Credit Supply Research Articles

A model of managerial compensation, firm leverage and credit stimulus

We study a model in which leverage and compensation are both choice variables for the firm and borrowing spreads are endogenous. First, we analyze the correlation between leverage and variable compensation. We show that allowing for endogenous compensation and leverage can explain the conflicting findings of the empirical literature. We uncover a new channel of complementarity between effort and leverage that induces a correlation sign opposite to what current theoretical models predict. Second, we study the dynamics of leverage and compensation design after a credit stimulus. We derive a set of new empirical predictions. For outward-shifts in credit supply, variable compensation is increasing in leverage growth. Moreover, variable compensation increases after the credit stimulus, especially for firms with low idiosyncratic risk.

Provision of loans and credit by cocoa buyers under non-price competition: Cocoa beans market in Ghana

Abstract The introduction of partial liberalization into Ghana’s cocoa market in 1992/1993 encouraged competition among cocoa buyers. However, since the government determines prices of cocoa bean and thus prohibits price-based competition among Licensed Buying Companies (LBCs), LBCs rely on building relationships with cocoa farmers by providing incentives like credit and loans to cocoa farmers to encourage them to sell to them preferentially. These LBCs employ non-price strategies including the provision of loans and credit to cocoa farmers. This study analyzed the effects of non-price competition on loan and credit provision by cocoa LBCs. Descriptive analysis revealed that LBCs offer credit and loans to cocoa farmers, with 37.4 and 54.7% of cocoa farmers who received loan and credit respectively citing LBCs or purchasing clerks as their main source. Our regression analyses, however, did not fully support the standard intuition that competition promotes credit and loan provisions. This indicates the limited effectiveness of the use of credit and loan provisions as a non-price competition strategy among LBCs in Ghana’s cocoa market. Additional analyses offer valuable insights, suggesting that loans and credits may serve different functions when considered as means of competition for LBCs despite being essential forms of advanced payments.

Alternative finance in bank-firm relationship: how does board structure affect the cost of debt?

AbstractIn this paper, we examine the relationship between alternative finance and board structure on the cost of debt for firms, focusing on the unique effects of differing board characteristics. Using a dataset of 176 European listed companies observed annually from 2013 to 2022, we dissect this relationship through several hypotheses considering factors such as the supply of alternative finance, board gender composition, age, expertise, and board turnover. Our findings reveal that increased alternative finance credit supply escalates the cost of debt, especially for firms with lower ESG scores. Firms with young boards, boards specialized in economics or low, and board turnover also experience a rise in borrowing costs with increasing of alternative finance. Through a pooling 2SLS model, we provide robust evidence about the interplay of alternative finance and varying board structures on the cost of debt. This research clarifies the intricacies of bank-firm relationships in alternative finance and holds significant implications for supervisory authorities, banks, and policymakers. It underscores the necessity of good corporate governance in managing the cost implications of alternative finance. It calls for tailored risk assessment strategies, conducive regulatory frameworks, and vigilant supervisory approaches to create a resilient financial ecosystem where alternative finance can thrive without inordinately inflating the cost of debt.

Housing cycle and firm investment: International firm-level evidence

The macro-finance literature provides conflicting views on how movements in housing price affect firms’ capital spending or R&D. We further explore this issue by analyzing a comprehensive international firm-level data set. We use the housing price component independent of firms’ investment opportunities and credit supply shocks. The results support the collateral channel as housing price and firm investment exhibit a positive relationship. This collateral channel is more distinct for capital expenditure than R&D, and in housing downturns when firms’ credit constraints bind. Nevertheless, housing appreciations are negatively associated with R&D and large housing booms are also detrimental to capital investment, which suggests a possible resource reallocation from the production sector to the housing sector during those phases. Small firms and firms with stronger investment opportunities respond more sensitively to housing price. Countries that rely more on bank financing and collateralized lending display a larger collateral effect in capital expenditure.

Military Experience of Senior Executives and Business Credit Supply of Enterprises

This study is based on the data of Chinese A-share listed companies from 2005 to 2022 and empirically examines the relationship between senior executives' military experience and the supply of commercial credit by enterprises. The research findings suggest that senior executives with military experience can significantly enhance the level of commercial credit supply by the company. The mechanism analysis indicates that top executives' military experience promotes the provision of greater business credit through two pathways: mitigating the level of information asymmetry within the company and strengthening the effectiveness of internal controls. Heterogeneity tests reveal that the positive impact of top executives' military experience on the acquisition of commercial credit supply is particularly pronounced in eastern region companies as well as state-owned holding companies. This study addresses the existing research gap by shedding light on the specific effects and pathways of top executives' military experience in promoting the provision of business credit, thus enhancing our understanding of their personal traits and life experiences. Furthermore, it provides valuable insights for improving the evaluation system of commercial credit within enterprises.

ANALISIS SISTEM PEMBERIAN KREDIT MODAL KERJA PADA PD. BPR BAHTERAMAS KOLAKA UTARA

This research aims: to determine the system of providing working capital credit to PD. BPR Bahteramas North Kolaka. The variable in this research is the Working Capital Credit Provision System as a single variable. The population of this research is all employees at PD. BPR Bahteramas North Kolaka and customers, while the sample consists of (1) employees who have worked at least 1 year in the credit section of PD. BPR Bahteramas North Kolaka (2) employees who work to handle the process of granting credit to PD. BPR Bahteramas North Kolaka (3) working capital credit customers from 2020 to 2022 who have experience in procedures and lending credit funds to PD. BPR Bahteramas North Kolaka as many as 2 people. Data collection was carried out using documentation and interview techniques. Data analysis was carried out using qualitative descriptive analysis. The results of this research state that the credit granting system to PD. BPR Bahteramas Kolaka Utara has been running well and effectively, in accordance with the procedures, conditions, criteria for whether it is eligible or not and the guidelines that have been set, however there are several things that must be addressed because there are still differences in the recommendation for credit approval and the granting of credit approval.

Smallholders’ vulnerability in the maize market: An analysis of marketing channels to improve the role of cooperatives in Benin

Smallholder households in developing countries often face challenges related to market access. Despite being proposed as a potential solution, cooperatives in the north of Benin have reportedly failed to effectively address this issue. The alternatives channels used by smallholder famers and the factors that influence their choices remain unclear. This paper adopts a mixed approach, combining qualitative analysis with quantitative methods, particularly the multivariate probit model, to investigate the distribution channels of maize used by farmers in the Kandi district of Benin. The study aims to identify the current distribution channels of maize in Kandi and analyze factors that affect, smallholder producers choice of marketing channel. Initially, the study identified four primary channels for marketing maize—namely, collectors, wholesalers, brokers, and cooperatives—and producers typically commonly engage in multiple channels simultaneously. Subsequently, It becomes evident that factors such as age, cooperative membership, distance to market, reliance on informal credit, average maize bag prices, and the timing of sales significantly influence producers' selection of marketing channels. Interestingly, despite cooperatives offering comparatively higher prices, the majority of farmers opt for collectors due to the informal credit they provide and their practice of purchasing large volumes of maize bags at pre-agreed prices. In conclusion, enhancing joint-selling capabilities of cooperatives and establishing a credit provision business tailored to maize producers are identified as crucial steps. These measures aim to alleviate producers’ financial strain, diminish their dependence on collectors for credit, and bolster their bargaining power in the market.

Online Auction System with AI

An online auction is type of an auction that takes place over the Internet. It is a popular method for buying and selling products and services. Such systems give the best price to the seller as well as the buyers. The application proposed in this paper was developed with the objective of making the system reliable, easier and fast. Through this application, anyone can sell anything on the website by sitting at home. It’s as easy as browsing the app website. Even non-technical persons can easily interact with the process of buying and selling on the application. An online auction system permits a customer to submit online orders for items and/or services from a store that serves both walk-in customers and online customers. The online auction system presents an online display of an order cut off time and an associated delivery window for items selected by the customer of any 2nd hand products. The online auction system does not settle with a credit supplier of the customer until the item selected by the customer is picked from inventory. Therefore, customers can go online to modify their order. In addition, the service window is presented to the customer as a function of the order and service type selected by the customer, and also the choice is made according to the person's preference, where the order selection is correct. When ordering goods, a virtual shopping cart is also provided by many shopping systems for holding items selected for purchase. Until a customer completes their shopping trip, successive items selected for purchase are placed into the virtual shopping cart. Virtual shopping carts may be examined at any time, and their contents can be deleted and edited at the customer’s end.

A geographic information system approach for estimating state‐wide water quality credit need: Application for planned transportation projects in Virginia

AbstractUncertainty in water quality trading (WQT) markets is frequently cited as a deterrent for participation, with few studies focusing on uncertainty in future water quality credit needs. To reduce this uncertainty, we present a geographic information system (GIS)‐based methodology for estimating an upper bound of water quality credit needs for a set of spatially referenced planned construction projects over a large geographic region. We demonstrate the methodology by applying it to estimate future credit needs for the Virginia Department of Transportation's (VDOT) 6‐year improvement program. The results show that 25% of the state's 6‐digit hydrologic unit code (HUC) basins lack sufficient current credit supply to meet the estimated future credit need from VDOT's planned projects alone. Furthermore, while 70% of the 8‐digit HUCs containing planned projects have a sufficient current credit supply to meet VDOT credit needs, this is true for only 20% of the 10‐digit HUCs. Finally, nearly 25% of the planned transportation projects, representing potentially $9 million in credit purchases at current market rates, will be constructed in catchments with impaired water bodies. State regulations will initially limit these projects to trade with credit banks collocated at the 12‐digit HUC level. This application demonstrates how the GIS‐based methodology can be applied to reduce uncertainty about future WQT credit needs and how needs are aligned with current credit supply.

Nonbank lenders as global shock absorbers: Evidence from US monetary policy spillovers

We show that nonbank lenders act as global shock absorbers from US monetary policy spillovers. For identification, we exploit monetary policy surprises and the global syndicated lending market, where detailed loan-level data allow us to compare the participation of banks and nonbanks in the same loan. When US policy tightens, dollar credit to non-US firms falls, but nonbanks increase credit supply (relative to banks), thereby mitigating the total credit reduction. This relative increase is stronger for riskier non-US firms, proxied by emerging market firms, high-yield firms, or firms in countries with stronger capital inflow restrictions. Finally, there are real effects associated with the international nonbank channel of monetary policy, as firms with better access to nonbank credit relatively increase total corporate debt, investment, and employment.

International transmission of the U.S. dollar liquidity shock: The channel of FX borrowing and lending

Access to foreign exchange (FX) liquidity is crucial to the growth and stability of emerging market economies. We examine the impact of U.S. dollar liquidity shocks on firm investments in Korea by constructing a dataset that merges four distinct micro-level data spanning ten years from 2006 to 2015. We trace the path of FX liquidity from the international financial market to Korean banks and subsequently to listed firms. During international liquidity shocks, banks borrow less FX but pay higher interest rates. Weak banks, whose FX borrowing rates are sensitive to these shocks, reduce their FX credit supply to firms. Among the FX loan-reliant firms that are highly productive, those borrowing from weak banks reduce their investments. This channel of FX borrowing and lending accounts for 19% of the decline in the investment of listed firms during the peak of the Global Financial Crisis.

Shaping Firms’ Financial Reporting: Evidence From the Spillover Effect of the FED’s Stress Test

This research investigates how bank regulation, specifically the stress test conducted by the Federal Reserve (FED), influences the financial reporting decisions of borrowers. Previous studies indicate that the FED’s stress test can lead to a reduction in credit supply and stricter lending standards for banks. Expanding on this body of literature, our study shows that the impact of the stress test reaches beyond lenders, prompting borrowers to embrace increased conditional conservatism in their financial reporting. This spillover effect is particularly pronounced for riskier borrowers. Our findings suggest a far-reaching impact of FED regulation on firms’ financial reporting choices. Further analysis indicates that borrowers transitioning from tested banks to untested banks experience higher interest rates following the stress test, highlighting an extended spillover effect on borrowers.

Caution: Do Not Cross! Distance to Regulatory Capital Buffers and Corporate Lending in a Downturn

AbstractWhile banks are expected to draw down regulatory capital buffers in case of need during a crisis, we find that banks kept at a safe distance from regulatory buffers during the pandemic by procyclically reducing corporate lending. By exploiting granular credit register data, we show that banks with little capital headroom above their buffers reduced credit supply and that this behavior was amplified for banks that entered the crisis with larger undrawn credit lines. Affected firms were unable to fully rebalance their borrowing needs with other banks, although public guarantees mitigated banks' procyclical behavior and its real effect at the firm level. These findings raise concerns that the capital buffers introduced by Basel III may not be as countercyclical as intended.

Effects of COVID‐19 support measures on bank lending: Lessons from the release of countercyclical capital buffer and loan guarantee schemes in Hong Kong

AbstractBased on a panel of banks in Hong Kong, we found that banks with a relatively thin capital buffer and liquidity before the pandemic may constrain their post‐pandemic loan growth. We further found strong evidence that the release of countercyclical capital buffer (CCyB) requirements amid the pandemic mitigated the capital constraint to support continued provision of bank credit to the real economy, but mainly to non‐hard hit economic sectors. Nevertheless, the credit flow to hard‐hit economic sectors is found to be well supported by the SME Financing Guarantee Scheme.

Starategi Pemasaran Bank BTN Syariah Untuk Meningkatkan Jumlah Nasabah Terhadap Produk KPR Pada BTN Syariah KCP Setiabudi Mengunakan Analisis Soar

The high demand for new houses combined with the large number of marriages has led to an increase in demand for livable houses. The role of BTN as a housing credit (KPR) provider entrusted by the state takes an important role as the main capital in Indonesia. BTNS SETIA BUDI is one of the BTN banks located in the city of Medan, it contains sharia principles, providing the best service to attract mortgage loan customers using sharia principles. Therefore, BTNS Setia Budi must improve its marketing strategy as an important capital to support mortgage financing. The author took the title of this research to determine the effectiveness of BTNS's marketing strategy using SOAR analysis with a qualitative method taking sources of information from existing journals and direct interviews with BTNS Setia Budi staff.

Analisis Pemberian Kredit Pada PT. Bank Sumut Pematangsiantar

In granting credit, banks must pay attention to the principles of sound credit, including the risks that must be faced on loan repayments by customers/debtors. In a credit application, the PT. Bank Sumut Pematangsiantar Branch conducts an analysis first related to the precautionary principle, after the bank believes and trusts the customer's ability to return the borrowed funds then the credit can be disbursed. This research is a qualitative research. This research was conducted at PT. Bank Sumut Pematangsiantar Branch. This study uses the interview method. Interviews were conducted with the Head of Credit, Credit Analysis, Customer Service, and Customers of Bank Sumut Pematangsiantar Branch. Data collection techniques were obtained by conducting interviews and observation methods. The results of this study indicate that the evaluation of the provision of credit is appropriate and in accordance with the existing theoretical studies, and the procedure for granting credit is in accordance with the procedures applied to PT. Bank Sumut Pematangsiantar Branch.

The Relationship Between Financial Stability and Credit Supply: Evidence from Iraq

Objective: The study aims to investigate the impact of bank credit on financial stability in the Iraqi economy and to reveal trends in bank credit in the Iraqi economy.
 
 Method: We use the Vector Error Correction Model (VECM) and the Granger causality to assess the role of bank credit in strengthening financial stability in the Iraqi economy for the period 2006 to 2021.
 
 Result: We provide evidence on the presence of a long-term relationship between bank supply and all indicators of financial stability. In the short term, a positive association is documented between bank credit and capital adequacy ratio.
 
 Conclusion: Several conclusions could be drawn from our analysis of the evolution of bank credit and financial stability indicators, as well as from our empirical investigation of the relationship between them. The bank credit has been steadily increasing from 2006 to 2021. The capital adequacy ratio (CAR) was very high over the period 2006-2021, exceeding the standard ratio set by the Central Bank of Iraq, which is 12%. This reflects the soundness of the banking system in Iraq. However, the return on equity declined from 27.1% in 2010 to 5.15% at the end of the study period in 2021. Using the VECM model and Granger causality, we provide evidence that bank credit affects financial stability through multiple channels. Thus, the Iraqi central bank should use the tool of credit supply to enhance financial stability.

CONSTRAINTS FACING AGROSILVOPASTORAL PRACTICES AMONG HOUSEHOLDS IN OGUN STATE, NIGERIA

Agrosilvopastoral practices are recognized as a link between agriculture, forestry and a sustainable strategy for land management, particularly in tropical and subtropical developing nations. This study examined the limitations of agrosilvopastoral practices among households in Ogun State. A well thought out questionnaire was used to gather information from 240 respondents in total. Descriptive statistics were used to analyze the data collected. Findings revealed that agrosilvopastoral practices were dominated by men, with a mean age and family size of 54 years and 6 persons respectively. More over half (62.25%) of the farmers were literate with mean years of experience in farming being 26years. Result revealed that inadequate capital (1st) is the most serious challenge facing the agrosilvopastoral households, followed by insect infestation (2nd), instability in market price (3rd), inadequate access to land for farming (4th), high cost of transportation (5th), insufficient market centers (6th), source of inputs (7th), technical knowledge (8th), mode of land acquisition (9th) and animal destruction of crops (10th). The study thereby recommends that extension workers from different organizations should educate farmers about agrosilvopastoral practices through seminars, and backing being offered to farmers in the terms of loans, hybrid seeds and credit provision for increased production.

Assessing the efficacy of cooperative societies in agricultural credit delivery: A comprehensive review in Nigeria

The comprehensive review critically assesses the efficacy of cooperative societies in agricultural credit delivery within the Nigeria context. Agricultural credit is a crucial driver of rural development, and cooperative societies have long been recognized as instrumental channels for its dissemination. The review unfolds against the backdrop of Nigeria’s agricultural landscape, aiming to offer a nuanced understanding of the multifaceted dynamics surrounding the performance of cooperative societies in facilitating credit access for farmers. The analysis spans historical developments to contemporary challenges, unraveling the evolution of cooperative societies in Nigeria and their pivotal role in supporting farmers financially. By examining a spectrum of cooperative models and their implementation, the review delves into the intricacies of credit delivery mechanisms. It evaluates the impact of cooperative societies on agricultural productivity, income generation, and overall rural livelihoods. Challenges inherent in the cooperative credit system are scrutinized, including issues of governance, financial sustainability, and external market influences. Furthermore, the review explores the socio-economic implications of agricultural credit provision through cooperatives, considering factors such as poverty alleviation, gender dynamics and community development. In light of emerging trends and innovation, the review identifies potential areas for improvement and innovation within cooperative societies. This includes the incorporation of digital technologies, novel financial instruments and strategic partnership to enhance the reach and effectiveness of agricultural credit delivery. Ultimately, this review aspires to contribute to the ongoing discourse on agricultural finance in Nigeria, offering insights that can inform policy makers, practitioners and researchers.

Assessing the Effect of Stagnant Business Cycles on Risk and Uncertainty in the Stock Markets of Less Developed Countries

The economic movement of countries is not uniform and stable over time and always fluctuates around the long-term growth trend and creates a business cycle meanwhile, the capital market as a backward variable is affected by economic fluctuations therefore, in this research, the issue is looked at from the perspective that¸ can the business cycle of recession be considered as a leading variable in the occurrence and formation of risk and uncertainty in the stock market of countries? To answer this question, first a meta-analysis method and based on the research background, a model of stock market uncertainty was specified In which the growth rate variance of S&P index, which was calculated by GARCH technique, was used as a variable of risk and uncertainty in the stock market of countries, and the HP method was used to calculate business cycles. Balanced data panel technique was used to estimate the model. Which include the fundamental variables of monetary policy (supply of bank credit), fiscal policy (average tax rate), nominal interest rate, capital market size, technical progress variable and stagnant business cycle. The statistical sample of the study includes 14 less developed countries. Less developed countries are defined in terms of their per capita income and in terms of the division of countries in the UN statistical report. The statistics of time series are annual and are related to the time period of 2001-2018. The research findings that were calculated jointly confirmed the effect of the variables in the model ¸it also showed that stagnant cycles as expected have a positive effect on the reduction of risk in the stock market. Classification: JEL E32, G100.