Credit Constraints Research Articles

Environmental credit constraints and pollution reduction: Evidence from China's blacklisting system for environmental fraud

Environmental performance-based credit mechanisms are among the tools policymakers can use to influence the polluting firms' behavior. In this study, we use China's blacklisting system for environmental fraud as a quasi-natural experiment to analyze the pollution-reducing effect of environmental credit constraints (ECCs). We operationalize our approach using a sample of 287 Chinese cities for the period 2008–2018 and find that ECCs help reduce emission intensity—a result that is both statistically significant and robust. Furthermore, our analysis suggests that ECCs can motivate producers to increase investment in technological innovation and optimize their factor allocation structure to improve green total factor productivity, thereby helping reduce their environmental impact. We demonstrate that the ECC-based schemes could be particularly effective in helping reduce pollution in regions with high enterprise credit dependence and relatively heavy presence of the manufacturing industry. In addition, these pollution-reducing effects are significant in regions with relatively strict environmental regulation. Hence, we argue that environmental credit systems could help policymakers provide polluting companies with additional incentives to voluntarily cut their emission levels and thus offer opportunities for diversifying the strategies policymakers can use to mitigate adverse environmental impacts.

Monetary Policy, Market Power, and SMEs

Monetary policy aims to affect corporate borrowing by influencing the marginal costs of firms, but its potency can be conditioned by the degree of market competition. We first identify conditions under which changes in marginal costs have different effects on credit constraints and output under different competitive environments, in a simple Cournot competition setting. We then exploit a monetary policy easing shock in the euro area to examine whether policy pass-through is conditioned by market structure. We show that small firms within less concentrated sectors experienced a larger reduction in credit constraints than similar firms in more concentrated sectors.

Matching Pell Grants: Implications for College Debt and Parental Transfers

We study the causal effect of the net price of college on student debt, schooling investment, and parental transfers by exploiting a natural experiment. A large public US university introduced a program to match Pell Grants in academic year 2019-2020. We use a difference-in-difference approach to measure the impact of this policy on the variables of interest and interpret our findings using a simple structural model of human capital investment under credit constraints.

Can land transfer relax credit constraints? Evidence from China

Can land transfer relax credit constraints? Evidence from China

Determinants of adoption of multiple sustainable agricultural practices (SAPS) by smallholder farmers in the Eastern Cape Province in South Africa

This study investigated factors influencing the adoption of multiple sustainable agricultural practices by smallholder farmers in the Eastern Cape Province. The study made use of a cross-sectional research design and a multi-stage sampling procedure. Data were collected from 168 smallholder farmers using a semi-structured questionnaire and the validity of the collected data was confirmed. Descriptive statistics and a multivariate probit regression model were used to analyze data. The results indicated that farming is practiced mostly by females (70%) with an average of 45 years and 6 people in the households, which act as family labour. The study reported that 54% of farmers adopted an improved variety of crops, use organic manure, integrated pest management, irrigation, and intercropping. Smallholder farmers faced identical constraints which limited their adoption of SAPs. The use of an improved variety of crops was influenced positively by age, years spent in school, household labour, and member of farm organizations. While income level had a negative influence, the use of organic manure was influenced positively by age, years spent in school, farm size, and members of farm organizations. Integrated pest management was positively influenced by years spent in school, income level, farm size, household labour, and member of farm organizations while age had a negative influence. Lastly, irrigation was positively influenced by years spent in school, income level, farm size, members of farm organizations, and household labour. The study concluded that the combination of multiple SAPs adoption had a positive impact on farming in the study area and their adoption was influenced by socioeconomic, institutional, and cultural factors. Therefore, the study recommended that government should provide resources and infrastructure to improve the quality and outreach of extension services through field demonstration trials and training. To fast-track the adoption of SAPs by smallholder farmers, policymakers and NGOs should focus on improving farmers' access to financial institutes to address the credit constraints by farmers so that they can purchase these SAPs. This information will assist policymakers and extension agents in developing and promoting a package of SAPs that will be user-friendly to farmers. Key words: Adoption, Eastern Cape, Farmers, Food Security, Productivity, Sustainable agricultural practices

Implications of collateral constraints for the term premium

ABSTRACT This study examines the impact of credit constraints on the term premium in a production economy. To do so, we incorporate the Kiyotaki-Moore collateral constraint and Epstein-Zin-Weil preferences into a medium-scale New Keynesian Dynamic Stochastic General Equilibrium (NK DSGE) model with nominal rigidity. Our findings are twofold. First, credit constraint, a key ingredient of the financial accelerator channel, has significant effects on the term premium. Second, the loan-to-value ratio has non-linear effects on the term premium.

Asset bubbles, entrepreneurial risks, and economic growth

Entrepreneurs are exposed to large uninsured risks, which may discourage them from creating productive assets. This may generate productive asset shortages and stimulate speculative demand for bubbles. This study introduces uninsured entrepreneurial risks into a textbook growth model with infinitely-lived agents. In the model, entrepreneurs face no credit constraints. If the degree of entrepreneurial risks is in the middle range, bubbles are likely to emerge. If the degree is high, bubbles promote growth because of the wealth effect. Otherwise, bubbles lower growth. The effect of the collapse of bubbles also depends on the degree of the risks. Moreover, asset bubbles amplify a small and temporal negative technology shock.

What shapes student intentions? The interplay between policy, social and personal factors in postgraduate education

ABSTRACT The Master’s Loan Scheme in England was initially designed to support widening access to postgraduate education. However, the general increase in the average fees has posed a risk of reducing these schemes’ effectiveness in promoting social mobility, especially for debt adverse students. We use a multidisciplinary framework to build a model of postgraduate intentions to review the Fast Forward (FF) Master Scheme at the University of Greenwich in the UK. This framework underpinned the development of an online survey for this observational study. The results suggest that the FF allowed some graduates who, without the FF intervention, would have disregarded undertaking postgraduate taught studies (PGT) to consider studying for a PGT degree. Many of these graduates are from previously under-represented communities in the sector. We found that financial concerns could deter some students, but the intervention design allowed students to consider PGT study when they had a positive undergraduate experience. Alleviating the credit constraint may not be enough to widen access at the PGT level. Better information about PGT courses, more flexible delivery of PGT, and employment support, such as mentorship and work experience, and social and personal factors considerations could help widen access to PGT studies.

Digital Financial Inclusion, Land Transfer, and Agricultural Green Total Factor Productivity

Improving agricultural green total factor productivity is important for achieving high-quality economic development and the SDGs. Digital inclusive finance, which combines the advantages of digital technology and inclusive finance, represents a new scheme that can ease credit constraints and information ambiguity in agricultural production. First, this study focused on agro-ecological functions; we incorporated total agricultural carbon sequestration and emissions extraction into the evaluation system and used the mixed-direction-distance function to calculate agricultural green total factor productivity. Then, based on panel data from 31 provinces in China collected from 2011 to 2021, we used the two-way fixed effect model, the interactive fixed effect, and the plausibly exogenous variable method to test the impact of digital financial inclusion on agricultural green total factor productivity, and its mechanism of action. The panel-corrected standard error and fixed effect Driscoll–Kraay methods were used to account for the unobserved heterogeneity and cross-section dependence in the panel data. The results showed that digital financial inclusion can significantly improve agricultural green total factor productivity. This conclusion remained valid following robustness tests using the spatial econometric model and the method of changing explanatory variables. Digital financial inclusion can improve agricultural green total factor productivity by facilitating the transfer of agricultural land. Sound digital infrastructure and strict green credit policies enhance the role of digital inclusive finance in promoting the green development of agriculture. These conclusions could help the financial sector to formulate flexible, accurate, reasonable, and appropriate financial policies and products that would support agriculture, and enhance the role of digital inclusive finance in promoting sustainable agricultural development.

Divide or dividend: How digital finance impacts educational equality

Based on panel data from 31 provinces in mainland China from 2011 to 2021, this paper empirically investigates whether and how digital finance affects educational equity. The results show that the impact of digital finance on educational equity is dynamic, showing that it initially exacerbates educational inequality and later reduces it. The impact of digital finance on educational equity shows a marginal decreasing pattern. Digital finance promotes educational equity by alleviating the credit constraints of rural residents and narrowing the urban-rural income gap. This paper adds new empirical evidence to the long-term debate on the digital divide and educational equity.

Effects of credit and labor constraints on microenterprises and the unintended impact of changes in household endowments: Use of threshold estimation to detect heterogeneity

Effects of credit and labor constraints on microenterprises and the unintended impact of changes in household endowments: Use of threshold estimation to detect heterogeneity

Private Equity and Debt Contract Enforcement: Evidence from Covenant Violations

We document the importance of a financial sponsor when a borrower violates a covenant, providing creditors the opportunity to enforce debt contracts. We identify private-equity (PE) sponsored borrowers in the Shared National Credit Program (SNC) data and find PE-sponsored borrowers violate covenants more often than comparable non-PE borrowers. Yet, compared to non-PE, PE-backed borrowers experience smaller reductions in credit commitment upon violation, suggesting lenders are lenient with PE sponsors. Moreover, this leniency is stronger among financially healthier lenders. We show that our results are consistent with a repeated-deals mechanism, as lenders frequently interact with financial sponsors and choose to preserve relationship rent. Consistent with this mechanism, we find little evidence that PE-sponsored loans eventually underperform relative to non-PE-sponsored ones following covenant violations. Our findings have important implications for understanding heterogeneity in debt contract enforcement and credit constraints faced by distressed borrowers with financial sponsors.

Earnings-Based Borrowing Constraints and Macroeconomic Fluctuations

Microeconomic evidence reveals a direct link between firms' current earnings and their access to debt. This paper studies macroeconomic implications of earnings-based borrowing constraints. In a macro model, firms with earnings-based constraints borrow more in response to positive investment shocks, whereas firms with collateral constraints borrow less. Empirically, aggregate and firm-level credit responds to identified investment shocks according to the predictions with earnings-based constraints. Moreover, with sticky prices, earnings-based constraints imply that supply shocks are quantitatively more important. This is validated in an estimated version of the model, highlighting the importance of carefully modeling credit constraints to understand policy trade-offs. (JEL E22, E32, G31, G32)

Gender discrimination and inequalities in education expenditure in India

PurposeThe purpose of this study is twofold. Firstly, the study has investigated the changing scenario of gender bias in households' education expenditure and the socioeconomic factors responsible for it. Secondly, the study has estimated the inequality in education expenditure for the male and female students and determined the significance of socioeconomic variables in gender discrimination.Design/methodology/approachTo address the above-mentioned issues, this paper has used the unit-level data of NSSO 52nd, 64th, 71st and 75th rounds from 1995–1996 to 2017–2018. The log linear regression model is applied to estimate factor impending average education expenditure dynamics. The Oaxaca–Blinder Decomposition method has been employed to measure gender discrimination, and the Lorenz curve and Gini coefficient are used to assess inequality among girls experiencing prejudice.FindingsThe study has discovered an gender bias in education expenditure against females during the study period in India. Further, it has been found that gender discrimination against girl students is decreasing. Moreover, the factors such as age, religion, castes, MPCE (income quantile), type of institution, present enrolment and type of education are responsible for this gender differences.Originality/valueThis paper uses 20 years of household-level data for study and suggests that discriminatory behaviour of households and credit constraints of the underdeveloped countries prevent investment in girl's education. Therefore, the state must pay for education of girls by offering scholarships and free or heavily subsidized education. In addition to this, awareness programs for gender equality should also be implemented by the government, especially in rural areas.Peer reviewThe peer-review history for this article is available at: https://publons.com/publon/10.1108/IJSE-08-2022-0537.

Understanding the Relationship between Financial Literacy and Chinese Rural Households' Entrepreneurship from the Perspective of Credit Constraints and Risk Preference.

Farmers' entrepreneurship is an important factor in promoting rural economic growth, yet few studies have systematically discussed the impact of financial literacy. Using the 2021 China Land Economic Survey data, this study analyzes the relationship between financial literacy and Chinese rural households' entrepreneurship from the perspective of credit constraints and risk preferences by the IV-probit, stepwise regression, and moderating effects methods. This study finds that: (1) the financial literacy of Chinese farmers is low, with only 11.2% of the sample households starting businesses; and (2) Financial literacy can promote rural households' entrepreneurship. After introducing an instrument variable to control endogenous problems, the positive correlation is still significant; (3) financial literacy effectively alleviates the traditional credit constraints of farmers, thereby promoting entrepreneurship; (4) risk preference weakens the positive impact of financial literacy on rural households' entrepreneurship. This study provides a reference for optimizing entrepreneurship policies.

The moderating role of institutional and credit constraints on the nexus between bribery and policy consistency

ABSTRACT This article is the first to examine whether bribery hurts or promotes policy consistency for firms confronting institutional and credit constraints by using World Bank Enterprise Surveys covering 104 developing countries from 2002 to 2006. By using the questionnaire that is only available in the 2002-2006 survey, policy consistency is measured by firms’ perception of the degree of consistency in officials’ interpretation of the law. Bribery reduces the consistency of policy implementation. The adverse impact of bribery on policy consistency is evident only in lower-income countries. Furthermore, these effects become more significant for firms facing institutional and credit constraints.

Bribery and firm survival in Vietnam: Moderating effects of market competition, credit, and institutional constraints

AbstractThis paper examines the relationship between bribery and firm survival when facing different levels of market competition, credit constraints, and other institutional limitations. Using panel data from surveys of small‐ and medium‐sized enterprises in Vietnam over a 10‐year period and a semi‐parametric Cox proportional hazards model approach, we provide empirical support for the “greasing‐the‐wheels” hypothesis of firm survival. Effects are found to be more pronounced for formally registered and larger firms, explained by their greater bargaining power vis‐à‐vis public officials. Moreover, bribery as a “risk‐of‐exit” reducing strategy is found only for firms not institutionally or financially constrained and for firms operating in sectors with low levels of competition.

Mortgage credit and house prices: The housing market equilibrium revisited

Over the last decade, house prices have increased substantially in nearly all OECD countries. These house price increases frequently coincided with changes in mortgage credit conditions; i.e., decreases in the interest rate and increases in income. This is in line with existing literature, which finds an equilibrium relationship between mortgage credit and house prices. The literature, however, lacks an analysis of what drives the equilibrium, which we assess in this paper. Moreover, we propose a combination of two explanations discussed in the literature. That is, we argue that lower-income households are bound by credit constraints, while higher-income households have a preference for spending a fixed fraction of income on mortgage payments. We develop theoretical models for all three explanations and test the models using data on the Dutch property market. The empirical results clearly support the combined approach. Overall, the results suggest that it is important to differentiate between types of households when forecasting house prices or assessing the effectiveness of policy interventions.

Credit constraint and agricultural technology adoptions: evidence from Ethiopia

PurposeThis paper investigates constraints to yield enhancing technology adoptions, highlighting credit using data pooled from the first three waves of the Ethiopian socio-economic surveys.Design/methodology/approachDirect elicitation methodology is used to identify household's non-price credit rationing status. The panel selection model specified to examine causal effects of credit constraint on adoption variables allows us to tackle self-selection into adoptions and potential endogeneity of credit constraint while controlling for unobserved heterogeneity in both the selection and main equations.FindingsResults show that about 54% of sample households face credit rationing, predominantly demand-side risk rationing. There is a negative association between measures of credit constraint status and adoption variables. The effect is stronger when the demand-side credit rationing is accounted for and when within household variation in credit constraint status overtime is considered as opposed to across constrained and unconstrained households.Practical implicationsExpanding physical access to institutional credit alone may not necessarily spur increased uptake of credit and instant investment by farm households. For a majority of them to take advantage of available credit and improved technology, interventions should also aim at minimizing downside risks.Originality/valueThis paper incorporates the role of downside risk in influencing farmer's decisions to uptake credits and subsequently his/her adoption behaviors. The researcher approached the topic by state-of-the-art method which allows obtaining more reliable results and hence more specific contributions to research and practice.

How does digital finance affect consumer online shopping: A comprehensive analysis based on econometric model

We construct a comprehensive analytical framework to dissect the relationship between digital finance (DF) and consumer online shopping (COS) and its transmission mechanism based on panel data of 31 Chinese provinces from 2013 to 2020, applying spatial econometrics and mediation effect model. The conclusions are as follows: DF has a positive spatial spillover effect on COS, which means that DF not only stimulates local COS, but also can stimulate COS in neighbouring regions. DF encourages consumers to spend online by increasing residents' income, improving payment convenience, easing credit constraints, and improving residents' risk management ability.