Asset Structures Research Articles

Lessons from the Collapse of Silicon Valley Bank

The Federal Reserve's consecutive interest rate hikes led to a decline in the prices of US Treasuries and mortgage-backed securities (MBS), which comprised a significant portion of Silicon Valley Bank (SVB)'s asset portfolio. As a result, SVB experienced substantial floating losses, exceeding its owner's equity, creating immense pressure on its assets and liabilities. The analysis also highlights the simple deposit and asset structures of SVB, with a high proportion of demand deposits and a significant allocation to bonds. The aggressive interest rate hikes by the Federal Reserve, coupled with financing difficulties for startups, accelerated deposit consumption and intensified debt pressure for SVB. Furthermore, the article reveals the low coverage rate of deposit insurance, particularly at SVB, where only 7% of deposits are insured. This adds to the vulnerability of SVB and its depositors. In conclusion, this article examines SVB's balance sheet and interest rate risk exposure, identifies shortcomings in the management supervision system, and provides three reflections on the financial event.

Firm Size as a Mediator between Inventory Management and Performance of Nigerian Companies

This study employed a dissimilar methodology in investigating the mediating role of firm size on the relationship between inventory management and performance of non-finance companies publicly listed on the Nigerian Exchange Group. The study was hinged on just-in-time paradigm while variables of inventory management and financial performance were obtained from the annual reports and accounts of 76 non-finance companies. The results obtained from the structural equation modelling showed that size of firm mediates on the relationship between inventory management and financial performance measures of the study and it was found to be significantly positive. On the basis of this, it was suggested that companies need to strengthen inventory management practices as well as increasing their sizes. The size of companies can be increased by way of investing more funds in their asset structures.

Silicon Valley Bank Collapse: Causes & Consequences

This paper discusses the concept of bank bankruptcy and highlights the recent failure of Silicon Valley Bank (SVB) as a significant case similar to the Lehman Brothers' collapse in 2008. Lehman's failure was attributed to the U.S. housing market collapse and internal risk management issues. SVB's failure, occurring in 2023, resulted from both internal factors (improper decisions, high-risk strategies, and poor financial management) and external factors (economic recession, Federal Reserve interest rate hikes, regulatory challenges, and changes in the tech industry). The bankruptcy of SVB has far-reaching economic impacts on depositors, borrowers, entrepreneurs, investors, and the banking industry. It triggers a crisis of confidence, liquidity pressure, and systemic risks. The Federal Reserve implements emergency measures to address the fallout, reflecting on regulatory approaches to mitigate threats to the banking system. The comparison with Lehman Brothers underscores similarities in improper development strategies, asset structures, risk management, and regulatory oversight, leading to systemic risks and undermining financial market confidence.

An Empirical Review of Capital Structure Decision-Making

The capital structure reflects the proportional relationship between a company's debt and equity, indicating the company's ability to repay debt and refinance. The quality of the capital structure determines the company's future profitability and development trend, serving as an indispensable indicator of the company's financial situation. However, with approximately 70 million companies in the global market, their scales and operating conditions vary in stability and growth. Additionally, their financial and asset structures differ significantly and are subject to macroeconomic fluctuations every year. The risk preferences and attitudes of managers and investors in every enterprise are subjective and affect the development plan of the enterprise. Moreover, tax and fiscal policies in different countries and regions also influence the capital strategies of enterprises. Furthermore, after a successful listing, the capital structure of the enterprise undergoes fundamental changes, diversifying the sources of funds and experiencing new changes in operating models, which is beneficial to the future operational planning and financial strength of funds. Nevertheless, not all companies that go public are beneficial to their development, such as Huawei, Heinz Group, Koch Industrial Group, etc., due to changes in capital structure after going public being detrimental to future corporate profits. Hence, the capital structure of enterprises in different countries, regions, or types of scale needs to be tailored to local conditions. Enterprises should analyze specific situations to establish a more reasonable capital structure with the aim of optimizing company operations.

Determinante profitabilnosti akcionarskih društava u Republici Srbiji

The paper aims to analyze the influence of the selected financial determinants on profitability as a key determinant of corporate performance success. The sample includes 473 joint-stock companies in the Republic of Serbia that were actively operating from 2017 to 2021. Panel data evaluation revealed the presence of a significant positive influence of the company size, growth, and cash flow on profitability, as well as a significant negative influence of the capital and asset structures. In contrast, the influence of liquidity and a tax shield on profitability is statistically insignificant. The obtained results primarily serve the management who can consider the indicators of the business done by joint-stock companies in order to improve profitability and ensure proper resource allocation. They are also useful for investors in planning investment and operational activities with the aim of a more effective and more efficient achievement of profitability goals. The results are also aimed at other stakeholders who want to create a profitability growth and corporate performance strategy directed towards ensuring long-term growth.

A New Perspective on Interpreting the Accounting Information of Listed Companies: Research on the Asset Structure Difference and Earnings Value Based on a Sustainable Development Strategic Perspective

The quality of accounting information of listed companies has always been of great concern for investors, creditors, government departments, and other stakeholders. As the core component of accounting information, earnings information is essential, which is hailed as a wind vane by every stakeholder. The sustainable development strategy of companies requires companies to reasonably allocate company resources and promote the long-term and rapid development of the company. Based on the sustainable development strategic perspective, this paper takes Chinese A-share non-financial listed companies from 2007 to 2020 as a sample to study the correlation between asset structure differences and earnings value relevance. The research logic of this paper is: the corporate strategy determines the resource allocation scheme of the company, the resource allocation scheme determines the asset structure, and the asset structure determines the generation mode of profits. Therefore, there are different profit compositions, and the differences in profit compositions lead to differences in the corporate earnings value relevance. The research results show that, overall, compared to the companies with a large proportion of investment assets, the companies with a large proportion of operating assets have a stronger earnings value relevance to their net profit. From the perspective of the main composition of profits, companies with a large proportion of operating assets have a stronger value relevance to their core profits. Companies with a large proportion of investment assets have a stronger value relevance to their investment income. Listed companies’ different asset structures is an essential factor affecting the corporate earnings value relevance. Additionally, listed companies’ different asset structure results from the corporate strategic development choice, which shows that the corporate strategy affects the relevance of the corporate earnings value. This provides a new perspective for accounting information users to interpret the corporate earnings information, helps accounting information users to understand and analyze corporate financial statements more accurately, and has a particular reference significance for investment decision making.

Inhomogeneous Financial Markets in a Low Interest Rate Environment—A Cluster Analysis of Eurozone Economies

In the present paper, we investigate the financial homogeneity of the euro area economies by contrasting eurozone countries’ responses to monetary policy steps to the theoretical assumptions of the liquidity trap phenomenon. Our assumption is that the euro area economies are not completely homogeneous. Hence, in a zero-interest rate environment, the asset holding decisions of economic agents exhibit detectable differences across countries. We verify our assumptions using Eurostat data. We use the financial asset stocks of the euro area countries to cluster the countries concerned. Previous literature has not examined changes in the ratio of financial assets to GDP, nor differences in structural changes in the total stock of financial assets under the zero lower bound. The paper uses k-centers cluster analysis based on Euclidean distance for detecting changes in the portfolio holdings of eurozone economic actors owing to economic crises and monetary policy responses. The results confirm that euro area financial markets are fragmented. There are significant differences across asset markets of different Eurozone countries, both during and after the crisis. Despite some similarities in the portfolio rearrangement across countries, the ECB’s monetary policy does not have a uniform impact on euro area financial markets, and notable differences prevail in the financial asset structures of the economies concerned.

The Marginal Propensity to Consume in Heterogeneous Agent Models

What model features and calibration strategies yield a large average marginal propensity to consume (MPC) in heterogeneous agent models? Through a systematic investigation of models with different preferences, dimensions of ex-ante heterogeneity, income processes, and asset structures, we show that the most important factor is the share and type of hand-to-mouth households. One-asset models either feature a trade-off between a high average MPC and a realistic level of aggregate wealth or generate an excessively polarized wealth distribution that vastly understates the wealth held by households in the middle of the distribution. Two-asset models that include both liquid and illiquid assets can resolve this tension with a large enough gap between liquid and illiquid returns. We discuss how such return differential can be justified from the perspective of theory and data.

Augmenting digital monopolies: A corporate financialization perspective on the rise of Big Tech

Building on the notion of corporate financialization, this article analyzes the financial dynamics of the world’s largest digital platforms over the period 2000–2020: Alibaba, Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, and Tencent. These “Big Tech” corporations jointly form the infrastructural core of the digital economy. Taking cues from critical media studies and political economy, we probe their financial statements according to three stylized indicators of corporate financialization: (i) expanding financial assets and debt; (ii) augmenting asset structures, with intangible assets in the form of goodwill ballooning alongside tangible capital; and (iii) maximizing shareholder value. Our findings point to commonalities among the ‘avantgarde of digital capitalism’, where feedback loops between mounting market dominance, data extraction, and above-average profits have been successfully leveraged with key tools of corporate financialization to accelerate Big Tech’s infrastructural dominance across economy and society.

Private Markets—From Alternative to Mainstream: Evolution during the Past 30 Years and Key Trends and Challenges for the Decades to Come

Private market investing has evolved dramatically during the past three decades, from small alternative allocations made by the most sophisticated investors into significant components of many programs’ strategic asset allocations. During this period, the number of publicly traded companies in developed markets has declined precipitously, accompanied by a substantial increase in the amount of economic activity taking place in private markets—financed by both equity and debt—and across corporate and real asset structures. This article surveys this evolution and describes its key drivers, including evolving investor behavior, disruptive innovations, financial disintermediation, and regulatory changes. It also looks to the future of private market investing, seeking to lay out the key trends likely to drive further growth: the pursuit of higher returns, continued innovation in the growing private markets ecosystem, and a blurring of the current public/private distinction as investors increasingly evaluate investments across a spectrum of liquidity.

The Impact of Voluntary and Involuntary Intellectual Capital Disclosure on Firm Value

The digital era has changes corporate asset structures and business models, and it requires companies to have more value-added resources to be more competitive, one of which is intellectual capital. Prior studies have analyzed the intellectual capital disclosure in annual reports. This approach, however, is unable to identify the depth of intellectual capital information. This study builds on previous studies using the involuntary disclosure concept to examine how information created by stakeholders and other parties outside of management may affect a company’s reputation. In addition to annual reports, this study also measures intellectual capital disclosure information using new data sources such as social media and online business media. This study aims to examine the impact of voluntary and involuntary disclosure of intellectual capital on a firm's value. The sample of this study consisted of 32 banks listed on the Indonesia Stock Exchange in 2019. The results of the study indicate that intellectual capital disclosure affects the firm value. These findings provide a practical implication for managers to disclose intellectual capitals that are relevant to the market’s demands and focus on the quality of the information to increase firm value and sustain in a competitive environment.

The effect of debt ratio and COVID-19 pandemic on profitability of Vietnam coal mining enterprises

After the restructure of the Vietnam National Coal – Mineral Industries Holding Corporation Limited (Vinacomin) from 2012 to 2015, Vietnamese coal mining enterprises recovered their investment in other industries and focused only on coal mining activities. In the context of competition and lack of resources, Vietnamese coal mining enterprises have two solutions: (1) save costs; (2) using loans to invest in new machinery and equipment to increase productivity. In 2020, coal mining enterprises faced difficulties due to complicated developments of the COVID-19 pandemic, disrupting the socio - economic activities of countries worldwide. The article examines the impact of the debt ratio, asset structure, and COVID-19 pandemic on the profitability of coal mining enterprises. It applies the ordinary least squares (OLS) regression method on data of asset structures, capital structures, ROE of 18 coal mining enterprises from 2015 to 2020. The result showed that the debt ratio and the asset structures of a coal mining enterprise positively impact its profitability. The paper also suggests that borrowing to invest in technology will help coal mining enterprises improve their profitability. And an unexpected result is that during the COVID-19 period, coal mining enterprises have higher profitability than those not affected by the COVID-19 pandemic.

BUSINESS PERFORMANCE AND FINANCIAL HEALTH ASSESSMENT THROUGH ARTIFICIAL INTELLIGENCE

Research background: Globalisation and the development of technology introduce new requirements for effective business management. Every business must constantly adapt to the environment, analyse and know its competitors and its customers’ requirements, and meet other stakeholders’ commitments. An unsuccessful business will go into liquidation. The intention of any business should be not only to avoid this situation, but to thrive and prosper and create value for its shareholders. Purpose of the paper: The aim of this study is to propose an appropriate tool for cluster analysis and determine the ability of a business to survive a potential financial distress. Methods: Details from financial statements of construction companies operating in the period 2015-2019 in the Czech Republic are analysed. Attention is mainly directed to items that represent the capital and asset structures of a company, liquid assets, and the ability to generate sales and profit. Artificial neural networks in the form of Kohonen networks are used for the purpose of cluster analysis. Financial analysis is used to examine the underlying dataset as well as for a detailed analysis of selected clusters, i.e. the contribution margin and ratio indicators. Findings & Value added: The basic analysis clearly shows that companies in liquidation attempt to reduce the value of inventories and engage additional foreign capital with a view to survival, while there is a certain solidarity between companies’ key persons. Cluster analysis using Kohonen networks is quite successful. The present methodology and approach can still be applied to the design of an enterprise decision support tool. Further research may study whether the representation of businesses in the different clusters will change over time, or whether the development of the construction industry can indeed be predicted based on an analysis of the leaders.

EBIT EBITDA nın Tanımlanması ve Kullanımına İlişkin Öneriler (Recommendations on Defining and Using of EBIT EBITDA)

There are multiple metrics available to analyze the profitability of a business’ core operations. EBIT and EBITDA are most commonly used among those. The key difference between EBIT and EBITDA is that EBIT deducts the cost of depreciation and amortization (D&A) from income, whereas EBITDA does not. They can traditionally be computed on the basis of operating income as well as net income. And they can also be adjusted or modified for the purpose. Differences in their computations can lead to varied results though they have similarities. EBIT allows us to better measure the profit under different capital structures and tax rates but EBITDA also excludes diversities in asset structures by D&A. But it should be remembered that these excluded espenses, such as interests and D&As, are actual and could be significant. Given that there is not a common ground on computing and using ways of these metrics, the purpose of this study is to guide the computation and use of these metrics relevantly in a rationale framework. In addition, the misleading perception that EBITDA and D&A alone represent cash flow has been tried to get breached. In the study based on IFRSs and taxonomies, reference computations have been made for practitioners and researchers.

Predictors of bank distress: The 1907 crisis in Sweden

This paper studies the Swedish experience of the international crisis of 1907, which is often compared with the crisis of 2008. By constructing a new dataset from previously unanalyzed monthly bank-level data, we document high-frequency changes in bank outcomes throughout the 1907 crisis. While distressed banks suffered substantial withdrawals of foreign funds and liquid domestic liabilities, we show that banks’ asset structures, along with observable fundamentals and institutional characteristics, played a more significant role in their subsequent fate. Higher shares of non-performing assets and lending against equities were the most important balance sheet predictors of distress. These balance sheet fundamentals, as well as over-extended branch networks, significantly shortened the lifespan of Swedish banks in the aftermath of the 1907 crisis.

Toward a Three-Sectoral Reproduction Model of Fixed Capital Depreciation and Investment-Driven Economic Growth: Theory and Policy Simulations from Chinese Input-Output Data

The accelerated depreciation policy on fixed assets is a representative tax reduction policy in China. However, it is rarely systematically studied on the macro-level. This paper builds a general model for analysing accelerated depreciation. It uses China's input-output data (1987-2015) to test and quantify the role of accelerated depreciation in promoting economic growth under different asset structures. The results show that accelerated depreciation with investment has a positive effect on economic growth. It becomes more significant as the depreciation period shortens, and is also limited by the asset structure. This paper discusses the possible situations in which tax incentives are not used for investment, and finds that shortening the depreciation period leads to a negative adjustment in economic accounting. This effect has a depreciation turning point where the rate of change increases sharply; this corresponds with the minimum depreciation period for accelerated depreciation in real terms. This paper proposes a method of estimating the depreciation turning point, and calculates the minimum weighted average of the accelerated depreciation period in China (1987-2015), thus providing effective proposals for the formulation and implementation of related economic policies.

The Low Use of Bankruptcy Procedures in Spain: Reasons and Implications for the Spanish Economy

This paper seeks to contribute to the understanding of the relative use of bankruptcy law. Namely, it explores the underlying reasons for the low rate of business bankruptcies in Spain, and the impact that this low usage of bankruptcy procedures may have for Spanish firms – and thereby for the Spanish economy. There are two main hypotheses that may explain the low level of business bankruptcies: (i) Spanish firms minimize ex ante the risk of bankruptcy; or (ii) Spanish firms resolve their financial trouble without using formal bankruptcy procedures. This paper proposes an intermediate hypothesis. Namely, it argues that, induced by both the legislator and secured creditors, Spanish firms choose asset and capital structures that minimize ex ante the risk of bankruptcy. Moreover, when insolvency already threatens, firms seem to avoid the use of bankruptcy procedures due to the unattractiveness of the Spanish bankruptcy system for both debtors and creditors. Likewise, this paper points out that the low rate of business bankruptcies might not be mainly associated, as previous studies have suggested, with the unattractiveness of the bankruptcy system and the efficiency of the mortgage system, but also – and perhaps more importantly – with other factors such as the design of a creditor-friendly corporate law, a poor the law of secured transactions, the use of workouts, and some economic and sociological factors usually generated or, at least, exacerbated by the legislator. These latter factors include: (i) the stigma associated with Spanish bankruptcy procedures; (ii) the high level of risk aversion faced by Spanish entrepreneurs (especially small and medium size entrepreneurs); (iii) the bad perception of the Spanish bankruptcy system; and (iv) the low recognition of business success linked to the bad connotations of business failure in Spain. Finally, it is argued that the high dependence of Spanish firms to bank finance and the poor culture of bank lending (mainly dependent on the debtor's ability to provide a security interest instead of focusing on the debtor´s ability to generate cash flows) contributes to the inefficient design of the asset and capital structure of Spanish firms. Moreover, it can create several externalities to society as the result of the overinvestment and underinvestment problems potentially created by this culture of bank lending. On the basis of this exercise, this paper contributes to the literature by introducing new variables that may help explain the relative of bankruptcy law. Likewise, it proposes a structural reform of the Spanish Bankruptcy Act 2003 to make bankruptcy procedures more attractive to both debtors and creditors, and it suggests several recommendations to promote the optimal design of the asset and capital structures of Spanish firms with the purpose of boosting the competitiveness and growth of the Spanish economy.

The Asset Structures of Emerging Technology Providers

ABSTRACT The cash reserves of IT firms, which have been important providers of emerging technologies, have undergone increasing scrutiny as their market valuations have reached unprecedented levels. Coincidentally, no previous research has investigated the asset structures of IT firms at a time when their managers are facing constant pressure to develop and support ever more sophisticated emerging technologies. First, we propose an investigation into six categories of asset holdings to inspect differential strategies of IT firms. We are interested in exploring the nature of asset holdings among this important sector of the economy. Next, we will empirically test for changes in asset holdings over three economic event periods commonly referred to as The Early 1990s Recession, the Dot Com Era, and the Great Recession. Applying the theories of asset specificity and the resource-based view, we hope to provide insight into whether asset strategies of IT firms change over time.

The Influence of Ownership Structure, Asset Structure, and Earning Volatility on Debt Policy in Indonesia

The higher the proportion of debt, the higher the stock price, but at a certain point, the increase in debt will reduce the value of the company because the benefits obtained from the use of debt are smaller than the costs incurred. The purpose of this study is to analyze the influence of ownership structure – managerial ownership and institutional ownership, asset structure, and earning volatility on debt policy. The data used in this study are secondary data in the form of managerial ownership data, institutional ownership, asset structure, earning volatility and debt policy in pharmaceutical companies that go public on the Indonesia Stock Exchange 2013-2017. The statistical method used is the Stepwise Regression, because there is high multicollinearity in managerial ownership variables, institutional ownership, assets structure, earning volatility. Based on the results of the Stepwise Regression shows that the variables entered into the regression model are earning volatility. Other variables such as managerial ownership, institutional ownership, asset structures are not included in the Stepwise Regression so that conclusion is only earning volatility variable that influences the debt policy earning volatility variables that affect debt policy.

Supplement to 'Market Selection with Differential Financial Constraints'

In this Supplement we provide foundations for the asset structures used in the main part of the paper, as well as in Appendix A. We use results by Choquet (1966), Kendall (1962) and Polyrakis (1999) to demonstrate how these asset structures can be generated from a general set of assets available in the economy and a general set of financial constraints. A sufficient condition called internal completeness is for the set of assets to contain an appropriate set of put and call options so that the implied set of payoffs is a sublattice of the Euclidean space.