Search

This study investigates how information uncertainty influences managers' decisions and compensation. It reveals varying financial choices under uncertainty levels. Initially, information uncertainty results in debtholders undervaluing debt in comparison to situations without such uncertainty. Consequently, they consistently estimate a default threshold that is lower than the threshold managers choose to maximize their value. Low uncertainty prompts overinvestment, heightening agency issues. Increased uncertainty leads debt holders to reduce the capital they are willing to lend to companies for investment. To invest early, funds must be injected or costs incurred. Information uncertainty can ease agency conflicts, shifting decisions from overinvestment to underinvestment. Managerial compensation matters: higher fixed salaries curb overinvestment, while increased reservation income exacerbates it. [ABSTRACT FROM AUTHOR]

Purpose: The study investigates the impact of the interaction effect of product market competition and rollover risk on the default risk of the firms. Design/methodology/approach: The study used the sample of unbalanced panel data from Indian corporates without any survivability bias over the period from 2009 to 2020 consisting of 30,396 firm-year observations of 6,718 firms spread across 143 industry groups. The panel data regression tests the interaction effect in the context of the asset substitution problem, predation threat theory, competitive shock, and competitive risk. Findings: The empirical results highlighted the dominance of the predatory effect of competition over the disciplinary advantage of short-term debts. The competitive shock to the industry results in a higher credit spread for refinancing short-term debt and significantly increases rollover risk for firms. Smaller firms have higher default risk from rollover losses than larger firms in the face of competition due to asset-substitution problems and strong rivalry. For firms with weaker fundamentals, the interaction effect of rollover risk and competition exacerbates the flight-to-quality problem, resulting in a systemic event. Practical implications: The investors can benefit by factoring ex-ante the interdependence of competition, debt market illiquidity, and default premia while calculating the credit risk. The shareholders of competitive firms can reduce the moral hazard of refinancing the rollover losses and defaulting at a higher fundamental default threshold, by reducing sub-optimal utilization of funds by managers and agency costs. Originality/value: As per the best of author knowledge, the present study is the first to study the moderating effect of product market competition in exacerbating default risk through the rollover channel. [ABSTRACT FROM AUTHOR]

This article critically assesses the European securitization industry's claim of the existence of an uneven regulatory playing field for securitization structures vis-à-vis financial instruments deemed 'neighbouring' to securitization by the industry, like whole loan pools, corporate bonds, and covered bonds. According to market participants, the adverse regulatory treatment of securitization is negatively affecting the European securitization market, by pushing issuers and investors towards other financial instruments that are treated preferentially. Ultimately, this prevents the securitization market from escaping the subdued state in which it has been ever since the global financial crisis. To address this problem, market participants are advocating a fundamental recalibration of the existing regulatory framework. By examining the regulatory framework that applies to securitization structures, against the backdrop of regulation for whole loan pools, corporate bonds, and covered bonds, this article confirms that securitization structures are indeed treated adversely, as claimed by the industry. Nevertheless, a valid comparison can only be drawn between 'true sale' residential mortgage-backed securities (RMBS) structures and mortgage covered bonds, given the structural-economic similarities between the two financial instruments. In that regard, the adverse regulatory treatment of RMBS is found to be negatively impacting the European securitization market, by fuelling a 'crowding out' of RMBS by covered bonds. [ABSTRACT FROM AUTHOR]

Purpose – The purpose of this paper is to examine whether and how chair-chief executive officer (CEO) generational difference is related to debt financing. Design/methodology/approach – This paper adopts the pooled ordinary least squares and system generalized method of moments estimation procedures to analyze listed firms in Malaysia from 2013 to 2017. Findings – The results reveal that chair-CEO generational difference is negatively associated with leverage. The evidence suggests that substantial age gaps between the chair and CEO precipitate cognitive conflicts, which lead to better monitoring and control. This results in better governance and less information asymmetry, causing firms to depend less on debt as a board monitoring mechanism. The findings provide support to the theory posited in this paper on the substitutability of chair-CEO generational difference and debt financing. Originality/value – This is the first attempt to investigate the substitutability of chair-CEO generational difference and debt financing.

Background: Consumer goods firms play a significant role in any economy, like other businesses, require a mix of financing methods to amplify their performance. Aim: The study examined enhancement of corporate performance of Nigerian Consumer Goods Firms through debt financing for a period of eleven (11) years from 2011 to 2022. Methods: The data obtained were estimated using descriptive statistics and panel regression model of fixed effect. Results: The study found a positive and significant impacts of long-term debt (β=0.469729, P=0.0311) and firms’ size (β=0.154547, P=0.0251) on the performance of Nigerian consumer goods firms’ but negative and significant impacts of loan quality (β=−0.037431, P=0.0241) and short-term debt (−0.023417, P=0.0124) on their performance. Recommendation: The study recommends financing through Long-term debt for businesses in Nigeria.

This study investigates how credit information sharing conditions debt financing to boost the profitability of 20 listed enterprises on the Ghana Stock Exchange between 2003 and 2013. We employ robust least squares and simultaneous bootstrapping models in a panel setting. Our findings show that the impact of debt financing on profitability increases when it is subject to information sharing and takes the shape of short, long, and total debts. In the worst-case situation, contingent debt financing reduces the negative impact of debt financing on profitability. Therefore, authorities must adopt laws and legislation that deepen, widen, and strengthen credit information sharing to offset the negative impact of information asymmetry on loan financing and business profitability. [ABSTRACT FROM AUTHOR]

We test whether organizational risk management matters to bondholders of U.S. bank holding companies (BHCs), and find that debt financing costs increase when the BHC has lower-quality risk management. Consistent with bailouts giving rise to moral hazard among bank creditors, we find that bondholders put less emphasis on risk management in large institutions for which bailouts are expected ex-ante. BHCs that maintained strong risk management before the financial crisis had lower debt costs during and after the crisis, compared to other banks. Overall, quality risk management can curtail risk exposures at BHCs and result in lower debt costs. [ABSTRACT FROM AUTHOR]

We formulate a trade-off model that integrates mean reversion in earnings, encompassing dynamic financing decisions that entail both the initial leverage selection and the subsequent decision related to the financing of a growth option. We identify that higher earnings mean reversion speed increases both initial and subsequent leverage ratios for growth option financing and accelerates investment, revealing the volatility-mitigating role of mean reversion speed. Furthermore, our analysis reveals a U-shaped relation between profitability and leverage, influenced by the presence of growth options. In contrast, higher long-term profitability has a positive relationship with leverage, highlighting the differential impact of long-term versus contemporaneous profitability on leverage. The model also yields further implications for corporate policies regarding debt priority structure, investment timing, default thresholds, and credit spreads, contingent on earnings mean reversion dynamics. Our empirical analysis reveals the prevalence of mean reversion in earnings among US firms and provides a comparison of capital structure decisions of firms with mean reverting earnings against firms having non-stationary earnings dynamics. [ABSTRACT FROM AUTHOR]

This study investigates how family values can create finance and growth challenges for family-owned businesses in emerging economies. Specifically, it explores the interplay between family values, debt financing, and firm growth, while also considering the moderating role of self-enhancement and self-transcendence in this relationship. The paper uses Schwartz's theory of human values to illustrate how incorporating indigenous ontologies based on Ubuntu can lead to sustainable growth in family businesses in Ghana and the African continent. A sample of 295 Small and Medium-sized family businesses in Accra, Ghana, was selected using purposive sampling, and multiple regression modeling was used to test the study's hypotheses. The study employed Cronbach's alpha and factor analysis to assess the reliability, validity, and variations between observed and correlated variables. The results suggest that family businesses with conservation, openness-to-change, and self-enhancement values may not be inclined to utilize debt financing, and conservation values have a negative effect on family business growth. The study also found that self-enhancement, conservation, and self-transcendence values positively moderated the relationship between debt financing and family business growth, with self-transcendence values playing a more significant role. These findings contribute to a better understanding of the complex relationship among family values, debt finance, and business growth in emerging economies, and lay a foundation for future research. [ABSTRACT FROM AUTHOR]

Multifactor productivity (MFP) growth is an imperative economic engine. MFP dynamism across five advanced and seven developing countries from 1996 to 2015 is analyzed, elucidating its association with financing and intangible assets. Debt is manifested by its inverted U-shaped nonlinear relationship with MFP advancement, while corporate cash holdings are negatively (positively) associated with MFP development in five (three) countries. The heterogeneous relationships between intangible assets and MFP growth are identified across industries, countries, and time; intangible assets are requisite MFP growth enhancers for manufacturing in developing countries, for service businesses in advanced countries, and for the period after the global financial crisis. The greater the productivity effect of intangible assets is, the higher a country's per-capita income and/or governance quality becomes. Additionally, the results evince the catching-up of MFP to the technological frontier. Moreover, older firms exhibit slower MFP growth than their peers, whilst the positive effects of firm size on MFP growth are larger in high-tech and knowledge-intensive industries. [ABSTRACT FROM AUTHOR]

Using the data of listed companies and the DID method, this paper reveals three ways in which green credit policy (GCP) affects corporate debt financing. By controlling credit input, GCP can effectively restrain corporate debt financing in the “two-high” industries. However, the policy also leads to the environmental performance effect and bank credit discrimination effect, as it strengthens the impact of environmental performance on corporate debt financing and weakens banks’ credit discrimination. Under the combined effect of the three ways, GCP has restrained the borrowing growth of state-owned enterprises, but has no significant impact on private firms.

The Audit Office of the Republic of Cyprus conducted the first-ever audit of the country's public debt, seeking answers to two key questions. Is government debt sustainable, and is debt financing efficient and effective in securing the lowest cost with acceptable risks? The audit's findings were discussed by the parliament and can have significant ramifications for public finance. However, public debt management is quite complex, and the International Organization of Supreme Audit Institutions suggests that sufficient technical knowledge is essential in undertaking an audit, including an understanding of the uncertain macroeconomy, financing conditions, and government fiscal stance. We use a risk management model based on scenario trees in conducting the audit. The model determines optimal debt financing strategies to benchmark the performance of the country's Public Debt Management Office and answer the audit questions. We also incorporate an integrated assessment model to examine the risks from climate change. The auditor general presented the findings to the Parliamentary Audit Committee in the presence of the Minister of Finance, and his recommendations are expected to have a significant impact on the debt operations of the country. [ABSTRACT FROM AUTHOR]

We investigate two cross‐border profit shifting channels used by foreign multinational enterprises (MNEs) in Australia and assess the effectiveness of the related measures adopted by the Australian Parliament to combat base erosion and profit shifting (BEPS). Overall, we find that Australian subsidiaries of foreign MNEs used tax‐induced intra‐group transfer pricing and, to a lesser extent, interest expense loading to shift profit out of Australia throughout the period from 2007 to 2020. However, we find no evidence indicating that profit shifting out of Australia via the two channels has reduced after the implementation of related BEPS countermeasures in Australia from 2013. [ABSTRACT FROM AUTHOR]

The study investigates public sector enterprises' corporate social responsibility expenditure (spent & unspent), firm age and debt financing using signalling theory. The study employed feasible generalized least square (FGLS) and linear regression with panel-correlated standard errors (PCSE) to analyze data from 107 public sector firms with 1060 firm-year observations from 2011 to 2020. The first findings show that corporate social responsibility expenditure (spent) causes access to debt financing. The second findings show firm age causes access to debt financing (natural logarithm of total debt and total leverage ratio). The third findings show that unspent corporate social responsibility expenditure causes negative access to debt finance. The stakeholder frown on firms that do not utilize their allotted corporate social responsibility funds for the year. Lastly, firm age and not unspent corporate social responsibility expenditure positively moderate the association between corporate social responsibility expenditure and debt financing. The study is limited to firms that are central public sector undertakings and have a majority stake by the central government. [ABSTRACT FROM AUTHOR]

The State Taxation Administration (STA) of China established the tax credit rating system in 2015. Together with the banking regulatory authorities, STA entitles the higher‐level firms to favourable bank lending. We find that higher‐level firms are positively associated with capital investment, R&D expenditures and employment. These effects are more pronounced in private firms, small firms, and financially constrained firms. We identify that firms rated higher‐level receive more debt financing at lower cost, and hoard less cash for the precautionary reasons. Our findings highlight the importance of the government rating, especially a developed credit rating market in which is absence in emerging economies. [ABSTRACT FROM AUTHOR]

This study examines how variation in government borrowing affects corporate acquisition activity around the world. Using a large sample of firms and deals from 50 countries between 1991 and 2017, the paper finds that government debt issuance is strongly negatively associated with acquisition activity at the firm and aggregate levels. An instrumental variable approach corroborates these findings, thus supporting their causal interpretation. In response to increases in government borrowing, firms appear to make more value-enhancing deals. These effects are stronger for cash-financed deals and for financially stronger firms. Collectively, these findings suggest that rising government debt leads to 'real crowding out' by affecting firms' ability to make large investments. [ABSTRACT FROM AUTHOR]

AbstractGlobally, SMEs contribute immensely to economic growth and development in both developed and developing countries. This necessitate the need for funding for SMEs for them to contribute meaningfully and sustainably to economic growth and development. Nevertheless, SMEs funding remain a challenge in most countries especially developing ones. Therefore, this study aimed to establish the effect of debt financing (short-term debt, long-term debt, and trade credit) on the financial performance of SMEs in Zimbabwe. Financing SMEs has been a challenge for many SMEs worldwide. Notwithstanding that SMEs contribute immensely to the growth of an economy, SMEs remain underfunded especially in developing economies. Their contributions include poverty reduction, increased job opportunities, competitiveness, and productivity in the industrial sector. This study adopted a positivism philosophy and a cross sectional survey design. Quantitative data were gathered from 210 SMEs using a structured questionnaire with Likert-type responses. The findings show that debt financing (short-term debt, long-term debt, and trade credit) positively influences the financial performance in emerging markets. This study contributes to studies that prove a significant relationship between debt financing and financial performance in sectors other than SMEs. Thus, SMEs are advised to use debt financing to improve their financial performance.

In this study, we examine how debt financing in general and bank borrowings in particular affect the earnings quality (EQ) at Indian firms. We conducted an empirical analysis, taking a sample of 626 Indian non-financial firms from 2003 to 2021. Our sample comes from the food and agro-based industry, which is divided into four relatively homogenous groups. On each of the groups, we apply an industry-wise cross-sectional version of the modified Jones model (Dechow et al., 1995) for estimating discretionary accruals (DACC), a measure of EQ. Testing the hypotheses using industry fixed effects for four sub-sectors, we found that bank financing is negatively associated with DACC (positively associated with EQ), whereas non-bank loans affect positively. We interpret this as a sign of discretion applied by opportunistic managers of borrowing firms to showcase a good financial position for reducing the cost of covenant violation. Further, the age, size and performance of the firms are positively related to EQ, while growth opportunity has a negative impact, as expected. The study is helpful for lenders and stakeholders to make policies and minimise their exposure to credit risk. [ABSTRACT FROM AUTHOR]

Green innovation is an important strategy for companies to achieve sustainable development goals. In addition to helping companies create a green image and improve their competitive advantage, green innovation can reduce pollution and improve the ecological and social environment, with positive external effects. The green credit policy (GCP) is an addition to traditional environmental regulations. Taking the 2012 Green Credit Guidelines as a quasi-natural experiment, this study finds that GCP significantly reduces the quantity and quality of green innovation in green credit-restricted firms by discouraging enterprises' debt financing. Heterogeneity analysis showed that the negative impact was concentrated mainly on non-state-owned enterprises (non-SOEs). This study recommends diversifying financing channels to ease corporate debt financing constraints. The conclusions could enrich existing research on the economic consequences of environmental regulatory policies and provide a reference for the strategic planning of green innovation development in enterprises. [ABSTRACT FROM AUTHOR]

Using recently available GRESB ESG public disclosure data for REITs around the world, we examine how ESG disclosure is related to REIT debt financing and firm value. We find that REITs with higher levels of ESG disclosure have lower cost of debt, higher credit ratings, and higher unsecured debt to total debt ratio, controlling for key firm characteristics. These findings suggest that improving ESG disclosure can help REITs to gain better access to the capital markets and enhance corporate financial flexibility, as lenders have paid close attention to a firm's ESG disclosure and integrated evaluation of ESG factors into their lending decisions. Moreover, firm value of REITs is positively associated with their ESG disclosure level. When using the Covid-19 pandemic as a quasi-experimental setting, we find evidence that REITs with higher ESG disclosure levels before the pandemic exhibit higher firm value during the pandemic. These results indicate that investors do value active ESG disclosure by REITs. Additional analyses show that ESG disclosure level is sensitive to institutional ownership, implying that institutional investors may drive REIT ESG disclosure efforts. Taken together, this paper suggests that effective ESG disclosure can have a positive impact on REIT debt financing and firm value due to the increased corporate transparency, and the ESG reporting framework developed by GRESB appears to be effective to provide transparency and comparability across the global real estate industry. [ABSTRACT FROM AUTHOR]

India's knowledge economy thrives on innovation, but financing such ventures requires alternatives to traditional tangible asset-based collateral. This paper explores the potential of intellectual property (IP) as a viable option. While challenges in valuation and enforcement exist, IP holds significant value. It is argued that IP acts as a two-pronged signal for lenders. Strong IP portfolios indicate a borrower's creditworthiness, while the potential loss of valuable IP discourages defaults. However, India's regulatory framework presents hurdles. Streamlining legal procedures, empowering financial institutions to assess IP value, and establishing centralised registries for recording security interests are crucial first steps. Risk mitigation strategies are equally important. Government-backed risk-sharing programmes and promoting IP insurance can incentivise banks and protect all parties. Finally, educating businesses about IP financing opportunities unlocks this avenue for securing funding. By addressing these challenges, India can create a robust environment for IP-based collateral, thereby fuelling economic growth and technological progress. [ABSTRACT FROM AUTHOR]

Generally, crisis situations entail economic hardship for entrepreneurs and their businesses. As such, historical crisis events may be accompanied by government policy to lessen the adverse effects for business owners and their employees. By analyzing a sample of 139,006 U.S. businesses that received Paycheck Protection Program (PPP) loans of $150,000 or more from the United States Treasury, we empirically show that female, racial and ethnic minority business owners will be at a disadvantage in receiving loan forgiveness relative to their peers. These findings advance the literature by highlighting post funding gender, racial and ethnic disparities in accessing venture resources. Practically, the results highlight how governmental intervention during a historical shock may disproportionately increase constraints on female, racial and ethnic minority business owners. [ABSTRACT FROM AUTHOR]

Debt financing is one of the major funding sources of commercial banks. In recent years, analysis of the banks' debt financing has gained considerable interest in the context of the global financial crisis. Despite the importance of debt financing on banks, the determinants of debt financing in the banking sector have remained largely unexplored compared to non-banking firms. This led this paper to investigate the significant drivers of debt financing of commercial banks in Tanzania. To achieve the study objective a balanced panel was formed by extracting the data of Tanzanian all ten large commercial banks over the period of 10 years from 2013 to 2022. The study employed a fixed effect model along with a random effect model and ordinary least squares regression. The findings revealed that banks' debt financing is positively and significantly influenced by bank size, bank liquidity, and economic growth. Profitability, collateral, and the COVID-19 pandemic negatively and significantly affect banks' debt financing. The findings indicate that the drivers of debt financing of banks in Tanzania are similar to those of non-banks institutions however, distinctive in nature. The practical implications of this paper assist bank managers to identify the significant drivers influencing banks' debt financing and opt for the best capital structure strategies. The regulators should ensure that low-cost capitals are accessible to banks during the financial crisis to maintain economic growth. [ABSTRACT FROM AUTHOR]

China has placed significant importance on the development of a circular economy and achievement of sustainable prosperity. It employs multiple fiscal and tax policies to facilitate clean production and improve resource efficiency by fostering corporate green innovation. Policy signalling boosts companies' external funding, including debt and equity. As such, this research focuses on how government subsidies and tax incentives influence corporate green innovation efficiency, accounting for the mediating roles of debt financing and equity financing. Under the SBM model, we utilise the Luenberger index to quantify green innovation efficiency. In addition, the fixed-effect regression with 19,228 firm-year observations from 3549 firms between 2015 and 2021 is used. Based on empirical findings, government subsidies reduce green innovation efficiency, while tax incentives increase it. In addition, debt financing mediates the association between tax incentives and corporate green innovation efficiency. Furthermore, government subsidies and tax incentives play more significant roles in non-state-owned enterprises (non-SOEs) and for businesses in growing and mature stages than other listed firms. To improve access to external financing and green innovation efficiency, it is suggested that the government implement various government subsidies or tax incentives according to business characteristics, with each company applying policies customised to its specific circumstances. [ABSTRACT FROM AUTHOR]

Globally, SMEs contribute immensely to economic growth and development in both developed and developing countries. This necessitate the need for funding for SMEs for them to contribute meaningfully and sustainably to economic growth and development. Nevertheless, SMEs funding remain a challenge in most countries especially developing ones. Therefore, this study aimed to establish the effect of debt financing (short-term debt, long-term debt, and trade credit) on the financial performance of SMEs in Zimbabwe. Financing SMEs has been a challenge for many SMEs worldwide. Notwithstanding that SMEs contribute immensely to the growth of an economy, SMEs remain underfunded especially in developing economies. Their contributions include poverty reduction, increased job opportunities, competitiveness, and productivity in the industrial sector. This study adopted a positivism philosophy and a cross sectional survey design. Quantitative data were gathered from 210 SMEs using a structured questionnaire with Likert-type responses. The findings show that debt financing (short-term debt, long-term debt, and trade credit) positively influences the financial performance in emerging markets. This study contributes to studies that prove a significant relationship between debt financing and financial performance in sectors other than SMEs. Thus, SMEs are advised to use debt financing to improve their financial performance. [ABSTRACT FROM AUTHOR]

Natural disasters often pose sudden and drastic organizational environmental shocks for local governments, leading to administrative disruptions and public finance risks. In the short term, disasters may disrupt debt financing. The disaster shocks may increase the costs of debt if they hurt revenue bases or decrease the costs of debt if generating "constructive destruction" to the local economy. Using a panel of U.S. County governments between 1999 and 2019, we find that weather-related disasters decrease the likelihood of issuing general obligation bonds and increase the probability of issuing revenue bonds and short-term bonds in the subsequent 6 months. Conditional on borrowing, disasters increase the bond yields for short-term bonds. Thus, natural disasters may disrupt the timing of local government long-term borrowing but do not necessarily destroy public finances. [ABSTRACT FROM AUTHOR]

Purpose: The study aims to examine whether corporate social responsibility (CSR) disclosure does improve debt financing of listed firms with sustainable development agendas coupled with high chief executive officer (CEO) tenure in India. Design/methodology/approach: Employing panel regression based on fixed effect and instrumental variable regression with fixed effect assumptions, the study examined data from the Bombay stock exchange from the period 2010 to 2019. Findings: The study demonstrates that the disclosure of current exchange capital and moral capital cannot cause a firm to access short-term and long-term debt financing. However, lag investment in moral capital causes a positive effect on short-term debt financing. The second findings show that CEO tenure has a positive and statistically significant association with short-term debt financing and an insignificant association with long-term debt financing. The third findings show that the interaction of current CSR disclosure (moral and exchange capital) and CEO tenure is insignificant in affecting short-term and long-term debt finance. However, the interaction of lag CSR disclosure (moral and exchange capital) and CEO tenure positively affect short-term debt financing. The study addresses any endogeneity concerns arising from the CSR disclosure-debt financing association. Research limitations/implications: This study uses a single country to examine the inter-relationship between CEO tenure and debt financing and CSR measured by moral capital and exchange capital, thereby limiting the study's results for generalisation. Practical implications: The observation is that moral capital investment and disclosure do not guarantee new entrants the chance to access debt financing, but subsequent and lag CSR disclosure ensures access. Originality/value: No studies examine morality from CSR disclosure on debt financing. This study shows that decoupling CSR into exchange capital and moral capital in accessing debt financing presents new inputs for scholarly debate on CSR. [ABSTRACT FROM AUTHOR]