Credit Constraints Research Articles

The impact of the forestland‐tenure disputes on the new type of forestry operating entity's long‐term investment: The intermediary effects on credit constraints

AbstractIn the context of the state's proposal to accelerate the development of new type of forestry operating entities in rural area, we provide an analysis of how forestland‐tenure disputes affect the long‐term investment behavior through credit constraints based on the perspective of forestland‐tenure disputes. Based on the survey data of 485 new type of forestry operating entities in nine provinces across China, the empirical analysis is conducted using the Tobit model and mediating effect model, while paying attention to the heterogeneity of management scale and different entity types on the impact of new type of forestry operating entity's long‐term investment behavior. The conclusions are as follows: both forestland‐tenure disputes and dispute areas have a significant negative impact on the new type of forestry operating entity's long‐term investment. In addition, forestland‐tenure disputes not only have a direct negative impact on the long‐term investment but also have an indirect negative impact on the long‐term investment by constraining the new type of forestry operating entity's bank loan and expanding the loan gap. It is suggested to improve the forestland trading market, regulate the order of trading, and implement the policy of forest tenure mortgage to provide stable policy guarantee and external conditions for fully activating the vitality of forestland management.

Relationship-specific investments for up- and downstream firms and credit constraints

This paper argues that there exists a fundamental asymmetry between relationship-specific investments (RSI) made for downstream firms (customer-specific investments – CSI) and for upstream firms (supplier-specific investments – SSI). Both types of RSI can create a hold-up problem, but everything else equal, suppliers have higher bargaining power, rendering hold-ups by suppliers more dangerous than hold-ups by customers. Using unique data on Vietnamese SMEs that allow for a clean separation between CSI and SSI, we demonstrate that this leads to less frequent SSI and that the few firms making SSI will be more risky and financially constrained. We discuss the implications of this finding for supply chain management and public policy destined to foster RSI.

Credit constraints and open innovation strategies

Credit constraints and open innovation strategies

How Finance and Firms Can Accelerate the Green Transition

Access to bank credit and the quality of firms’ management both play important roles in determining how much businesses invest in energy efficiency and pollution reduction. While credit constraints can hinder firms’ ability to invest in capitalintensive clean technologies, such as machinery and vehicle upgrades, bad management practices often also pose a significant barrier. Firms with better green management practices – as measured by their environmental objectives, targets and monitoring systems – are more likely to invest in a wide range of green projects, from waste reduction and recycling to energy and water management. Based on a comprehensive survey of the recent literature, this article argues that policies aimed at facilitating access to green finance should be combined with initiatives to help business leaders become better green managers.

Research on the Impact of Green Credit Policy on Green Innovation of Heavy Polluting Enterprises—Based on the Perspective of Credit Constraint

Research on the Impact of Green Credit Policy on Green Innovation of Heavy Polluting Enterprises—Based on the Perspective of Credit Constraint

Do Firm Credit Constraints Impair Climate Policy?

Do Firm Credit Constraints Impair Climate Policy?

Revisiting the monetary transmission mechanism via banking from the perspective of credit creation

<abstract> <p>Many transmission channels of monetary policy have been proposed to enrich and deepen the understanding of its mechanisms. However, some channels have not been clarified, particularly for those unconventional quantitative policies implemented after 2008 financial crisis. In this paper, we develop a unified model of a credit economy where bank regulations and decisions and loanable funds market are placed at a central position, while stocks and flows are incorporated with each other to formulate banks' credit creation and circulation. We find that bank regulations can induce some new channels of monetary transmission by imposing credit constraints, including the new bank capital channel, the credit supply channel, the new bank balance sheet channel, and the new bank risk-taking channel. Comparing these channels with the traditional ones, we underscore the impact of bank regulations on monetary transmission. As aggregate demand can be decomposed into two monetary flows generated by money circulation and bank lending respectively, the direct channels of monetary transmission to aggregate demand can be renewed as follows: the money channel, the narrow money circulation channel, the new bank lending channel, and the repayment channel. In addition, based on the relevant data from the United States, we have conducted vector autoregressive (VAR) impulse response analysis to confirm the effectiveness of some direct channels. Our work not only aids in revisiting the monetary transmission from a credit view but also facilitates the assessment of efficiency of monetary policy.</p> </abstract>

Green Credit Policy and Corporate Green Innovation in China

Purpose - The study aims to explore the impact of green-credit policies on the green innovation of Chinese enterprises and analyzes the moderating effects of green credit constraints on industry enterprises, as well as commercial credit and financing constraints.
 Design/Methodology/Approach - In this paper, the theory of sustainable development, the Porter Hypothesis, and the theory of financing constraints are combined to analyze the impact of green credit policies on corporate green innovation using A-share listed companies from 2007 to 2021 as research samples. The Differences-in-Differences (DID) model is used. The DID model can eliminate the effects of time and individual fixed effects by comparing the differences between the treatment group and the control group, thereby providing a more accurate estimation of the policy’s impact.
 Findings - The research results show that green credit policies have played an important role in promoting corporate green innovation. Enterprises actively engaged in green innovation have achieved good development after implementing green-credit policies through structural adjustments and improving market competitiveness.
 Research Implications - The impact mechanism of green credit on the green innovation of industry enterprises can provide reference for the formulation and optimization of green financial policies, promote sustainable development of enterprises, realize the transformation and upgrading of the green economy, and have positive significance in promoting green governance and sustainable development.

The impact of monetary policy shocks on net worth and consumption across races in the United States

The aim of this paper is to determine whether monetary policy has a heterogeneous impact on net worth and consumption across races in the United States by applying several empirical methodologies and combining macro and micro data. The results suggest that an expansionary monetary shock increases the race gap in the short run in terms of net worth and that this is explained by differences in portfolio composition, especially between black and white households. Consequently, the heterogeneous wealth effect among these racial groups means that white households retain a higher elasticity than some minorities with respect to different forms of consumption as a consequence of a monetary policy shock. Although the heterogeneous effects of monetary policy across race are primarily explained by the different observable characteristics of households, a non-negligible part of this heterogeneity could be explained by the credit constraints faced by racial minorities that determine the composition of their wealth.

Study on the Path and Mechanism of Digital Inclusive Finance on Economic Growth

Over the past four decades of reform and opening up, China's economy has achieved a high average annual growth rate of over 9 per cent, becoming the second largest economy in the world. At the same time, China's financial reform and development has been continuously optimized, and the financial industry has maintained rapid development. With the accelerated integration of new-generation digital technology and inclusive finance, the flourishing development of inclusive finance has added strong momentum to the financial services economy. Based on the relevant research literature on inclusive finance at home and abroad and the characteristics of digital finance, we constructed the evaluation index system of cross-country digital inclusive finance level and the evaluation index system of provincial digital inclusive finance level, and evaluated the development level of digital inclusive finance in 31 provinces (municipalities directly under the central government) in China. On this basis, the impact of digital financial inclusion on economic growth is comprehensively analyzed from two perspectives (temporal and spatial dimensions) and two levels (cross-country and provincial levels), and the empirical evidence is analyzed from the temporal dimension by using traditional econometric analysis methods. The increase in the level of digital inclusive finance in a region has a significant contribution to the region's economic growth, and the mediating effects of credit constraints, entrepreneurship, investment and urban-rural income gap between digital inclusive finance and economic growth are proposed and verified through the decomposition of the direct-indirect effects and heterogeneity of the spatial Durbin model. Policy recommendations are proposed through relevant research results to help China's further economic development.

Aversion to Student Debt? Evidence from Low‐Wage Workers

ABSTRACTWe combine state minimum wage changes with individual‐level income and credit data to estimate the effect of wage gains on the debt of low‐wage workers. In the three years following a $0.88 minimum wage increase, low‐wage workers experience a $2,712 income increase and a $856 decrease in debt. The entire decline in debt comes from less student loan borrowing among enrolled college students. Credit constraints, buffer‐stock behavior, and other rational channels cannot explain the reduction in student debt. Our results are consistent with students perceiving a utility cost of borrowing student debt arising from mental accounting.

Harvesting the Rain: The Adoption of Environmental Technologies in the Sahel

Abstract Many agricultural and environmental technologies require upfront investments. This may deter adoption, particularly in settings characterized by information liquidity and credit constraints. We test for these barriers to the adoption of an agricultural technique that helps address land degradation in Niger. We find little evidence that liquidity or credit constraints deter adoption: instead, providing farmers with training increases the share of adopters by over 90 percentage points. Conditional or unconditional cash transfers have no additional effect. Adoption increases agricultural output and reduces land turnover in the longerterm. In our setting, training provides both specific technical knowledge and addresses behavioral constraints.

A Study on the Operational Mechanism and Practical Experience of Digital Agricultural Industrial Chain Finance: A Case Study of Leading Enterprise Dominant Model

To alleviate the credit constraint problem of farmers, a financial model of the agricultural industry chain has emerged in China, and has undergone digital transformation with the development of digital technology. In order to explore the operation mechanism of the digital agricultural industry chain finance, this study, based on the review of its typical models, takes the leading enterprise dominant model as an example. Combining the case of chili agricultural industry chain finance in Xiangcheng County, Henan Province, this paper starts from the problems existing in the local traditional industry chain finance, and analyzes the specific process and operation mechanism of the leading enterprise dominant digital agricultural industry chain finance model. The study finds that the local digital agricultural industry chain finance has realized direct data transmission between farmers and financial institutions by building its own e-commerce platform within the leading enterprises. This helps to improve the efficiency of farmer loans, reduce the cost of risk identification for financial institutions, optimize the efficiency of capital turnover, and thus break through the drawbacks of traditional industry chain financing methods, easing the credit constraints faced by farmers. The possible contribution of this paper is that by analyzing the breakthroughs achieved in the digital transformation process of the chili industry chain finance in Xiangcheng County, it provides empirical references for the development of digital agricultural industry chain finance in China.

Did High Leverage Render Small Businesses Vulnerable to the COVID‐19 Shock?

AbstractUsing supervisory data on small and midsized nonfinancial enterprises (SMEs), we find that those SMEs with higher leverage faced tighter constraints in accessing bank credit after the COVID‐19 outbreak in spring 2020. Specifically, SMEs with higher pre‐COVID leverage obtained a smaller volume of new loans and had to pay a higher spread on them during the pandemic period. Consistent with an inward shift in loan supply, these effects were concentrated in loans originated by banks with below‐median capital buffers. Highly levered SMEs that relied on low‐capital large banks for funding before the pandemic were not able to substitute to other sources of debt financing and thus experienced more of a reduction in total debt as well as a decline in investment and employment. On the other hand, the unprecedented public support, especially the Paycheck Protection Program (PPP), mitigated the adverse real effect stemming from bank credit constraints.

Does energy efficiency of UK SMEs affect their access to finance?

To effectively mitigate climate change, a crucial focus area is enhancing energy efficiency in firms and industries. This objective becomes even more imperative in light of the recent escalation in energy prices caused by the Russo-Ukrainian war. Given the limited financial resources of Small and Medium Enterprises (SMEs), facilitating their access to finance becomes a potential avenue for reducing carbon emissions. Based on our knowledge, this is the first study that analyses the potential impact of energy efficiency on access to finance for SMEs in the UK. We consider a dataset of 2855 UK firms from 2015 to 2021 collected from the Longitudinal Small Business Survey. We find that energy efficient companies and firms that show energy saving behaviours are facing fewer credit constraints. These results are robust if we control for several company characteristics, including age, size, turnover, industry, location, and legal status.

Environmental Credit Constraints and the Enterprise Choice of Environmental Protection Behavior

Choosing appropriate environmental protection strategies is important in improving enterprises’ economic and environmental performance. Based on the data of A-share listed enterprises from 2009 to 2019 in China, this paper uses the difference-in-differences model to identify the effects of environmental credit constraints on the enterprise choice of environmental protection behavior. We find that environmental credit constraints motivate some enterprises to choose active environmental behavior due to the incentive effect of environmental credit constraints on R&D investments. However, some enterprises may adopt evasive strategies because environmental credit constraints increase production costs and debt. State-owned enterprises prefer active environmental protection strategies to address environmental credit constraints, while private enterprises mainly adopt evasive strategies. Environmental credit constraints make high-interest and high-profitability enterprises choose active environmental strategies. Environmental credit constraints generated by enterprises’ evasive environmental behavior increase the probability of litigation and arbitration cases, and environmental credit system construction in the short term may exacerbate unemployment, which the government needs to pay attention to when developing and implementing a blacklist system for environmental fraud. Although there are limitations in this paper in terms of research objectives and samples, the results are important for improving the environmental management system and the operating performance of enterprises.

Consumer demand and credit supply as barriers to growth for Black-owned startups

We formulate a framework showing that differences in capital returns and capital intensity between groups of firms can identify relative differences in consumer demand and credit constraints. Using micro-data on Black- and White-owned startups, we find robust evidence that Black-owned startups have lower capital returns, implying that Black-owned startups face lower consumer demand due to race. In contrast, we find mixed evidence of tighter credit constraints due to race. We further show that differences in capital returns are persistent over time, whereas capital intensity differences are transitory. This suggests that lower demand, rather than credit constraints, might be the main barrier to growth for Black-owned startups.

Competition from informal firms and new‐to‐market product innovation: A competitive rivalry framework

AbstractAlthough informal firms are rare in developed economies, they are prevalent in emerging economies and create significant competitive pressure for formal firms. Recent literature has focused on the effects of informal competition on product innovation, but the results have been inconsistent. This discordance motivated this study. Drawing on insights from competitive rivalry, this study investigates how informal competition affects formal firms’ product innovativeness (i.e., whether to develop new‐to‐market products or not). Using a sample of firms operating in Eastern Europe and Central Asia from the World Bank Enterprise Survey, we find that if formal firms encounter intense competitive pressure from informal firms, they are less inclined to develop new‐to‐market products. Furthermore, credit constraints strengthen the adverse effect of competitive pressure from informal firms on the development of new‐to‐market product innovation, but state legitimacy weakens this effect. This investigation provides insight into the barriers to innovation in emerging economies and adds to the existing literature by highlighting the need to consider the varied effects of informal competition on different types of product innovation.

The determinants of credit restrictions and their impact on micro firms: the case of Colombia

PurposeThis article analyzes the determinants of credit constraints and their effects on the productivity of micro-firms in Colombia.Design/methodology/approachAn Endogenous Switching Regression Model (ESRM) is estimated to analyze credit constraint impact on economic performance.FindingsThe results show that owner characteristics such as age and gender decrease the likelihood of being constrained. Firms' characteristics, such as legal status, the formality of the employees, commercial property and savings, are important for reducing credit constraints.Originality/valueThis article discusses how formal credit restrictions harm the economic performance of Colombia's micro-firms. The results show that the productivity of the micro firms in Colombia could increase, on average, by U$ 825 USD when all types of restrictions are eliminated.

Bound by ancestors: Immigration, credit frictions, and global supply chain formation

This paper shows that the ancestry composition shaped by century-long immigration to the US can explain the current structure of global supply chains. Using an instrumental variable strategy combined with a novel dataset that links firm-to-firm global supply chains with their location information and historical migration data, we find that the co-ethnic networks have a positive causal impact on global supply chain relationships between foreign countries and US counties. The positive impact not only exists in supplier–customer relationships but also extends to strategic partnerships and trade in services. The positive impact is stronger in counties in which a larger number of firms are credit constrained, and such a stronger effect becomes even more pronounced when foreign firms are located in countries with weak contract enforcement. The results suggest that co-ethnic networks serve as social collateral to overcome credit constraints and facilitate global supply chain formation.