualities of how trade credit is managed within firms and what the implications of this are.
15
Affuso, Antonio. "A propensity score analysis of public incentives: The Italian case." Risk Governance and Control: Financial Markets and Institutions 1, no. 1 (2011): 85–89. http://dx.doi.org/10.22495/rgcv1i1art6.
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Public support to firms has been a traditional and important industrial policy measure in many countries for several decades. One of the reasons for public intervention is the existence of market failures or imperfections. Informational asymmetries between borrowers and lenders of funds in particular are used to justify subsidies to firms, especially small and medium-sized enterprises. Within this framework, the main purpose of public subsidies is offsetting market imperfections. This paper makes a contribution to current empirical literature by examining the effects of public funding on credit rationing of small and medium-sized Italian firms. The results suggest that public subsidies reduce the probability of a firm being credit rationing.
16
Alldredge, Dallin M., Yinfei Chen, Steve Liu, and Lan Luo. "The effect of credit rating downgrades along the supply chain." Review of Accounting and Finance 21, no. 1 (December 14, 2021): 1–31. http://dx.doi.org/10.1108/raf-10-2020-0295.
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Purpose This study aims to examine the information transfer effects of customers’ credit rating downgrades on supplier firms. Design/methodology/approach In this study, the authors use suppliers’ cumulative abnormal returns around customers’ credit rating downgrade events to identify how shocks to customer credit impact supplier equity prices. The authors also incorporate ordinary least squares and weighted least squares regressions regression analysis of the determinants of supplier market response to customer downgrades. Findings The authors find that customer credit rating downgrades present significant negative shocks to the stock prices of supplier firms. Moreover, the authors show that the information transfer effects are determined by both firm- and industry-level factors, including the market anticipation of downgrades, the strength of the customer–supplier linkage, the industry rivals’ reactions to the downgrades and investor attention. The authors also find that the likelihood that a supplier will receive a rating downgrade is significantly higher following its primary customer firm’s downgrade. Originality/value To the best of the authors’ knowledge, this paper is the first to explore the information transfer effects of credit rating downgrades on primary stakeholders within the supply chain. The authors document that customer–supplier networks have valuable implications for the spillover effect across debt and equity holders. Information about customers’ financial stress is incorporated into suppliers’ equity prices outside of the context of customer bankruptcy.
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Nizam, Rosmah, Zulkefly Abdul Karim, Tamat Sarmidi, and Aisyah Abdul Rahman. "Financial Inclusion and Firms Growth in Manufacturing Sector: A Threshold Regression Analysis in Selected Asean Countries." Economies 8, no. 4 (October 6, 2020): 80. http://dx.doi.org/10.3390/economies8040080.
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This paper examines the effect of financial inclusion on the firm growth of the manufacturing sector (513 firms) in selected ASEAN countries (Malaysia, Philippines, and Vietnam) using a cross-section threshold estimation technique. The levels of financial inclusion across firms were measured based on the distribution of financial services (access to credit). The main findings revealed that there is a non-monotonic effect of financial inclusion on the firm’s growth. These findings show that the impact of financial inclusion on firm growth in the manufacturing sector is significantly positive below a threshold point, and turns to significantly negative after a certain threshold point has been reached. These new findings suggest that manufacturing firm owners and banking institutions should deepen their financial inclusion efforts, and limit the distribution of credit access within the optimum value or threshold level in promoting the growth of the firm.
18
Aktan, Bora, Şaban Çelik, Yomna Abdulla, and Naser Alshakhoori. "The impact of credit ratings on capital structure." ISRA International Journal of Islamic Finance 11, no. 2 (December 9, 2019): 226–45. http://dx.doi.org/10.1108/ijif-03-2018-0028.
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Purpose The purpose of this paper is to empirically investigate the effect of real credit ratings change on capital structure decisions. Design/methodology/approach The study uses three models to examine the impact of credit rating on capital structure decisions within the framework of credit rating-capital structure hypotheses (broad rating, notch rating and investment or speculative grade). These hypotheses are tested by multiple linear regression models. Findings The results demonstrate that firms issue less net debt relative to equity post a change in the broad credit ratings level (e.g. a change from A- to BBB+). The findings also show that firms are less concerned by notch ratings change as long the firms remain the same broad credit rating level. Moreover, the paper indicates that firms issue less net debt relative to equity after an upgrade to investment grade. Research limitations/implications The study covers the periods of 2009 to 2016; therefore, the research result may be affected by the period specific events such as the European debt crisis. Moreover, studying listed non-financial firms only in the Tadawul Stock Exchange has resulted in small sample which may not be adequate enough to reach concrete generalization. Despite the close proximity between the GCC countries, there could be jurisdictional difference due to country specific regulations, policies or financial development. Therefore, it will be interesting to conduct a cross country study on the GCC to see if the conclusions can be generalized to the region. Originality/value The paper contributes to the literature by testing previous researches on new context (Kingdom of Saudi Arabia, KSA) which lack sophisticated comparable studies to the one conducted on other regions of the world. The results highlight the importance of credit ratings for the decision makers who are required to make essential decisions in areas such as financing, structuring or operating firms and regulating markets. To the best of the authors’ knowledge, this is the first study of its kind that has been applied on the GCC region.
19
Liu, Zheng, Pengfei Wang, and Zhiwei Xu. "Interest Rate Liberalization and Capital Misallocations." American Economic Journal: Macroeconomics 13, no. 2 (April 1, 2021): 373–419. http://dx.doi.org/10.1257/mac.20180045.
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We study the consequences of interest rate liberalization in a two-sector general equilibrium model of China. The model captures a key feature of China’s distorted financial system: state-owned enterprises (SOEs) have greater incentive to expand production and easier access to credit than private firms. In this second-best environment, interest rate liberalization can improve capital allocations within each sector but can also exacerbate misallocations across sectors. Under calibrated parameters, the liberalization policy can reduce aggregate productivity and welfare unless other policy reforms are also implemented to alleviate SOEs’ distorted incentives or improve private firms’ credit access. (JEL E43, E44, G32, L32, P24, P31, P34)
20
Yamanaka, Suguru. "Random thinning model with a truncated credit quality vulnerability factor: Application to top-down-type credit risk assessment." International Journal of Financial Engineering 06, no. 03 (September 2019): 1950024. http://dx.doi.org/10.1142/s2424786319500245.
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In the top-down approach of intensity-based credit risk modeling, a procedure called “random thinning” is needed to obtain credit event intensities for sub-portfolios. This paper presents a random thinning model incorporating a risk factor called the credit quality vulnerability factor (CQVF) to capture time-series variation in credit event occurrence in a target sub-portfolio. In particular, we propose a type of CQVF that follows truncated normal distributions specified by macroeconomic variables. Using credit event samples of Japanese firms, our empirical analysis aims to clarify the applicability and effectiveness of the proposed model to practical credit risk management. Since macroeconomic variables are included in our model, it is applicable to the macro-stress testing of portfolio credit risk management within a top-down-type framework.
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Kerimov, Pavlo. "Cost of credit and profitability of large industrial firms in Ukraine." Economy and forecasting 2022, no. 2 (October 10, 2022): 47–64. http://dx.doi.org/10.15407/econforecast2022.02.047.
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Lending in Ukraine is usually studied from the creditor’s perspective, and based on the macroeconomic-level data, due to statistics availability. This potentially leaves out the problems that exist on microeconomic level, and leads to one-sided conclusions regarding, for instance, justification for certain levels of cost of credit based exclusively on minimal required profitability. In order to complement these conclusions, it is expedient to use microeconomic data-based analysis performed on a representative selection of firms, and thus the aim of this study is to evaluate credit availability for large firms in Ukraine in 2006-2020. Within the framework of the designated aim, liabilities structure, expected costs of financial resources, both credit and equity-based, have been analyzed for a selection of firms, and then compared to their respective profitability ratios. The main conclusion is that an average large industrial firm in Ukraine in 2006-2020 was not profitable enough to attract either loans or investments on market terms, and it is unlikely the situation has changed now. Individual firms, mainly of agricultural, mining, mechanical engineering, food and trade industries, are the exception to this rule. The reason for this is abnormally high profitability volatility, and in many cases – loss-making of large industrial firms, which in turn raise their risks (and thus the cost of financial resources for them); in other words, an average industrial firm has to pay elevated cost for credit due to its low creditworthiness. The practical conclusion is that the average large industrial firm in Ukraine is maladapted to market-based economy, and thus they should not be the centerpiece for planning of an economic development policy. Due to the tendency of such firms to bias any form of aggregated statistics in their favor, it is advisable to exclude them altogether, and aim to use representative selections based on medium and small firms instead. In particular, such approach must be used for aggregation of industry-specific capital structure, as well as for evaluation of costs of credit, equity and of their underlying risks. This would allow for setting a better scale in estimation of costs of financial resources
22
Song, Zheng, Kjetil Storesletten, and Fabrizio Zilibotti. "Growing Like China." American Economic Review 101, no. 1 (February 1, 2011): 196–233. http://dx.doi.org/10.1257/aer.101.1.196.
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We construct a growth model consistent with China's economic transition: high output growth, sustained returns on capital, reallocation within the manufacturing sector, and a large trade surplus. Entrepreneurial firms use more productive technologies, but due to financial imperfections they must finance investments through internal savings. State-owned firms have low productivity but survive because of better access to credit markets. High-productivity firms outgrow low-productivity firms if entrepreneurs have sufficiently high savings. The downsizing of financially integrated firms forces domestic savings to be invested abroad, generating a foreign surplus. A calibrated version of the theory accounts quantitatively for China's economic transition. (JEL E21, E22, E23, F43, L60, O16, O53, P23, P24, P31).
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Wagdi, Osama, and Yasmeen Tarek. "The Integration of Big Data and Artificial Neural Networks for Enhancing Credit Risk Scoring in Emerging Markets: Evidence from Egypt." International Journal of Economics and Finance 14, no. 2 (January 7, 2022): 32. http://dx.doi.org/10.5539/ijef.v14n2p32.
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This study investigates the effectiveness of technology models in credit risk scoring modeling in emerging markets. the study proposes evaluation methods for credit risk scoring modeling for current and potential borrowers through an investigation into the Egyptian banking industry by offering and examining a framework for the integration of big data and artificial neural networks based on systematic and unsystematic risk for both the macroeconomic environment and characteristics of current and potential borrowers. The data for the borrowers under examination covers the period from 2015 to 2019 for 75 firms, excluding 2020 and 2021 data to isolate the impact of COVID-19 on the results of the inferred statistics. Artificial Neural Networks was training within 25 firms under NeuroXL program but examination for 50 firms. The study found the ability of artificial neural networks to rank the commitment of borrowers in Egyptian banks under big data about the firm and Egyptian economy. Additions to discrepancy between the proposed model against some traditional models. Finally; The Integration of Big Data and ANN can help banks to bring out the value of data within create a level of financial stability for banks. Especially in emerging markets characterized by information inefficiency.
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Wang, Chien-An, and Chin-Oh Chang. "International Real Estate Review." International Real Estate Review 11, no. 1 (June 30, 2008): 38–64. http://dx.doi.org/10.53383/100089.
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Since the 1997 Asian financial crisis, the monetary authority of Taiwan decreased the interest rate nine times and had every intention to maintain a loose monetary policy. However, the lending amounts to the construction industry decreased much more sharply in spite of an increased monetary supply. Hence, the loose monetary policy has not reduced the financial constraints of the construction firms in Taiwan. In this paper, we investigate that the credit channel of monetary policy how to works at the Taiwan’s construction industry. We explain the reasons for financial constraints in the construction industry in Taiwan. Construction firms whose information is considerably opaque, are likely to be viewed as “lemons,?which accounts for the credit crunch policy of banking lending to these construction firms. Two strands of evidence support this view. First, the borrowing terms for the construction industry have been more restrictive than those for other industries firms during the same period of financial difficulty. Second, we determine that such financial constraints vary systematically within different industry groups. The results substantiate that construction firms retain more internal funds for future investment, and the sign of the liquidity coefficient is significant in their investment function. The evidence shows construction firms bear most of the reductions in bank loan supply, and that they are more bank-dependent.
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Sahani, Kalpana, Soni Sahani, Sundip Bansal, Deepak Shakya, and Binay Shrestha. "Credit Risk Management of Kumari Bank Ltd. Nepal." International Journal of Emerging Research in Management and Technology 7, no. 4 (April 20, 2018): 14. http://dx.doi.org/10.23956/ijermt.v7i4.2.
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Banks are always faced with different types of risks that may have a potentially negative effect on their business. Risk-taking is an inherent element of banking and, indeed, profits are in part the reward for successful risk taking in business. On the other hand, excessive and poorly managed risk can lead to losses and thus endanger the safety of a bank's depositors. Risks are considered warranted when they are understandable, measurable, controllable and within a bank’s capacity to readily withstand adverse results. Sound risk management systems enable managers of banks to take risks knowingly, reduce risks where appropriate and strive to prepare for a future, which by its nature cannot be predicted.Financial institutions are subject to a number of risks such as Credit risk, Market risk management, Foreign exchange risk, Operational risk, and Liquidity risk. Although credit risk has always been of primary concern to these institutions, its importance became paramount during the recent financial crisis. The crisis exposed the shortcomings of existing risk management systems, and several firms saw significant losses resulting from failure of their counterparties to deliver on contracts. Firms may also be worried about a second recession, which makes credit risk a top priority.
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Bedendo, Mascia, Emilia Garcia-Appendini, and Linus Siming. "Cultural Preferences and Firm Financing Choices." Journal of Financial and Quantitative Analysis 55, no. 3 (February 11, 2019): 897–930. http://dx.doi.org/10.1017/s0022109019000103.
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We document significant differences in the financing structures of small firms with managers of diverse cultural backgrounds. To isolate the effect of culture, we exploit cultural heterogeneity within a geographical area with shared regulations, institutions, and macroeconomic cycles. Our findings suggest significant cultural differences in the preference toward debt funding and in the use of formal and informal sources of financing (bank loans and trade credit). Our results are robust to alternative explanations based on potential differences in credit constraints and in the distribution of cultural origins across industries, trading partners, and headquarters locations.
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Florio, Massimo, Aleksandra Parteka, and Emanuela Sirtori. "THE MECHANISMS OF TECHNOLOGICAL INNOVATION IN SMES: A BAYESIAN NETWORK ANALYSIS OF EU REGIONAL POLICY IMPACT ON POLISH FIRMS." Technological and Economic Development of Economy 24, no. 5 (October 22, 2018): 2131–60. http://dx.doi.org/10.3846/tede.2018.6056.
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We study the underlying mechanisms of technological innovation in SMEs in the context of ex-post evaluation of European Union’s regional policy. Our aim is to explain the observed change in firms’ innovativeness after receiving EU support for technological investment. To do so, we take an approach that is novel in innovation studies: a Bayesian Network Analysis to assess the effectiveness of EU policy instrument for technological innovation and to determine the mechanisms by which the policy works within firms. Our data draw from a unique survey of 200 Polish firms that received “Technological Credit” during the 2007−2013 programming period. First, we confirm the short-term positive impact of the EU innovation policy (i.e. a wider range of products/services offered, increased sales and exports). More importantly, we determine the causal chain between economically quantifiable outcomes and behavioural change in the firm, which is an important node in the network of effects generated. We find that only the financially sounder and more internationalised firms managed to take advantage of the policy. These findings suggest that programmes based on technological credits are not well suited to foster innovation in more fragile and domestically oriented SMEs, which may require different policy instruments.
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Duval, Romain, Gee Hee Hong, and Yannick Timmer. "Financial Frictions and the Great Productivity Slowdown." Review of Financial Studies 33, no. 2 (June 7, 2019): 475–503. http://dx.doi.org/10.1093/rfs/hhz063.
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Abstract We study the role of financial frictions for productivity. Using a rich cross-country firm-level data, we exploit variation in preexisting exposure to the 2008 global financial crisis to study the post-crisis productivity slowdown. Firms with weaker precrisis balance sheets experienced a highly persistent decline in post-crisis total factor productivity growth relative to their less vulnerable counterparts, accounting for about one-third of the within-firm productivity slowdown. This decline was larger for firms that faced a more severe tightening of credit conditions. Financially fragile firms cut back on innovation activities, one channel through which financial frictions weakened post-crisis productivity growth.
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Seppa, Raul. "Implication of inside-debt: signalling for bankruptcy probabilities within small firms." Baltic Journal of Management 9, no. 2 (April 1, 2014): 168–88. http://dx.doi.org/10.1108/bjm-03-2013-0043.
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Purpose – Small privately held firms extensively use debt provided by principal owners and households (inside-debt) as an alternative capital source to straight equity capital. The purpose of the research study is to investigate inside-debt-bankruptcy relations. Design/methodology/approach – Inside-debt-bankruptcy relation is tested on three prominent bankruptcy prediction models using correlation and logit regression analysis. Sample consists of 314 Estonian small firms. Financial reports of 2007 are modelled against bankruptcies declared in 2009. Findings – Results imply that users of inside-debt are less profitable; they have weaker liquidity position and less retained earnings. Leverage is not found to be significant determinant between inside-debt users and non-users. Fundamental finding of the study suggests that the use of inside-debt is significantly and positively related to bankruptcy probability. While inside-debt carries no risk elements per se, findings are robust to indicate that the use of inside-debt has significant power to signal for increasing bankruptcy risk and as such, reducing information asymmetry of small firms. Research limitations/implications – This study is limited to single country data. Bankruptcy data fall to the period of economical recession. It is suggested to repeat the study in a normal economical situation and to extend sample size over different countries. Practical implications – Findings contribute to the understanding of firms' financial risk, firm behaviour and capital structure development. In a lending industry, results shall supplement to prudent credit risk assessment techniques and design of bankruptcy models in general. Originality/value – To the author's best knowledge, inside-debt-bankruptcy relation is not studied so far in the existing academic literature.
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Dorfleitner, Gregor, and Johannes Grebler. "The social and environmental drivers of corporate credit ratings: international evidence." Business Research 13, no. 3 (November 2020): 1343–415. http://dx.doi.org/10.1007/s40685-020-00127-9.
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AbstractWe provide evidence of the exogenous impact of environmental and social performance components on credit ratings in North America, Europe, and Asia. In particular, the product innovation dimension is clearly identified as being the dominating driver of credit ratings within the environmental performance in every subsample region. In the social performance dimension, the extent of diversity is a main driver for firms in North America and Europe, but due to cultural reasons, not in Asia. Our results show that the risk mitigation view holds for all significant corporate social or environmental performance variables, but the magnitude of impact differs regionally.
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Abdel-Baki, Monal A. "Coalitions within the Egyptian Banking Sector: Catalysts of the Popular Revolution." Business and Politics 14, no. 1 (April 2012): 1–24. http://dx.doi.org/10.1515/1469-3569.1385.
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Among the triggers of the Egyptian Revolution are the sentiments of resentment against the convoluted alliances between private businesses and policymakers that deprived the masses of their fair share of the high GDP growth. But does this indictment extend to the Egyptian banking sector? Based on a field survey and a dataset of 3218 business loans made by 33 banks during 1999–2010, this research differentiates between growth catalysts and crony coalitions within the Egyptian banking sector. The results of the Generalized Estimating Equations reveal that preferential lending to politically-connected businesses has a negative impact on employment and income distribution. Loans to small and medium enterprises and public firms help enhance income distribution and job generation, albeit that the soft-budget constraint on loans to public firms deters growth. The paper presents some policy recommendations that could help exorcise patrimonialism and clientelism and enhance growth alliances within the sector that controls most of the credit flow in the Egyptian economy. The study is not only of grave importance to the Egyptian nation whose members are actively engaged in refurbishing its institutional framework, but is of equal significance to other emerging economies that are keen to install equity, political stability and socioeconomic prosperity.
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Björkegren, Daniel, and Darrell Grissen. "Behavior Revealed in Mobile Phone Usage Predicts Credit Repayment." World Bank Economic Review 34, no. 3 (November 12, 2019): 618–34. http://dx.doi.org/10.1093/wber/lhz006.
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Abstract Many households in developing countries lack formal financial histories, making it difficult for firms to extend credit, and for potential borrowers to receive it. However, many of these households have mobile phones, which generate rich data about behavior. This article shows that behavioral signatures in mobile phone data predict default, using call records matched to repayment outcomes for credit extended by a South American telecom. On a sample of individuals with (thin) financial histories, this article's method actually outperforms models using credit bureau information, both within-time and when tested on a different time period. But the method also attains similar performance on those without financial histories, who cannot be scored using traditional methods. Individuals in the highest quintile of risk by the measure used in this article are 2.8 times more likely to default than those in the lowest quintile. The method forms the basis for new forms of credit that reach the unbanked.
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Guizani, Moncef, and Gaafar Abdalkrim. "Does Shariah compliance affect corporate cash holdings and cash adjustment dynamics? Evidence from Malaysia." Pacific Accounting Review 33, no. 4 (July 12, 2021): 459–73. http://dx.doi.org/10.1108/par-07-2020-0100.
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Purpose The purpose of this paper is to investigate the effect of Shariah compliance status on corporate cash holding decision. Design/methodology/approach This study applies ordinary least square and generalized method of moments regression models for a sample of 178 Malaysian listed firms over the period 2008–2017. Findings The results show that Shariah compliance has positive impact on the level of cash reserves of firms. It is also found that Shariah-compliant (SC) firms quickly adjust their level of cash holdings toward a target level than non–Shariah-compliant (NSC) firms. These results can be explained by the restrictions imposed by Shariah rules on firms to sustain their compliance status. Further, the results reveal that SC firms are likely to hold more cash out of their cash flows. This is the expected result, as the firms operating within the ambit of Shariah rulings and regulations face external financing constraints. Practical implications This study has important implications for managers, policymakers and regulators. For managers, the study is an important reference to understand and design cash management policies by considering restrictions imposed by Shariah regulations. In particular, managers should pay more attention to periods of credit crunch and weak economic conditions in which SC firms may be exposed to greater bankruptcy risks. For policymakers and regulators, this study may be useful in assessing the effect of the restrictions imposed by Shariah law on firm’s cash holding decision. Therefore, in an effort to increase the supply of external financing available to SC firms, policymakers should encourage the issuing of Islamic financial products. Originality/value This paper focuses on SC firms where financial constraints are bound to be more stringent than for NSC firms. It explores the implications of relevant Islamic principles on corporate cash holdings.
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Bian, Yuetang (Peter), Yu Wang, and Lu Xu. "Systemic Risk Contagion in Reconstructed Financial Credit Network within Banking and Firm Sectors on DebtRank Based Model." Discrete Dynamics in Nature and Society 2020 (December 10, 2020): 1–14. http://dx.doi.org/10.1155/2020/8885657.
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This paper is dedicated to building a multilayer financial network within banking sectors and firm sectors (nonbanking) on the balance sheet of two types of agents and to assessing systemic risk contagion in the reconstructed network. Two propagation channels due to interbank credit and counterparty risk via banks’ loans to firms are comprehensively taken into account in systemic risk contagion assessment, which is based on the DebtRank model by analyzing the relative loss of each bank’s equity and the vulnerability of the network. The computational simulation on how systemic risk contagious process evolves has been conducted, where the possible influential factors of network structure, agent’s initial risk status, external shock ratio, liquidity flow rate, and different layers of the network are considered. The findings show that the reconstructed network is absolutely vulnerable under the assumed market circumstance without any bailouts and the risk contagion process shows nonlinear behavior. Specifically, when the average degree of the network and the external shock ratio increases, the risk contagion speed becomes relatively high and the resulting negative effects on the network are more intense. Besides, risks originating from the failed firms in bank-firm layer should place more negative effect on the financial system than that only happening in interbank market. Different liquidity rates in financial market could lead to obvious discrepancy of the risk contagion speed and the extent of asset loss. Additionally, the two layers of the network have diverse influences on risk contagious process resulting in totally different banks’ status in each layer.
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ORSER, BARBARA J., ALLAN L. RIDING, and CATHERINE S. SWIFT. "BANKING EXPERIENCES OF CANADIAN MICRO-BUSINESSES." Journal of Enterprising Culture 01, no. 03n04 (January 1994): 321–45. http://dx.doi.org/10.1142/s0218495894000033.
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Defined as those firms with three or fewer full time employees and annual sales of less than $200,000, many micro-enterprises may find it more difficult than larger firms to obtain the debt capital necessary for both expansion and on-going operations. This is because micro-enterprises are often perceived as risky and because banks are not in the venture capital business. Moreover, banking institutions benefit more from the economies of scale inherent in making larger loans. It follows that the terms onwhich lending is extended to small enterprises may be more onerous than the termsextended to larger firms. To the extent that micro-enterprise is dominated by women-owned businesses, the potential scarcity of debt capital could also be experienced as a gender issue. This argumentation motivates the empirical analyses reported in this paper. These arguments lead to two testable hypotheses that this research probes empirically. The first hypothesis is that access to and terms of credit for micro-enterprises are more severe than they are for larger firms. The second hypothesis is that within the micro-enterprise sector access to, and terms of, credit for women owners are, ceteris paribus, more demanding. A taxonomy of the very small business sector is advanced. It is found that size indeed counts against microbusinesses in their banking relationships, but that gender is not a factor. The paper closes by suggesting the development of new technologies to improve the lending efficiencies of micro-loan transactions and the establishment of new lending vehicles. Such changes might be profitable for banks, useful for very small firms, and helpful to community economic development agencies. The high incidence of dissatisfied small business customers suggests the need for a less concentrated small business banking market. To this end, the recommendations of other researchers are endorsed, recommendations for legislative changes that would permit the entry into the lending market of small cooperative banking institutions (such as credit unions and caisses populaires in Canada).
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Vanatta, Sean H. "Citibank, Credit Cards, and the Local Politics of National Consumer Finance, 1968–1991." Business History Review 90, no. 1 (October 26, 2015): 57–80. http://dx.doi.org/10.1017/s0007680515001038.
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Within the postwar financial regulatory system, state-level regulations—particularly interest rate limits—constrained the profitability of bank credit card plans. But differences in law among the states allowed motivated institutions to circumvent local laws using these mobile financial instruments. Eventually, banks themselves became mobile, placing irresistible pressure on states to eliminate local restrictions on consumer finance. The critical moment came when Citibank relocated its credit card business to Sioux Falls, South Dakota, in 1981. By examining this move in its longer context, this essay provides a new perspective on the rise of consumer finance in the late twentieth century, one that emphasizes strategic manipulation of local law by firms pursuing a national customer base.
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Pastore, Patrizia, and Silvia Tommaso. "Italian industrial districts: influence of the governance on performance and financial distress of firms. An explorative study." Corporate Ownership and Control 11, no. 1 (2013): 962–91. http://dx.doi.org/10.22495/cocv11i1c11p7.
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The aim of the paper is to offer evidence about the influence of the governance quality of industrial districts (IDs) on performance and financial distress risks of firms belonging to IDs. By adopting a qualitative approach, the analysis was applied to 20 case studies of Italian IDs belonging to the Fashion and Mechanical industries (included within the National Observatory of Italian Districts). The investigation suggests that in the districts characterized by good governance and cooperative strategies the firms achieve better performances and improve their competitiveness. These conditions may facilitate the firms belonging to such districts in terms of lower borrowing costs, greater availability of credit, lower risk of financial distress and, therefore, fewer bankruptcies. Therefore, the study suggests that the district governance should be included as a further qualitative strategic variable in district firms’ financial distress prediction models and in the rating attribution processes by the banking system (or by specialized rating agencies).
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Kumar, Praveen, and Mohammad Firoz. "Accounting for certified emission reductions (CERs) in India." Meditari Accountancy Research 28, no. 2 (October 18, 2019): 365–89. http://dx.doi.org/10.1108/medar-01-2019-0428.
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Purpose The purpose of this paper is to analyse the certified emission reduction (CERs) disclosure and reporting practices followed by Indian firms. Design/methodology/approach The study is based on all 131 Indian firms who received the CERs under the CDM of UNFCCC. The content analysis is being used to examine the recognition, measurement, presentation and disclosure of CERs within the financial statements. Findings The study found that there is generally no uniformity of accounting for CERs. The firms adopted a diversity of accounting practices. More specifically, majority of companies (40.46 per cent) recognised CERs as the other income; a very high non-disclosure rate (91.60 per cent) for valuation of CERs inventories was found as only four companies (3.05 per cent) provided accounting treatment for CERs inventories at lower of cost or net realisable value followed by three companies (2.29 per cent) accounted for these inventories at Net realisable value at the end of the reporting period; similarly, a very high non-disclosure rate (92.36 per cent) for how companies account for expenses incurred in earning these credits was found. Research limitations/implications The study will be useful for a wide array of audiences ranging from accounting standard setter to the auditors. The present analysis is based on secondary data, as we examined only annual reports of the sample companies to know how they recognise their earned CERs within the financial statements. So, we did not cover the opinions of various key persons of companies like an accountant, auditors etc. which could be a limitation of this study in validating CERs disclosure practices followed by the Indian firms. Originality/value To the best of the author's knowledge, the present study is a first of its kind to analyse the carbon credit disclosure practices in the context of a developing country.
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Lee, Lian Fen. "Incentives to Inflate Reported Cash from Operations Using Classification and Timing." Accounting Review 87, no. 1 (August 1, 2011): 1–33. http://dx.doi.org/10.2308/accr-10156.
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ABSTRACT This study examines when firms inflate reported cash from operations in the statement of cash flows (CFO) and the mechanisms through which firms manage CFO. CFO management is distinct from earnings management. Unlike the manipulation of accruals, firms cannot manage CFO with biased estimates, but must resort to classification and timing. I identify four firm characteristics associated with incentives to inflate reported CFO: (1) financial distress, (2) a long-term credit rating near the investment/non-investment grade cutoff, (3) the existence of analyst cash flow forecasts, and (4) higher associations between stock returns and CFO. Results indicate that, even after controlling for the level of earnings, firms upward manage reported CFO when the incentives to do so are particularly high. Specifically, firms manage CFO by shifting items between th estatement of cash flows categories both within and outside the boundaries of generally accepted accounting principles (GAAP), and by timing certain transactions such as delaying payments to suppliers or accelerating collections from customers. Data Availability: Data are available from public sources identified in the study.
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Brockbank, Bryan G., and Karen M. Hennes. "Strategic Timing of 8-K Filings by Privately Owned Firms." Accounting Horizons 32, no. 2 (February 1, 2018): 163–82. http://dx.doi.org/10.2308/acch-52061.
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SYNOPSIS Managers have discretion over the day of the week and the time of day that 8-Ks are filed with the Securities and Exchange Commission (SEC), so they can elect to file an 8-K containing negative news at times with lower market attention. Several recent studies find various stock price-related incentives for strategic filing behavior for firms with publicly traded equity. In this study, we use 8-K filings from firms with public filings (mostly from public debt) but non-public equity ownership from 2004–2014 to explore the strategic timing behavior of firms without stock price motivations. Consistent with strategic disclosure, we find evidence that bad news 8-Ks are more likely to be filed when market attention is lower (just after markets close, on Fridays, and after markets close on Fridays) even absent stock price concerns. Cross-sectionally, we find more strategic timing for firms with external scrutiny from analysts and credit rating agencies, despite the sophistication of those market participants. Within firms, we also find more strategic timing around public debt offerings, a time of increased market scrutiny for private firms. Lastly, we use EDGAR download data to provide supporting evidence that strategic timing of bad news disclosures does reduce short-window stakeholder attention to the bad news. Overall, we provide evidence that privately owned firms behave strategically within the 8-K reporting rules despite the lack of stock price incentives.
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Wang, Jia, Paul Robson, and Mark Freel. "The financing of small firms in Beijing, China: exploring the extent of credit constraints." Journal of Small Business and Enterprise Development 22, no. 3 (August 17, 2015): 397–416. http://dx.doi.org/10.1108/jsbed-01-2014-0008.
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Purpose – The purpose of this paper is to utilise a sample of 384 small and medium-sized enterprises (SMEs) who applied for external finance in the Beijing area of China to investigate the characteristics of firms against: the amount of external finance sought, the amount received, and the proportion of external finance which was received from the sought finance. Design/methodology/approach – The authors use a survey of SMEs in Beijing, China, undertaken between July and December 2007 where a response rate of 37.67 per cent was obtained. The survey was translated from English to Chinese, and then back translated from Chinese to English by academics with input from businesses. The sample of 384 firms is robust. Findings – Overall, there is little evidence in the sample of Chinese SMEs that innovative firms face discrimination from providers of credit. However, where innovation is measured by inputs (specifically R & D), providers of credit appear less comfortable. Three other factors were more important and were statistically significant at the 5 per cent level. For example, exporters were less likely to receive a greater proportion of their sought finance; and manufacturing firms were more likely than service sector firms, and limited liability companies were more likely than extended sole proprietorship firms to obtain a greater proportion of the external finance which they sought. Research limitations/implications – The sample for the research is from Beijing. Researchers may extent and role out the research to other parts of China. Practical implications – Practically, the authors explore variations in firm-level characteristics by: the amount of external finance sought, the amount of external finance received, and the ratio of “sought” to “received” external finance. In this way, the research questions are concerned with understanding which “types” of firms seek most bank finance, and which are most successful. This information is of benefit to SMEs, policy makers and those who work in the finance industry. Social implications – Access to finance is a cause of stress and anxiety to many SMEs. A greater understanding of the accessing of finance in Beijing China will allow entrepreneurs to be better placed to reflect upon their businesses and their suitability to pursue finance. This can help the economic and social well-being of entrepreneurs and their employees. Originality/value – There are comparatively few large scale surveys which have been undertaken of access to finance by SMEs in China, and within this field there is very little research which has been undertaken to look at innovators and non-innovators. The results allow us to have a better understanding of how much finance SMEs in Beijing are seeking, obtaining, and the proportion of finance received from that sought, and the extent to which innovation and other business and owner-manager characteristics are influential.
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Jung, Allen F. "Interest Rate Variations For Automobile Loans In Large Cities." Journal of Applied Business Research (JABR) 2, no. 4 (November 1, 2011): 113. http://dx.doi.org/10.19030/jabr.v2i4.6564.
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his study presents empirical data on finance charges for automobile loans in 10 large cities. The data were gathered from automobile dealers, commercial banks, credit unions, and savings and loan associations by personally shopping for a new car loan. In addition to institution and city comparisons some information is provided on consumer credit pricing policies. Consumer installment credit receives a great deal of attention from the Federal Reserve System and it plays an important role in the Consumer Price Index. The literature contains considerable material about the volume of consumer credit and the direction that interest rates appear to be heading. However, few empirical data have been published about finance rates for consumer loans.The purpose of this study was to gather price data on consumer installment credit. Specifically it sought to make an estimation of interest rate variations for automobile loans in large cities. Secondary purposes were to ascertain if some classes of lenders offered lower cost loans than others, and to see if the variations found were common to a number of cities.The study found that there were rate variations for automobile loans within every type of lender in every city. Credit unions quoted significantly lower rates than the other firms. There was not any pattern of rates common to the various cities. Some interesting data about financial institution pricing policies were found.
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Devalle, Alain, Simona Fiandrino, and Valter Cantino. "The Linkage between ESG Performance and Credit Ratings: A Firm-Level Perspective Analysis." International Journal of Business and Management 12, no. 9 (August 15, 2017): 53. http://dx.doi.org/10.5539/ijbm.v12n9p53.
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This paper investigates the effect of environmental, social, and governance (ESG) performance on credit ratings. We argue that ESG factors should be considered in the credit analysis and the creditworthiness evaluation of borrowers because they affect borrowers’ cash flows and the likelihood of default on their debt obligations. Consequently, we develop our research by firstly reviewing the literature regarding ESG commitments within financial decision-making processes and then addressing the relation between ESG performance and the cost of debt financing. We reveal no unanimous results and no clear-cut boundaries on this matter yet. Secondly, to disentangle this relationship, which is not well defined by scholars, we empirically investigate the nexus between ESG performance and credit rating issues on a sample of 56 Italian and Spanish public firms for which ESG performance in 2015 was achieved. Our final sample includes 15 variables for 56 observations: 840 items are under analysis. Our findings suggest that ESG performance, especially concerning social and governance metrics, meaningfully affects credit ratings. We do not sort out significant results referring to environmental scores, so further research is needed to investigate this ever-growing matter and strengthen this considerable nexus.
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Maalim, Abdi Mohamed, and Dr Joyce Gikandi. "Effects of Interest Rate on Credit Access of Small and Medium Enterprises in Garissa County." International Journal of Finance and Accounting 1, no. 1 (May 28, 2016): 1. http://dx.doi.org/10.47604/ijfa.5.
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Purpose: The main purpose of the study was to assess the effects of interest rate on credit access of small and medium enterprises’ in Garissa County.Methodology: A descriptive survey was employed in this study. The target population of this study was 10 SACCOs and 150 SMEs registered within Garissa County. Primary data was collected from respondents via structured questionnaires. The descriptive statistics was analyzed using the Statistical Package for Social Sciences (SPSS) Version 20.0 and presented in the report in the form of tables, bar charts and graphs. Correlation and regression analysis was done to establish the relationship between the variables.Results: The results showed that interest rate policy was significantly related to credit access since its p-value (0.000) was less than the significance level of 0.05. The findings implied that a change in interest rate policy by one unit could result to positive variation of 0.70 units in credit access.Unique contribution to theory, practice and policy: Based on the study findings, the study concluded that SACCO’s interest rate policy affect SMEs accessibility to credit. The study recommended that SACCOs should consider revising their policy on interest rate charged. The study also recommended that County government should intervene to ensure that SMEs have access to financial services to enable them contribute to development and employment creation. The study validates the Credit access theory and its applicability in financing SME’s firms.
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Magwedere, Margaret Rutendo, and Godfrey Marozva. "The Nexus Between Bank Credit Risk and Liquidity: Does the Covid-19 Pandemic Matter? A Case of the Oligopolistic Banking Sector." Folia Oeconomica Stetinensia 22, no. 1 (June 1, 2022): 152–71. http://dx.doi.org/10.2478/foli-2022-0008.
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Abstract Background: There is a raging debate on how the COVID-19 pandemic disrupted the financial market environments, affected the banks’ strength as the credit channel, and the nexus between market liquidity and credit risk. During the COVID-19 crisis in the banking sector, credit risk and liquidity risk cannot be ignored as they have a considerable bearing on the performance and survival of banks. Purpose: Within the context of COVID-19, bank-specific and external factors were examined to determine the relationship between liquidity and the credit risk of South African domiciled banks. Research methodology: Quarterly panel data from 13 South African domiciled banks from 2018 to 2021 were examined using panel data methodologies: fixed effects and the system GMM. Results: In an analysis of the period between 2019Q1 to 2021Q1 the results suggest a positive relationship between liquidity and credit risk, the COVID-19 pandemic was found to have an implication on the nexus as the COVID-19 dummy variable was significant. Also, the results show that liquidity deteriorated with an increase in COVID-19 cases during the pandemic period. During the Pre-COVID-19 liquidity improved with a decrease in credit risk. Nevertheless, during COVID-19 liquidity was not influenced by credit risk. The results are contrary to the pre-COVID-19 period as the government interventions to support households and non-financial firms could have changed the dynamics of liquidity and loan losses. Novelty: The pandemic has ushered in a novel set of responses whose lasting impacts are not yet certain. The originality of the article lies in the nature of the investigation, where the nexus between liquidity and credit risk under the COVID-19 shocks/pandemic set-up. This is a unique study as the study revealed that policymakers and researchers alike should pay particular attention to the vulnerabilities to shocks from within and outside of the financial system as COVID-19 was found to significantly affect liquidity and credit risk. Since the pandemic is still active, further research is necessary to examine the cointegrating and causal relationship in the long run.
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HASAN, SYED. "GREAT ENGINES TURN ON SMALL PIVOTS: A PRODUCTIVITY ANALYSIS OF SMALL-SCALE MANUFACTURING IN PUNJAB, PAKISTAN." Journal of Developmental Entrepreneurship 23, no. 03 (September 2018): 1850014. http://dx.doi.org/10.1142/s1084946718500140.
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This paper uses estimates of total factor productivity of small enterprises to identify the reasons underlying idiosyncratic variation. Empirical analysis is used to segregate internal and external determinants of productivity using a novel dataset. For reliable estimation, the baseline estimates are corrected for simultaneity bias using instrumental variables and selectivity bias through Heckman correction. Results identify significance of factors operating within firms; educational qualification and professional training of entrepreneurs for higher levels of productivity and the external drivers of productivity differences; sources of energy, selective access to credit and agglomeration economies. The research has important implications for entrepreneurs and policy intervention.
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Bates, Thomas W., Ching-Hung Chang, and Jianxin Daniel Chi. "Why Has the Value of Cash Increased Over Time?" Journal of Financial and Quantitative Analysis 53, no. 2 (March 19, 2018): 749–87. http://dx.doi.org/10.1017/s002210901700117x.
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The value of corporate cash holdings has increased significantly in recent decades. On average, $1 of cash is valued at $0.61 in the 1980s, $1.04 in the 1990s, and $1.12 in the 2000s. This increase is predominantly driven by the investment opportunity set and cash-flow volatility, as well as secular trends in product market competition, credit market risk, and within-firm diversification. We document a secular decrease in the speed of adjustment (SOA) in cash holdings, particularly for financially constrained firms with cash deficits, suggesting that capital market frictions can account for the trend in the value of cash holdings.
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Butcher, Bob, and Matt Bursnall. "How Dynamic is the Private Sector? Job Creation and Insights from Workplace-Level Data." National Institute Economic Review 225 (August 2013): F4—F14. http://dx.doi.org/10.1177/002795011322500101.
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Private sector employment rose by over a million in the past three years. Commentators often interpret this number – which is a net figure – as ‘job creation’. But how many jobs really are created each year, and conversely how many are lost? How has this changed with the downturn and what does it imply for the recovery?This article uses findings from business and workplace-level data to map i) job creation and destruction over recent years, ii) its components in accounting terms, iii) the relative contribution by firms of different size and age, and iv) the reallocation of resource between firms and to workplaces within firms. There are four main points: a)Job churn far outweighs net change. Before the downturn, an average of 4.0 million jobs were created each year and a slightly smaller number lost (3.7m), resulting in a net increase of about 300,000 per year.b)Most job creation (over 70 per cent) is within existing firms; but within that, over a third comes from the creation of new workplaces set up within those firms.c)The net reduction in jobs in 2008–11 was not, in contrast to earlier recessions, due to higher rates of job loss; instead it reflects a sustained period of lower job creation in new workplaces, especially in SMEs (figure 1). This is consistent with ongoing credit constraints hitting SMEs particularly hard, as discussed in Armstrong et al. (2013), or could simply be in line with lack of confidence to invest at this time.d)Looking at the years 2008–11 individually, the downturn begins with reduced levels of entry, followed by a peak of job destruction in 2009 in line with reduced aggregate demand, and then a continuation of low levels of entry of new SMEs, and lower levels of destruction too (figure 2).
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Muriithi, Robert Githua. "Distressed Debt Management & Lessons Learnt Through Case Management: Banking Industry in Kenya." European Journal of Business and Management Research 7, no. 1 (January 27, 2022): 134–46. http://dx.doi.org/10.24018/ejbmr.2022.7.1.1252.
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Deteriorating and troubled assets must be subjected to enhanced risk oversight and monitoring to ensure that appropriate action is taken in a timely manner, allowing a high level of obligor turnaround success and reduced risk of loss for the Lender/Financial Institution/Bank. It’s important for a Bank to harmonize Distressed Debt Management approach, called the Watch List (WL) Framework, and details the requirements to ensure timely adherence to regulatory requirements. The impairment requirements of International Financial Reporting Standards (IFRS 9) Financial Instruments, effective as of 1 January 2018, are based on an Excepted Credit Loss (ECL) model and replace the IAS 39 Financial Instruments; Recognition and Measurement incurred loss model. IFRS 9, recognizes impairment allowances on either a 12-month or lifetime ECL basis, dependent on whether there was a significant increase in credit risk (SICR) since initial recognition (being either asset origination date or ‘base date’, whichever is most recent). The measurement of ECL reflects both a probability-weighted outcome and the time value of money, using the best available forward-looking information. There should be relevant policies that would require to be read in conjunction with relevant manuals and Accounting Standards. It’s equally important to detail the monitoring objectives for consistent management of wholesale impairment and the provisions necessary to meet regulatory requirements. It is imperative that when dealing with Distressed Debt/Assets, that attention is given to the requirements detailed under Conduct Risk and that client confidentiality is maintained. Mostly, business failure is a result of financial and/or economic distress. A firm in financial distress experiences a shortfall in cash flow needed to meet its debt obligations. Its business model does not necessarily have fundamental problems and its products are often attractive. In contrast, firms in economic distress have unsustainable business models and will not be viable without asset restructuring. In practice, many distressed firms suffer from a combination of the two. Many factors contribute to the high number of business failures. Some common failures include and are not limited to the below. Poor operating performance and high financial leverage. A firm's poor operating performance may result from many factors, such as poorly executed acquisitions, competition, overcapacity, new channels of competition within an industry (e.g., retail), commodity price shocks (e.g., energy), and cyclical industries (e.g., airlines). High financial leverage exacerbates the effect of poor operating performance on the likelihood of corporate failure. Lack of technological innovation. Technological innovation creates negative shocks to businesses that do not innovate. The arrival of a new technology often threatens the survival of firms that possess related, yet less competitive, technologies. There needs for a business to strategically position itself in the market through digital transformation in its processes, product development and operations Liquidity and funding shock. In periods of weak credit supply, some businesses are unable to roll over maturing debt because of illiquidity in credit markets. Relatively high new business formation rates in certain periods. New business formation is usually based on optimism about the future. But new businesses fail with far greater frequency than do more seasoned entities, and the failure rate can be expected to increase in the years immediately following a surge in new business activity. Deregulation of key industries. Deregulation removes the protective cover of a regulated industry (e.g., airlines, financial services, HealthCare, energy) and fosters larger numbers of entering and exiting firms. Competition is far greater in a deregulated environment. Unexpected liabilities. Businesses may fail because off-balance sheet contingent liabilities suddenly become material on-balance sheet liabilities.
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Glancy, David. "Bank Relationships and the Geography of PPP Lending." Finance and Economics Discussion Series, no. 2023-014 (February 2023): 1–45. http://dx.doi.org/10.17016/feds.2023.014.
Full textAbstract:
I study how bank relationships affected the timing and geographic distribution of Paycheck Protection Program (PPP) lending. Half of banks' PPP loans went to borrowers within 2 miles of a branch, mostly driven by relationship lending. Firms near less active lenders shifted to fintechs and other distant lenders, resulting in delays receiving credit but only slightly lower loan volumes. I estimate a structural model to fit the observed relationship between branch distance, bank PPP activity, and origination timing. I find that banks served relationship borrowers 5 to 9 days before other borrowers, an effect in line with reduced-form estimates using a sample of PPP borrowers with previous SBA lending relationships.