Credit Market Research Articles

ECONOMIC CONDITIONS OF THE DEMAND FOR INVESTMENT AND WORKING CAPITAL LOANS FOR MICRO-ENTERPRISES – RESEARCH FOR POLAND DURING COVID-19

Aim: The study aims to find an answer to the question of whether and how the economic indicators in the industrial processing, construction, trade, and services sectors reflect changes in the market size related to investments and working capital loans for micro-enterprises. Methods: The study used data on investment and working capital loans and data on economic conditions. Monthly data for the years 2019–2021, covering the period of the COVID-19 pandemic, were used for the analyses. The estimation of dynamic models was carried out using the Generalized Method of Moments (GMM). Results: The conducted research showed that economic factors play a significant role in shaping the demand for investment and working capital loans in the micro-enterprise sector, but the impact of the economic situation was more significant in the case of investment loans than working capital loans. In periods of economic prosperity, micro-enterprises are more likely to take out investment loans than in periods of economic downturn. Micro-enterprises’ propensity to take out working capital loans is more dependent on their current situation and expectations regarding the demand for products and services. Conclusions: The research revealed differences in the characteristics of the factors significantly influencing the demand for credit, depending on the sector to which the indicator is concerned. The research shows that access to external financing is crucial for the functioning, survival, and expansion of micro, small, and medium-sized enterprises. The research fills the literature gap by showing how the economic situation in individual industries affects the credit market for the micro-enterprises sector.

Differential taxation in agricultural credit market

AbstractThis study examines whether the market competitiveness of farm loan suppliers is affected by the US tax policy for the farm credit system (FCS) and its potential spillover on the farmers' cost of borrowing. We exploit the variation in the corporate income tax rate to estimate its relationship with the farm debt share of the FCS and the potential spillover effect on the estimated cost of borrowing for agricultural loans. Results suggest that a 10% rise in the state (federal) tax rate is associated with an increase in FCS's total farm debt market share by 1.76% (3.76%). A 10% rise in the FCS total farm debt market share tends to increase the cost of borrowing on agricultural loans by 0.06%. Overall, the findings imply that favorable tax treatment could increase FCS' competitiveness in the agricultural lending market. Also, an increase in the interest rate on farm debt is correlated with the increasing market share of FCS in the agricultural credit market. [EconLit Citations: Q14, N22, H2, H7, G21].

Credit networks and business dynamics in a viceregal capital: Santafé de Bogotá in the age of Charles III

This article provides aggregate data on credit flows in Santafé de Bogotá, the capital of the Viceroyalty of New Granada (present-day Colombia, Ecuador and western Venezuela). By perusing a thorough report submitted to Bourbon authorities on notarial transactions, which included both ecclesiastical and non-ecclesiastical loans in the city, the article estimates the volume and size of lending activity while exploring how distinct types of credit interacted and shaped the business milieu of the region. It argues that by the late 1770s, Catholic Church lending had ceased to be the main source of investable funds in the region, with merchants and other non-ecclesiastical investors injecting growing funds into sectors traditionally avoided by ecclesiastical lenders such as commerce, mining and manufacturing. Network analysis suggests that merchants became brokers between different credit sources, alleviating information asymmetries and opening the credit market to borrowers with collateral and institutional restrictions willing to pay higher interest rates. Finally, by focusing on New Granada, the largest gold producer of the Spanish Empire, the article identifies some distinctive credit patterns that are different from those developed in silver-driven economies such as New Spain and Peru. Thus, the article provides new paths to study Latin American financial history.

Credit market regulations and bank loan pricing

While loan pricing is a crucial factor determining economic growth, the literature lacks evidence on the impact of credit market regulations on loan prices. Using a panel of 139 economies from 2002 to 2020, we find that liberalising credit regulations, particularly credit to the private sector and the controls of interest rates, reduces the cost of bank loans. Bank ownership does not reveal itself as an important driver of loan prices. Delving into the mechanisms behind our findings, we find that liberalising credit market regulations reduces liquidity shortage, economic uncertainty, as well as economic risk, which enables banks to charge lower on loans because they face lower downside risks. Our empirical findings offer important policy implications to policymakers, especially those in emerging/developing countries because the impact of credit market regulations on loan prices is more pronounced in those economies.

Credit Markets, Property Rights, and the Commons

Credit Markets, Property Rights, and the Commons

Endogenous property rights, credit market, and economic development

AbstractEmpirical evidence suggests that credit markets can catalyze property rights reforms. We illustrate this in a theoretical framework where a borrower must expend costly effort to protect output from predation. We consider two possible equilibrium loan contracts. In the first, lenders leave the decision to protect output to borrowers. In the second, lenders set the standard of property protection as a precondition for lending. The second contracting regime results in a higher level of property rights enforcement. Significantly, the level of economic development determines the equilibrium contracting form and vice versa. Based on this analysis, we jointly determine the evolution of property rights and economic development. The analysis also sheds light on the environments that lead an economy to a low development trap with a poor quality of property rights institutions.

Accelerate or brake?—The connection of credit gaps and economic disequilibrium

AbstractCredit supply shocks significantly aggravate the impact of economic recessions. Understanding the underlying reasons why credit market shocks occur and detecting the market turbulences in time can give a decision support tool for the economic policy to intervene more efficiently on the market and to reduce the effect of economic downturns. The goal of the current article is to investigate the factors that signal possible credit shocks by analyzing the quarterly data of 17 European countries over the period 1995–2021. The focus of the article is on the credit given to the nonfinancial corporations. In our analysis, we have built on the credit gap methodology by determining the deviations of the lending activity from its trend, and then we have modeled these credit gaps using fundamental macroeconomic indicators, such as the balance of the current account, the ratio of short‐ and long‐term capital investments and government debt. Our conclusion is that in the presence of fundamental disequilibrium in the economy excessive lending creates positive credit gaps that increase the chance of negative credit market shocks. According to our new findings, the existing credit gap methodology can be improved by incorporating real economic factors; slowing long‐term capital investment and increasing the deficit of the current account signal the emergence of a credit gap. We found significant regional heterogeneity as in Southern European countries, and the credit gaps were more substantial. Among the investigated macroeconomic factors, the governmental indebtedness was especially high in these countries suggesting that countries with high public debt rates are more prone to develop credit gaps.

국제 자발적 탄소시장 크레딧 가격 결정요인분석

This study analyzes the correlation between voluntary carbon market credit prices and three key sets of variables. Prior research on compliance carbon markets has identified these factors as a significant influence on emission price factors. This study employs the Autoregressive Distributed Lag (ARDL) model to test these relationships and empirically examines short and long term correlations by conducting cointegration tests between each variable and the emission credit price. The results of the study are as follows:First, electricity prices exhibit a positive relationship with credit prices in the short term but a negative relationship in the long term. Second, compared to regulatory carbon market prices, credit prices are influenced by temperature variables, reflecting local weather conditions. Third, the energy variable emerges as the most crucial factor impacting prices in both compliance emissions trading systems and voluntary carbon credits. This implies that companies aiming for carbon neutrality through voluntary carbon market credits must develop comprehensive strategies that consider various external circumstances.

Institutional investors in the Portuguese credit market (1550–1800): The case of the Misericórdias

AbstractThis article questions the drivers behind the distribution of savings in different capital markets in Portugal between 1550 and 1800. A novel dataset of credit transactions, interest rates and debt service documents a shift in the lenders' investment behaviour. By 1712, one of the leading institutional creditors—the Misericórdias—had ceased to allocate funds to the sovereign debt market. Data reveal that this disinvestment was neither related to the poor performance of debt service nor to the lure of potentially higher returns on private credit. We argue that changes in the rationales for issuing debt justify the drop in the number of institutional investors in the public credit market, and this correlates with the heavy allocation of funds into private lending.

Laser-induced breakdown spectroscopy as an analytical tool for total carbon quantification in tropical and subtropical soils: evaluation of calibration algorithms

The demand for efficient, accurate, and cost-effective methods of measuring soil carbon (C) in agriculture is growing. Traditional approaches are time consuming and expensive, highlighting the need for alternatives. This study tackles the challenge of utilizing laser-induced breakdown spectroscopy (LIBS) as a more economical method while managing its potential accuracy issues due to physical–chemical matrix effects. A set of 1,019 soil samples from 11 Brazilian farms was analyzed using various univariate and multivariate calibration strategies. The artificial neural network (ANN) demonstrated the best performance with the lowest root mean square error of prediction (RMSEP) of 0.48 wt% C, a 28% reduction compared to the following best calibration method (matrix-matching calibration – MMC inverse regression and multiple linear regression – MLR at 0.67 wt% C). Furthermore, the study revealed a strong correlation between total C determined by LIBS and the elemental CHNS analyzer for soils samples in nine farms (R² ≥ 0.73). The proposed method offers a reliable, rapid, and cost-efficient means of measuring total soil C content, showing that LIBS and ANN modeling can significantly reduce errors compared to other calibration methods. This research fills the knowledge gap in utilizing LIBS for soil C measurement in agriculture, potentially benefiting producers and the soil C credit market. Specific recommendations include further exploration of ANN modeling for broader applications, ensuring that agricultural soil management becomes more accessible and efficient.

Leverage and SMEs financial stability: the role of banking competition

This work exploits a large panel dataset on Italian manufacturing SMEs to examine the relationship between leverage and firms’ financial stability. Specifically, we evaluate whether and to what extent this link is affected by the degree of competition characterising the local credit market in which firms operate. Using two measures of local banking competition – the H-statistic and the Boone indicator – our evidence indicates that the negative impact of leverage on firms’ financial health is greater for firms operating in more competitive banking markets. A plausible interpretation of this finding is that the competition drawbacks could prevail on its expected advantages, leading banks to be less inclined to establish lending relationships with risky firms, thus exacerbating their financial vulnerability.

Cash Holdings Determinants: The Case of Malaysian Local Authorities

This paper investigates the determinants of cash holdings by Malaysian local authorities. The researchers seek understanding on the motivation/intention behind the pattern of cash holdings and the theory that may be able to explain why the local authorities hold such amount of cash. Extensive research affirms that organizations in the private sector possess reasons to maintain cash, encompassing transactional, precautionary, and speculative objectives. The pecking order theory, trade-off theory, and free cash flow theory are also significant frameworks that explain why individuals, businesses, and institutions hold cash. However, there has been limited investigation into the factors influencing cash holdings in the public sector, particularly among local authorities in Malaysia. Therefore, relationship between the local authorities’ size, growth opportunities, financing deficits, liquidity, leverage, capital expenditure and access to credit market and cash holdings in Malaysian local authorities is examined. The sample in this study is 37 districts in Malaysia and data is collected from financial statements of the studied districts between 2015 and 2019. Thus, the total observations in this study are 185 districts-years.

The role of financial and physical assets as substitute or complementary to land as collateral in credit market: Evidence from Indian households

Land is considered as one of the most widely prevalent forms of collateral in credit markets of developing economies. It has also been observed that the landless segment do get loans. Using a nationally representative data for Indian households, the present study examines whether assets other than land, that is, physical and financial assets enable the landless to obtain loans. We also study if there is any association between different types of assets and purpose of loan, which represents immediate and direct return from projects. We introduce instrumental variables to tackle the issues of endogeneity in a Heckman Probit model (sample selection model). Results suggest that physical assets act as substitute to land not only in getting credit from any source but also particularly in getting formal credit. However, financial instruments serve dual roles: these are both substitutable and complementary to land in the formal sector. Further, a complementarity is observed between land and productive investments in formal sector. On one hand, our study explains why looking beyond land as collateral is important for households with limited immovable property while on the other hand some of our findings re-establish the dominance of land.

How does currency risk impact firms? New evidence from bank loan contracts

We use unique features of the private credit market to examine if and how currency risk impacts firms' financing and whether currency risk is a priced systematic risk at the firm level. We find that currency exposure has a large impact on loan spreads. Decomposing loan spreads, we find that exposure increases the expected default loss premium and that internationalization, growth opportunities, and relationship intensify exposure's impact. Further, exposure exacerbates firms' financing risk by increasing the need for collateral, reducing loan maturity, inducing monitoring and covenant intensity, and influencing syndicate structure. However, exposure does not affect the expected return premium in loan spreads; hence, currency risk does not appear priced in the classical sense and, therefore, should not affect the “true” cost of debt. Our findings imply that while managers should be concerned about exposure's impact on their access to, and terms of, bank financing, they should not adjust hurdle rates on account of exposure when assessing investment projects.

Identifying the nexus between financial stability and economic growth: the role of stability indicators

PurposeThis study aims to examine the interrelationship between financial stability and economic growth with a comprehensive analysis.Design/methodology/approachThe panel Granger causality testing approach is carried out to the panels of the Fragile Five (F5) and the Group of Seven (G7) countries for the period 1998–2020. To capture the different aspects of financial stability the authors use eight different indicators.FindingsThe findings reveal some important implications: the relationship between financial stability and economic growth is sensitive to the financial stability indicators for both the F5 and G7 countries. The stability indicators related to the credit market contain much more causality relationship with economic growth than the indicators related to the stock market. Z-score and provisions to nonperforming loans (NPLs) are among the two variables with the highest causality relationship with economic growth. The least number of causality link is found for the Regulatory Capital Ratio and Stock Price Volatility in F5 countries and Credit Ratio, NPLs and Stock Price Volatility in G7 countries. Economic growth affects financial stability through credit market stability indicators and mostly for the F5 countries. No causal relationship is found for any of the financial stability indicators of Canada, the UK and the USA from economic growth to financial stability.Originality/valueSince the linkages between financial stability and economic growth may vary due to country/group specific differences, apart from the previous studies, the authors select two different groups of countries in terms of financial stability and economic size.

Credit Market Imperfections, Urban Land Rents and the Henry George Theorem

Cet article étudie l’impact du marché du crédit sur les prix du foncier et ses implications en termes de politiques fiscales. Nous introduisons un coût à l’emprunt et une contrainte d’apport personnel dans le modèle standard d’économie urbaine. Ces imperfections s’avèrent réduire les prix de la terre dans les localisations les plus attractives. Cette baisse est d’autant plus forte que les terres sont rares et les villes peuplées et dotées d’infrastructures de transport inefficaces. La contrainte d’apport personnel peut générer des écarts d’utilités d’équilibre entre des ménages initialement homogènes. Le théorème d’Henry George, selon lequel une taxe confisquant les rentes foncières suffit à financer les biens publics, doit être amendé en présence de contraintes de crédit. Pour chaque type d’imperfections du marché du crédit, nous proposons un système de taxation optimale .

Probability causal inference of interest rate fluctuations: Evidence from private credit in emerging markets

Preventing risks in the private credit market is an important component of maintaining financial stability, especially in emerging markets. As loan amounts serve as both the cause and the effect of credit interest rates, through the weighted path convergence design of conditional probability and joint probability, this study establishes a probabilistic causal inference framework of loan amounts and interest rates to explore the mechanism of interest rate fluctuations in China's private credit market, market behaviour of the allocation of private loan amount, and the design of policies. The analysis provides several results. (1) The fluctuation of private credit interest rate occurred during the outbreak of the epidemic (2019Q1-2020Q1), the credit interest rate was mainly controlled by the loan amount, and the interest rate fluctuation mainly originated from private credit market behaviour. In the early stage of the post COVID-19 economic recovery (2020Q3-2021Q3), the credit interest rate is mainly controlled by non-loan amount factors, and the interest rate fluctuations occurred mainly because of the non-market behaviour of private credit, which is related to government policy support and the increase in low-interest loans from financial institutions. (2) As a result of market behaviour, for the 19.54 %–22.50 % of high interest rates on borrowing, the probability of high interest rates due to the loan amount increased by 40.48 %. (3) By policy design, reallocating the risky loan amount, the interest rate can be reduced by up to 7.36 % on a highlight-interest rate day. The reallocation of loan amounts for different security methods has varying effects on interest rates reductions, and there may even be ineffective allocations. The findings provide decision support for financial regulators in emerging markets to stabilise interest rate volatility in private credit markets.

Dynamics of bank lending in ukraine: influence of the development of digital innovations and technologies

The article examines the relevance of the development digital innovations and technologies and their impact on the growth of the fintech direction of digital lending, which is represented by the landscape of fintech companies that use the disruptive power of digital technologies and the advantages of innovations of service institutions to offer consumers a wide range of digital credit products and services. The purpose of the article is to define the essence of digital lending and identify the role of digital technologies and innovations in the development of fintech, using the example of calculating the dynamics of bank lending in Ukraine. The article characterises the essence, types and significance of digital technologies in the context of the general development of the financial sphere and the credit market. The role and types of financial innovations are highlighted as the ability of fintech companies to combine digital technologies through product and service transformations. The unique role in terms of scale and impact on other areas of financial innovation of digital lending as a direction of fintech focused on digital forms of providing and administering loans through digital channels using a range of digital technologies to collect and process digital customer data is emphasised. A description of the directions of digital lending and the critical component of its development is presented. The bank is proposed to be characterised as the primary mediator in the credit market using digital innovations and technologies. A set of more than 30 indicators has been formed within three groups of components for evaluating the effectiveness of digital lending by banks, characterising the state and dynamics of non-cash transactions, the use of payment cards, payment and credit banking infrastructure, and credit and deposit activities of banks. A methodology for calculating the Harrington desirability function is proposed to calculate a comprehensive assessment of the “quality” of the functioning of the electronic payment segment of the banking sector of Ukraine in the context of the potential for developing digital banking lending.

Проблемы и перспективы развития кредитного рынка России

The article discusses the problems and prospects of the development of the Russian credit market. The author analyzes the main components of the Russian credit market, such as commercial loans for business, mortgage lending, car loans and consumer non-targeted loans. The state of the credit market depends on the state of the economy and the policy of the Central Bank. Possible measures to regulate debt collection activities and the formation of the institution of a public mediator of the financial system (financial ombudsman) are discussed.

Credit Markets and Racial Mortality Inequality

Credit Markets and Racial Mortality Inequality