Credit Market Research Articles

State servants, cash, and credit market modernizations in early modern Stockholm

State servants, cash, and credit market modernizations in early modern Stockholm

Investment Inclusion of the Credit Market of Ukraine

Investment Inclusion of the Credit Market of Ukraine

Taxing versus subsidizing debt under financial frictions

AbstractWe examine optimal credit market policies in two models with durables/capital as collateral. Pecuniary externalities rationalize ex-ante debt taxes as macroprudential regulation, achieving constrained efficiency. Ex-post debt subsidies can implement first-best by stimulating collateral demand. Due to the same effect, debt subsidies that are constant over time can be superior to debt taxes. Saving subsidies can further enhance efficiency by addressing distributive effects of pecuniary externalities via interest rate reductions. The analysis shows that debt-increasing subsidies can outperform macroprudential regulation, and that constrained inefficiency caused by collateral externalities is insufficient to establish debt taxes as optimal credit market policies.

Microfinance institution and moneylenders in a segmented rural credit market

Purpose The effectiveness of microfinance institutions (MFIs) in rescuing poor borrowers from “clutches of” moneylenders has been a much-debated topic over the past few decades. This paper aims to contribute by presenting a model of competition between a socially motivated MFI and profit-maximizing moneylenders when market segmentation exists. Design/methodology/approach A principal–agent model is used to characterize equilibrium conditions under scenarios where only moneylenders operate, only MFI operates and when both co-exist to pose comparative results effectively. Findings The authors find unambiguous benefits arising when a welfare-maximizing MFI enters the market. However, there are benefits to having local agents like moneylenders on the ground who also have informational advantages. Originality/value To the best of authors’ knowledge, this study is the first to evaluate the competition between MFI and moneylenders under the framework of captive and noncaptive segments with a mandatory savings requirement.

Municipal Waste Treatment: Climate Change Mitigation Impacts and Carbon Credit Market Effects

Objective: Analyze the feasibility of proposing a comprehensive methodology for inventorying greenhouse gas (GHG) emissions from urban waste, with the goal of enhancing the attractiveness of carbon credits and demonstrating their impacts on climate mitigation. Theoretical Framework: The research is grounded in theories related to climate change, the circular economy, and urban waste management. Global warming is discussed through the works of authors such as David Wallace-Wells and José Goldemberg, alongside concepts from the GHG Protocol and Life Cycle Assessment (LCA). Method: The methodology involves a bibliographic review, document analysis, and exploratory research using secondary and qualitative data. Scientific articles and documents from organizations such as the IPCC and EMBRAPA, among other academic sources, were utilized. Results and Discussion: The research emphasizes that proper management of urban waste, aligned with the principles of the circular economy, can substantially reduce GHG emissions. "Zero Waste" projects are analyzed as viable alternatives for mitigating emissions and obtaining carbon credits. The Life Cycle Assessment (LCA) of products is identified as crucial for inventorying emissions across various stages of the life cycle, thereby facilitating the certification process for carbon credits. Research Implications: The proposed methodology can encourage new investments in recycling and waste reuse, as well as support the establishment of waste treatment units that maximize resource recovery and minimize environmental impacts.Originality: This study contributes to the literature by presenting an innovative approach to the management of urban waste and carbon credits, highlighting the importance of LCA in certifying reduced emissions. Originality: This study contributes to the existing literature by introducing an innovative approach to urban waste management and carbon credits, underscoring the importance of LCA in the certification of reduced emissions.

Does money buy innovation? The effect of the “Innovative City” pilot on firm innovation in China

This study investigates the “Innovative City” pilot in China and its impact on fostering firm innovation by alleviating financial constraints. Employing difference-in-differences-in-differences approach, we provide strong evidence that the policy significantly boosted firm innovation capabilities, measured by increased patenting. A key mechanism is the program's expansion of bank credit access for firms, particularly benefiting financially constrained firms. Furthermore, the positive impact is amplified in regions with more developed banking sectors and for firms with pre-existing bank relationships, highlighting the role of market frictions. These findings highlight the pivotal role of a competitive and transparent credit market.

Asymmetrical Monetary Relations and Involuntary Unemployment in a General Equilibrium Model

Abstract This article aims to model Keynesian involuntary unemployment within the framework of Walrasian general equilibrium, incorporating an additional hypothesis: the possibility of credit restrictions by banks or financial intermediaries. Keynes’s theory of involuntary unemployment is based on the rejection of the “second classical postulate,” which leads to the idea that entrepreneurs alone decide the level of employment. This is what some Keynesians call the asymmetry of the wage relationship. The result is a restriction of Walras’ law, which no longer includes the labor market. However, the problem is that entrepreneurs themselves may find themselves constrained by financial intermediaries. If there is a second type of asymmetry, i.e., between banks/financial intermediaries and entrepreneurs, Walras’ law will be doubly restricted since it will also exclude the credit market. I set out to identify the consequences of the properties of involuntary unemployment in a general equilibrium model.

Macroprudential regulation, bank stability, and the credit market in Kenya

Macroprudential regulation, bank stability, and the credit market in Kenya

It’s not (only) personal, it’s business: personal bankruptcy exemptions and business credit

Abstract In the USA, state-level exemptions determine the amount of property that individuals can protect from creditor liquidation during the debt settlement process. We exploit within-metropolitan statistical area variation in personal bankruptcy exemptions created by state borders and a stacked regression approach to identify the spillover effects of these laws on business credit extended to small firms. Subsequent to exemption increases, we find a reduction of 1–2 percent in originations of business credit. The effect is strongest for the smallest firms, which are more financially constrained. We provide household-level evidence that both business debt and personal debt decline for borrowers whose home equity becomes covered by the exemption, suggesting an overall decrease in credit availability for small businesses. As a result, increases in exemptions lead to fewer small establishments and lower employment, especially in industries dependent on external finance, suggesting that negative real economic effects occur via a credit market channel.

Corporate ESG performance and credit misallocation: Evidence from China

Using data from Chinese-listed companies from 2010 to 2020, this paper investigates the impact of corporate environmental, social, and governance (ESG) performance on credit misallocation. We find that ESG performance significantly reduces credit misallocation, which remains robust to various sensitivity tests. Mechanism analysis reveals that ESG reduces credit misallocation by alleviating information asymmetry. This “information supplementary effect” is primarily evident at the firm rather than the macro level. Further discussion reveals a more pronounced impact of ESG in firms with lower profitability and higher market competition, as well as those located in less financially developed regions. However, this impact becomes less salient during periods of credit expansion. Our research highlights the importance of corporate ESG performance in deterring information asymmetry, and provides insights into improving the resource allocation efficiency in the credit market.

MAIN DIRECTIONS OF BANK LOANS IN CREDIT MARKET

Financial analysis in credit market and commercial banks, which have been an important factor of economy and human life and activity currently, study of financial-economic results of activity of a bank, determination of main directions of development of the bank and main factors of financial business processes, determination of purpose-oriented special knowledge and growth rates, etc. Different economic sources, internet materials have been applied as a theoretical and methodological basis. As systematization of loans in bank lending system is a theme of the research, methods such as analysis, induction and deduction have been used. Main scientific innovation that has been put forward: In this field, one of the most important issues is, certainly, organization of organization system of information issues, which have the most significant role in determining and implementation of successful demand and supply of bank loans in credit market and main directions of bank loans in credit market. Results of the research: Finding perspective improvement ways of commercial banks Development of credit system, directly improved by banks, significantly positively effects progress of country economy Information tools and technology play the most important role in improving credit market now.

Factors Influencing Informal Credit Access and Utilization among Smallholder Farmers: Insights from Mountainous Regions of Pakistan

Access to credit plays an important role in the adoption of modern agricultural practices, such as better seeds, pesticides, and fertilizers, as well as in the sustainable utilization of land by smallholder farmers. This study explores the dynamics of smallholders’ access to and utilization of informal credit to manage local farming systems. The data were collected from rural households in the Dir Kohistan mountainous region of Pakistan in 2021. A bivariate probit model was employed to analyze the data from 300 randomly selected farming households. Our findings indicate that a significant proportion of respondents (70%) reported having access to informal credit, with 65% actively utilizing credit to bolster the economic viability of their farms. This study reveals various strategies that farmers employ in response to credit constraints. The majority of farmers (69%) prioritize meeting their own farm/household needs. Social networks, particularly friends, emerge as key sources of informal credit (58.1%). The results of the bivariate probit regression analysis identify positive relationships with fellow farmers and neighbors/relatives, along with a lower perceived risk, as the most significant factors influencing access to and utilization of informal credit. Therefore, our study recommends the promotion of relationships and linkages among farmers through facilitated networking events, introducing risk mitigation measures and promoting financial literacy programs to empower smallholder capacities on the credit market. Policymakers are urged to recognize the role of social relationships and consider policies that promote community credit practices for the overall financial well-being of farmers, especially in more isolated mountain areas.

Elusive competition: impact of non-bank credit providers’ financing on credit market competition

Elusive competition: impact of non-bank credit providers’ financing on credit market competition

Credit Market Frictions and the Linkage Between Dispersion and Macro Uncertainty

Cross-sectional dispersion and macro uncertainty (volatility of aggregate economic variables) are conceptually distinct. However, empirically, they both comove and are countercyclical. This paper builds a general equilibrium model and demonstrates that credit market frictions allow cross-sectional dispersion to drive time-varying macro uncertainty endogenously. In the model, as firm-level productivity becomes more dispersed, more firms are pushed to the left tail of the productivity distribution, resulting in more defaults and a depletion in aggregate net worth. This mechanism generates countercyclical leverage and aggregate volatility. The model implies that the government can inject equity in economic downturns to stabilize aggregate volatility. This paper was accepted by Lukas Schmid, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.00166 .

Using machine learning to investigate the determinants of loan default in P2P lending: Are there differences between before and during COVID-19?

The coronavirus disease (COVID-19) has led to a persistent increase in the volatility of the credit market and triggered a series of financial distress and bankruptcy. To investigate whether there are differences in loan default determinants before and during COVID-19 and to identify the most effective predictors of loan default during COVID-19, this study employs machine learning methods to establish a comprehensive loan default prediction model for Peer-to-peer (P2P) lending based on four perspectives: loan characteristics, credit transaction history, personal information, and macroeconomic environment. The results show that the EXtreme Gradient Boosting (XGBoost) outperforms the other models and that credit transaction history plays a vital role in forecasting loan default over the two periods. We also find discrepancies between the effects of consumer price index, purchasing manager’ index, and the number of bidders on loan default before and during the pandemic. Our study contributes to related research fields on loan default prediction by identifying loan default determinants that are more applicable to unstable periods and investigating the impact of COVID-19 on default predictions. Meanwhile, our findings can provide P2P lending investors, platforms, and policymakers with practical implications to reduce uncertainty and losses that result from similar black swan events.

How Does a Health Insurance Program Covering 500 Million Poor Impact Credit Market Outcomes?

I study the impact of the world’s largest publicly funded health insurance plan for the poor on credit markets. India launched a health insurance plan that covered 500 million beneficiaries. The fact that opposition-ruled states did not implement the program for political reasons allows me to compare border districts of implemented and nonimplemented states within a difference-in-differences framework. I find that loan delinquency reduced significantly in implemented districts. Increased liquidity for loan repayment seems to be the mechanism at work. I rule out the federal-level ruling party’s influence as an explanation. This paper was accepted by Kay Giesecke, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.01039 .

Assessing the Pandemic Aviation Crisis: Speculative Behavior, Government Bail Outs, and Accommodative Monetary Policy

The COVID-19 pandemic was a health, economic, and financial crisis. The aviation sector was one of the most severely hit. Despite the extensive literature on this, COVID-Finance has been focused on stock returns, neglecting what could be learnt from the spreads of airlines’ credit default swaps (CDSs). This would seem of the utmost importance, given the epicenter of the crisis within the credit market. In this paper, an in-depth analysis of airlines’ CDS spreads is conducted. It is found that they were severely hit, for all airlines studied. However, the results of the PSY test showed that speculative trading led the surge, as explosive roots were found in the spreads of all these aviation firms. The dramatic increase in CDS spreads has contributed to already high borrowing costs for airlines. Our results suggest that aviation bail outs have helped to mitigate spreads’ explosiveness. Monetary policy measures have also limited, albeit indirectly, the funding risk posed by the government bail outs. By the end of March 2021, spreads were no longer explosive, and were approaching, at highly heterogeneous paces, their pre-pandemic values. Notwithstanding, airlines’ stock prices have been notably resistant to recovery.

Fast payment, credit and bank diversification: the impact of Pix adoption on the local credit market structure

PurposeIn this article, the research objective is to empirically investigate the effect of the adoption of the Brazilian instant payment system, Pix, on the local credit market structure and the diversification of the banking system in Brazilian municipalities.Design/methodology/approachBy analyzing the data, in this study, we compile and align data from supervisory and public sources, covering the period from 2019 to 2022 in Brazil. As of 2014, Brazil was comprised of 5568 municipalities distributed across five regions: North (450 municipalities), Northeast (1792), Midwest (467), Southeast (1668) and South (1191), according to the Brazilian Institute of Geography and Statistics (IBGE). Our analysis relies on the volume and quantity of Pix to the outstanding credit operations in Brazil.FindingsThis article provides evidence that the widespread adoption of Pix has impacted the financial structure of municipalities. This analysis of banking concentration in the country and municipalities, based on banking relationships, helped us assess whether the adoption of Pix had any correlation with the increase in credit lines. Overall, the results from the statistical tables suggest that the adoption of Pix may be having a positive impact on the local credit market structure.Originality/valueThe originality contribution of the study is to initiate an investigation into the impact of this instant payment system, Pix, on the Brazilian reality. Pix was launched in 2020, amid the COVID-19 pandemic, and had significant numbers, such as over 61% of the adult population having at least one Pix key registered in a little over a year; about 100 million people made at least one payment with Pix; and more than 1.4 billion transactions per month, with 72% between individuals, as presented by the REB 2021.

Technical and economic feasibility of hybrid power generation from urban solid waste associated with solar energy, considering the impact of the sale of carbon credits

In the global context of energy transition, from a model dependent on fossil fuels to a low-carbon matrix, hybrid plants, those that combine more than one energy source, prove to be an effective strategy for the increasing of the use of renewable energy sources. Furthermore, the creation of instruments that consider the environmental benefits of energy sources, such as the carbon credit market, which allows the trading of avoided CO2 emissions in the energy generation process, can contribute to the economic viability of low emission sources. In this sense, the objective of this research was to analyze the technical and economic feasibility of hybrid generation from municipal solid waste (MSW) associated with photovoltaic energy, to meet the demands of small city councils in Brazil, considering the commercialization of carbon credits. The economic indicators Net Present Value (NPV), Internal Rate of Return (IRR), Capital Payback Time (PAYBACK) and Levelized Cost of Energy (LCOE) were calculated for four different MSW management scenarios of the Intermunicipal Consortium of Municipalities of the Alto Sapucaí for Sanitary Landfill (CIMASAS, in portuguese), considering different percentages of recycling of dry and organic materials. The generation modalities Self-Production (APE, in portuguese) and Mini and Micro Distributed Generation (MMGD, in portuguese), provided for in the Brazilian regulatory framework, were considered. The results demonstrated that there are technical and economic viability in the proposed hybrid generation in all scenarios analyzed, and as the percentage of recovery of recyclable materials increases, there is an improvement in economic indicators. On average, in the APE modality, the NPV was 49.10 % higher than in MMGD, the IRR was 21.66 % higher, the payback was 51.68 % lower and the LCOE was 40.80 % lower than in MMGD. The inclusion of revenue from the sale of carbon credits promoted an average increase of 47.33 % in NPV, 24.09 % in IRR, and a decrease of, on average, 28.17 % in payback and 40.57 % in LCOE, in APE modality. In the MMGD modality, there was an average increase of 134.99 % in NPV, 39.46 % in IRR, and a decrease of, on average, 38.61 % in payback and 36.98 % in LCOE. These results demonstrate how the incorporation of environmental valuation in energy generation can contribute to increasing the economic attractiveness of hybrid generation from renewable sources.

The importance of green patents for CDS pricing: The role of environmental disclosures

Corporate green innovation to address global climate change has potential spillover effects through positive financial outcomes. This study examines how the credit market takes green innovation, measured by the approval of green patents, into account to determine the credit default swap (CDS) premia. Using a sample of United States (US) firms from 2002 to 2020, this research finds that the CDS market favourably prices green innovation: firms with more green patents have lower CDS spread, suggesting that the CDS market considers firms' green innovation in their investment decision. While greater firm-provided environmental disclosures boost the effect of green innovation, involuntary environmental exposures by external channels such as print and online media offset the favourable effect of green innovation on CDS spread. The green technology pilot program by the US Patent and Trademark Office in 2009 is exploited as a quasi-natural experimental setting to apply a difference-in-differences analysis, confirming the favourable effect of green innovation on CDS spread. The results remain robust to various sensitivity and other endogeneity tests. Managers intending to reconcile green innovation with their stakeholder value maximisation objective may find the findings interesting.