Collateral Value Research Articles

Pemanfaatan Dana Bank Rakyat Indonesia (BRI) sebagai Sumber Pembiayaan Nelayan Gorontalo

The research aims to find out the effetiviness of utilization of fund form BRI as fishermen’s financing source in Tanjung Kramat village,to find out supporting factors as well as inhibiting factors at people in Tanjung Kramat Village to achieve credit fund form Bank Rakyat Indonesia. The research method is a qualitative approach. The technique of data collection, interview and documentation. The findings show that the effectiviness ratio level is more than 100% and it means fund form Bank Rakyat Indonesia is very helpful for fishermen in Tanjung Kramat Village to increase the income. In addition, there are also two factors which support people in selecting fund form BRI as financing source namely internal and external factors. Also, there are also inhibiting factors namely credit instalment, credit value, collateral value, credit term, credit procedure/terms, credit provider allocation, and others.

A Fully Automated Adjustment of Ensemble Methods in Machine Learning for Modeling Complex Real Estate Systems

The close relationship between collateral value and bank stability has led to a considerable need to a rapid and economical appraisal of real estate. The greater availability of information related to housing stock has prompted to the use of so-called big data and machine learning in the estimation of property prices. Although this methodology has already been applied to the real estate market to identify which variables influence dwelling prices, its use for estimating the price of properties is not so frequent. The application of this methodology has become more sophisticated over time, from applying simple methods to using the so-called ensemble methods and, while the estimation capacity has improved, it has only been applied to specific geographical areas. The main contribution of this article lies in developing an application for the entire Spanish market that fully automatically provides the best model for each municipality. Real estate property prices in 433 municipalities are estimated from a sample of 790,631 dwellings, using different ensemble methods based on decision trees such as bagging, boosting, and random forest. The results for estimating the price of dwellings show a good performance of the techniques developed, in terms of the error measures, with the best results being achieved using the techniques of bagging and random forest.

Evaluating the Effectiveness of Data Mining Techniques in Credit Scoring of Bank Customers Using Mathematical Models: A Case Study of Individual Borrowers of Refah Kargaran Bank in Zanjan Province, Iran

Loan deferment is a negative consequence of the activities of financial institutions. Increase in the amount of deferred loans can diminish productivity in the banking sector. The purpose of the present research is to cluster bank customers in order to prevent loan deferment and identify and classify customers with varying levels of loan repayment risk. In the proposed method, k-means, two-step, and Kohonen techniques are used for clustering and determining the behavior of each cluster. The results indicate that the k-means model with five clusters has the highest clustering accuracy. Clustering is also used to determine underlying feauture. loan term, loan value, and collateral value are respectively identified as the most influential feauture . Customers are clustered after removing non-significant feautures. Eight different machine learning techniques are used for clustering. These techniques are ranked in terms of efficiency based on certain evaluation criteria and using data envelopment analysis. The results indicated that support vector machine (SVM) and artificial neural networks (ANN) are the most efficient of the examined techniques

Collateral Value and Entrepreneurship: Evidence from a Property Tax Reform

We study the role of property taxes on entrepreneurial activity using a quasi-natural experiment, which unexpectedly reduced the upper bound of the Portuguese property tax rate for urban properties in 2008. Using a difference-in-differences approach, we find that treated municipalities (i.e., municipalities that had a property tax rate above the new upper bound) experienced higher entry rates in the manufacturing sector vis-a-vis control municipalities (i.e., municipalities that had a property tax rate at or below the new upper bound). Taking advantage of firm-level data, we show that start-ups created as a response to the decrease in property taxes in treated municipalities use more debt, invest more, and are more likely to survive.

Drilling and Debt

ABSTRACTThis paper documents a previously unrecognized debt‐related investment distortion. Using detailed project‐level data for 69 firms in the oil and gas industry, we find that highly levered firms pull forward investment, completing projects early at the expense of long‐run project returns and project value. This behavior is particularly pronounced prior to debt renegotiations. We test several channels that could explain this behavior and find evidence consistent with equity holders sacrificing long‐run project returns to enhance collateral values and, by extension, mitigate lending frictions at debt renegotiations.

Foreign currency borrowing surrounding the global financial crisis: Evidence from Korea

AbstractWe present a complete profile of firms’ foreign currency borrowing surrounding the 2007 global financial crisis. Employing extensive data from Korean firms during 2002–2012, we find that foreign currency borrowing is significantly related to firm attributes of export revenues, firm size, tangible assets and asset growth, as well as to macro‐level factors. These results offer two important implications. First, macroeconomic factors alone cannot fully explain firms’ foreign currency borrowing. Second and more importantly, these firm attributes are indicative of a lower default probability and larger collateral value, which would not only facilitate borrowers’ access to foreign currency debt markets but also offer lenders a better protective cushion from possible loan defaults in the face of exchange rate changes and information asymmetry on borrowers’ credits. Period wise, asset‐related firm attributes have more pronounced effects in the post‐ than pre‐crisis period. We further show that banking regulations following the crisis effectively limit the access to foreign currency borrowing by Korean firms, most significantly by those belonging to large business groups.

The Role of Government and Private Institutions in Credit Cycles in the U.S. Mortgage Market

We show that the distribution of combined loan-to-value ratios (CLTVs) for purchase mortgages in the U.S. has been remarkably stable over the last 25 years. But there was a dramatic shift during the housing boom of the 2000s in the provision of high- CLTV loans through private sources, which replaced almost one-for-one the share of high-CLTV loans directly guaranteed by the government, via FHA and VA. Post 2008, FHA/VA loans increased back to 30% of all purchase mortgages. This substitution between government and privately backed high-CLTV loans holds within ZIP codes, properties and borrower types over the full sample period. We also show that the increase in private high-CLTV lending follows local house price increases rather than preceding them. These findings suggest that the housing boom was not accompanied by a shift towards more high-CLTV loans, and instead favor models that rely on changes in collateral values or broad changes in house price expectations.

Analysis of the residential mortgage market in the Ural Federal District

The relevance of this study stems from the fact that it analyzes the current situation on the mortgage market in Russia: the influence of macro-economic factors causes a fall in collateral value, dramatic increase in mortgage default and poor performance of the Agency for Housing Mortgage Lending (AHML). The study is aimed at investigating the current state of residential mortgage lending on the regional level in Russia by focusing on the case of the Ural Federal District. The study considers the interests of all the participants of this market: individual borrowers, state authorities, financial and credit institutions engaged in mortgage lending. The study analyzes statistical data on the primary residential mortgage market in the Ural Federal District provided by the Central Bank of the Russian Federation, Federal State Statistics Service and the AHML. Results. Modern approaches to mortgage system evaluation are compared in order to identify and systematize the key criteria and statistical indicators characterizing the current state of this form of lending relationships. The analysis also brings to light the negative trends in mortgage lending in the Ural Federal District. As a part of our further research, we are going to develop a procedure for evaluating the performance of a mortgage system.

Disagreement and Capital Structure Complexity

Corporate bankruptcies often involve complicated, fragmented capital structures with many layers of debt and legal entity structures with many subsidiaries. Why do capital structures evolve this way, given that they make distress more costly to resolve? I suggest an answer based in investor disagreement about the value of assets that back loans. When investors disagree, firms have the incentive to exploit the disagreement by issuing asset-backed claims to optimists about those assets. This capital structure fragmentation minimizes the borrower’s cost of funds ex ante by maximizing creditors’ perceived recoveries, but it also creates costly valuation disputes in bankruptcy. I show that disagreement about collateral values can cause inefficient liquidations. Reorganization, in which prebankruptcy creditors receive securities in the ongoing firm, allows parties to agree to disagree about the value of their entitlements. This promotes settlement and reduces costly litigation over valuation relative to a going-concern sale for cash.

Capital Structure Determinants in Property and Real Estate Company in 2013 to 2018

This research is to recognize the factors supporting the property and real estate company in determining the capital structure composition. The population of this research is all the property and real estate company listed on the Indonesia Stock Exchange 2013 to 2018. There are 48 companies listed until 2019. The data analysis employs a stratum test. The results of this research are the company’s performance, profitability influencing the capital structure, growth that does not influence the capital structure, nondebt tax shield influencing capital structure, and liquidity does not influence capital structure. In the company’s risk, the collateral value of assets influences capital structure; on the other hand, the business risk does not influence the capital structure. In the company’s characteristics, company size does not influence the capital structure.

Non-Homothetic Sudden Stops

Financial crises preceded by nontradable consumption booms are characterized by sharper real exchange rate depreciation and deeper economic contractions. We show that a small open economy model of Sudden Stops under non-homothetic preferences can rationalize the danger of credit-fueled nontradable booms. Nontradable goods are more income-elastic than tradable goods. Thus, when a credit boom leads to a Sudden Stop, the demand for nontradable goods contracts violently and proportionately more than under homothetic preferences, causing a larger depreciation that further decreases the collateral value amplifying the current account reversal by 24%. The amplified pecuniary externality calls for 15% more aggressive debt taxes and increases the welfare gains from simple rules.

Financial disclosure readability and innovative firms' cost of debt

AbstractInnovative firms confront potential lenders with various risks, including possible innovation failure, uncertain R&D investment payoffs, cash flow volatility, and low collateral value of hard‐to‐value intangible assets. As a result, these firms might struggle to obtain financing. More readable financial disclosures could mitigate the informational risk around innovative firms' fundamentals, ease their monitoring by lenders, and thus ultimately reduce these firms' cost of debt. In this regard, we find that while all firms can overcome information uncertainty about their firm fundamentals and reduce their spreads by having more readable financial disclosures, there is an additional benefit in terms of readability further lowering the cost of debt for innovative firms. The additional benefit that innovative firms can achieve from having more readable financial disclosures, however, is limited to situations of more pronounced information asymmetry where there is no previous lending relationship.

THE ROLE OF LOCAL CREDIT INSTITUTIONS (LPD) IN DISTRIBUTING AGRICULTURAL CREDIT IN PENATIH VILLAGE, DISTRICT OF EAST DENPASAR, DENPASAR CITY

Local credit institution (LPD) is financial enterprise that owned by the village to carry out business activities in that village and or the villagers. In its development, LPD has a imperative role that is not far from the goal of establishing LPD its sel, viz. Encouraging the development o rural economic throughraising the unds, distribute the loan for the community, create equal opportunities for business activities and employment opportunities for villagers.This study aims to determine characteristics of the agricultural debtor in LPD Desa Adat Penatih, the criteria for amount of agricultural credit distributed in LPD Desa Adat Penatih, the procedure for distributing agricultural credit in LPD Desa Adat Penatih and also the interference in repayment of credit in LPD Desa Adat Penatih. The location of this study were selected purposively. Data used in this study is qualitative data and quantitative data.The result of the study showed that the characteristics of the agricultural debtor in the LPD Desa Adat Penatih are seen from age and gender, the number of family dependents, the level of education, the criteria for amount loan and the business fields. The amount of agricultural credit distributed in LPD Desa Adat Penatih base of the collateral value for collateral provided by debtor. The procedure for distributing agricultural credit in LPD Desa Adat Penatih starts by of the loan application, analysis or assessment of credit, credit decision, disbursement and loan administration. There is no interference to LPD Desa Adat Penatih in repayment of agriculture credit. Both in terms of repayment period and credit collectibility.

INVESTIGATING THE LEVERAGE COMPOSITION OF PAKISTANI FIRMS THROUGH THEIR DETERMINANTS

To have an ideal mix of debt and equity in a balance sheet of an entity is till to date a very complicated issue for managers as there is no such rule to predict an optimal capital structure. An in-depth understanding is required for the corporate culture, the degree of the development of the capital market and the economy in which the firms operate. This study seeks to investigate the leverage composition of Pakistani corporations through their determinants. Fixed effect regression is used to show the relationship of determinants of capital structure on leverage corporations listed on Karachi Stock Exchange (KSE) for the period of 2006 to 2013. The results suggest that agency cost, growth, age, and size are significantly and negatively associated with the capital structure of Pakistan firms, however, collateral value of asset is significantly but positively associated with the capital structure of the firm. On the other hand, free cash flows, non debt tax shield, profitability, business risk and bankruptcy cost are not significantly associated with leverage composition of the firms and are against the signaling theory and peaking order theory. The key importance of this study is that no prior research was done for determinants like agency cost, free cash flows, bankruptcy cost and age as determinants of capital structure for Pakistani firms among other determinants. Further, this study does not confine to a particular sector rather it covers all companies listed by Karachi Stock Exchange.

Labor and Finance: The Role of Financial Reporting Quality

We examine the role of financial reporting quality in facilitating corporate employment around debt maturities. As firms’ long-term debts approach maturity, information problems and conflicts of interest among capital providers create refinancing risk that can constrain borrowing. Refinancing risk is particularly relevant for funding labor, because wage rigidity creates operating leverage and human capital lacks collateral value, both of which increase credit risk and the importance of information in debt markets. We use firms’ predetermined debt maturity schedules to identify firms with significant long-term debt approaching maturity and find that higher quality financial reporting mitigates the negative effect of maturing debt on firms’ net hiring. This result is stronger when wages are more rigid, when other sources of collateral are limited, and for firms with higher default risk. Higher quality financial reporting is also associated with lower employee quit rates as debt approaches maturity, consistent with a related labor supply channel. Overall, our results are consistent with unique frictions in labor and debt markets creating an important role for financial reporting quality in facilitating firm-level employment.

The Valuation of Collateral in Bank Lending

We identify the valuation of collateral by comparing spreads on loans by the same bank, to the same borrower, at the same origination date, but backed by different types of collateral. Pledging collateral reduces borrowing costs by 23 basis points on average. The effect varies across different types of collateral, with marketable securities being most valuable and real estate and accounts receivables and inventory being more valuable than fixed assets and a blanket lien. Further, we show that collateral is most valuable for riskier and smaller firms and loan prices fall with loan maturity and are sensitive to collateral values.

Asymmetric information and securitization design in Islamic capital markets

Motivated by religious prescriptions and severe informational problems in the corporate sukuk market, we investigate how capital market imperfections influence sukuk securitization design, focusing on tranching and subordination practices. Employing negative binomial regressions and a 2SLS regression framework for a sample of 335 corporate sukuk offerings in Malaysia between 2001 and 2014, we find Islamic finance principles matter to sukuk securitization design. For private firms, lease-based sukuk have less tranching, consistent with the significance of collateral value resilience (asset tangibility) in reducing investment risk. Contrary to expectations, equity-based sukuk have fewer tranches and lower levels of subordination – findings which we attribute to the principal and profit guarantee under this structure. We also find support for the stylized view that securitization stems from asymmetric information and market segmentation arguments. An implication of our research is that investors should pay attention to how sukuk structure, information asymmetry, and credit risk impact subordination to avoid deals with poor credit enhancement.

CREDIT SPREAD AND LIQUIDATION VALUE-BASED DEBT FINANCING CONSTRAINT

This study examines the corporate credit spread of a firm that is constrained by an upper limit of debt issuance depending on the liquidation (collateral) value. We provide four important results. First, the upper limit of debt issuance may induce the firm to issue riskless (risk-free) debt. Second, the upper limit decreases the credit spread. Third, the credit spread increases with the liquidation value when the firm is financially constrained, while the credit spread decreases with the liquidation value when it is not. Fourth, the firm is likely to be financially constrained when cash flow volatility is high, the risk-free interest rate is low, corporate tax is high, and bankruptcy cost is high. Our results fit well with empirical studies.

Speed and Conditional Noise as Information for Illiquidity and Fixed Income Arbitrage

Previous studies suggest that trading conditions in the secondary market for nominal U.S. Treasury (UST) coupon securities embeds critical information about global financial market liquidity and the limits to arbitrage. We propose three new general measures based on deviations of observed nominal UST yields from their fitted values derived from standard estimates of the term structure. These metrics extend beyond unconditional fitting errors to include conditional mispricings net explicit estimates of premiums for liquidity and collateral value at the security-level. In addition, we consider not only the size of unconditional and conditional errors but also the speed at which arbitragers eliminate implied prospective gains. Based on daily CRSP data on individual UST securities from June 1961 through December 2013, broad inferences from these alternative measures contradict conclusions in previous studies that relate the size of UST fitting errors to overall global market liquidity. We also analyze market-neutral trading strategies that produce absolute returns that on average often exceed those on the S&P 500, with a small fraction of the variance, no covariance with stock returns, and very positive as opposed to negative skew.

The Valuation of Intangible Assets: An Introduction

An intangible is a non-monetary asset that manifests itself by its economic properties. It does not have physical substance but grants rights and economic benefits to its owner. The examination of the general approaches of the valuation of companies is preliminary to the estimation of assets such as the intangibles. Intangibles are more specific than other assets and incorporate higher information asymmetries, linked to higher risk profiles and lower collateral value. Their accounting is controversial, privileging prudence over substance. The most widely used approaches of assessing intangibles are based on market, income, or cost-related metrics. Hard-to-value intangibles are based on innovative business models, whose value drivers are difficult to analyze and compare.