Debt Default Risk Research Articles

Carbon risk and corporate maturity mismatch

This study investigates the impact of carbon risk on the corporate maturity mismatch of investment and debt. We find that carbon risk exacerbates maturity mismatches, primarily by increasing debt default risk, which in turn reduces both the availability and maturity of bank loans. At the same time, carbon risk drives firms to undertake riskier investments, compelling them to rely more heavily on short-term financing to support long-term projects. Heterogeneity analysis reveals that the impact of carbon risk on maturity mismatch is more pronounced in firms that are smaller in size, exhibit weaker financial performance, have higher leverage, hold less cash, or engage in less green innovation. Moreover, under heightened carbon risk, increased maturity mismatch appears to reduce agency costs and enhance firm performance, thereby improving resource allocation. This finding supports the monitoring role of maturity mismatch. Our results remain robust across multiple sensitivity tests

The Contagion of Debt Default Risk in Energy Enterprises Considering Carbon Price Fluctuations

Under the constraints of low-carbon transformation goals, energy enterprises have significantly increased their debt default risk levels due to carbon price fluctuations. This article first analyzes the contagion mechanism of debt default risk among energy enterprises, and based on this, constructs a debt default risk contagion model among energy enterprises considering carbon price fluctuations, and then simulates and analyzes the evolution characteristics of debt default risk contagion among energy enterprises. The research results indicate that: (1) As the proportion of carbon emission cost increment and investor sentiment index increase, the stability of the debt network of energy enterprises strengthens. As the ratio of commercial credit among energy enterprises and influence of energy enterprises increase, the impact of debt risk gradually intensifies. (2) The investor sentiment index has a strengthening effect on the influence of energy enterprises, the proportion of commercial credit among energy enterprises, and the proportion of carbon emission cost increment. The commercial credit ratio between energy enterprises and its influence has a mutually reinforcing effect. (3) The investor sentiment index has suppressed debt default risk for various energy enterprises. The joint risk suppression effect of the proportion of carbon emission cost increment and the influence of energy enterprises in petroleum and petrochemical enterprises is more prominent. The joint risk constraint ability between the proportion of carbon emission cost increment and investor sentiment index in coal enterprises is stronger.

A Study of Factors Influencing Corporate Debt Default

With the global debt rate rising at a high speed in recent years, the risk of corporate debt default has also increased gradually, in order to explore the influencing factors of corporate debt default and let enterprises better avoid the risk of debt default. This paper discusses the impact of corporate debt default from internal and external, macro and micro levels, from the aspects of corporate investment and financing strategy, management's investment preference, corporate governance structure, corporate strategic positioning and the differences between the same industry, external macroeconomic environment, national policies and international exchange rate impact, and the degree of opening up of the capital market to the outside world. Corporate debt can be influenced by several factors, and a clear understanding of the relationships and mechanisms between the factors will help to propose feasible debt reduction programs that will lead to more robust corporate development.

Does digital transformation in enterprises reduce debt default risk?

With the rapid advancement of digital technology, the digital transformation of enterprises has become essential for enhancing competitiveness and achieving sustainable development. This paper aims to systematically examine the impact of digital transformation on debt default risk, using A-share listed companies from 2010 to 2022 as the research sample. The findings indicate that digital transformation significantly reduces the risk of debt default, and this conclusion is supported by a series of robustness tests. Heterogeneity analysis based on firm-specific characteristics reveals that companies with higher returns on assets, higher R&D investment, larger scale, higher debt-to-asset ratio, greater regional social trust, and higher information transparency experience a more pronounced risk mitigation effect from digital transformation. Mechanism tests demonstrate that digital transformation primarily lowers debt default risk through two channels: alleviating financing constraints and improving total factor productivity. Digital transformation more effectively reduces corporate debt default risk through foundational technologies compared to practical applications. These conclusions contribute to a deeper understanding of how digital transformation drives high-quality development in enterprises and provide a comprehensive assessment of the implementation effects of digital transformation.

Unravelling the Missing Link: Climate Risk, ESG Performance and Debt Capital Cost in China

The concept of sustainability has developed significantly from an unrealistic abstract ideology to a framework that can measure companies’ environment, society and corporate governance (ESG) performance. While extensive research has established some relational impacts of ESG performance on debt capital cost (DCC), this paper contends that a comprehensive review of these impacts is incomplete without screening them through the lens of climate risk (CR). Companies are subjected to CR that comprises physical and transition factors resulting from climate change. This paper aims to unravel the missing link between CR and ESG performance, and the consequent impacts on DCC. This paper illustrates using Chinese companies that operate in an emerging economy with robust industrial activities under intense global scrutiny to achieve emission reduction and meet carbon neutrality goals. Through considering CR, the impacts of ESG performance on DCC are explained using panel data and mediation effect tests with A-share listed enterprises on the Shanghai and Shenzhen stock exchanges from 2016 to 2020. The findings show that ESG performance significantly and negatively affects DCC, with debt default risk playing a mediating role. The negative effect of ESG performance on DCC is more significant in non-polluting enterprises and non-state-owned enterprises.

Can digital tax enforcement reduce the risk of corporate debt default?

The development of technology has led to the widespread use of digital technology in tax enforcement. Using the Chinese digital tax enforcement reform as a quasi-natural experiment, this study shows that digital tax enforcement reduces the risk of debt default by improving accounting information quality and reducing agency costs. Further analysis shows that this impact is more significant in enterprises with poorer external information environments, lower internal control quality, lower customer concentration, and lower digitalization levels. This study enriches the research on the economic consequences of digital tax enforcement. This has practical implications for the government when using information technology to strengthen tax administration.

Time-varying default risk of Chinese-listed companies: From empirical test to theoretical conjecture

Default risk is one of the major challenges faced by the financial industry. This paper aims to investigate the dynamic of enterprise debt default risk law after Initial Public Offerings (IPO). The paper also proposes a theoretical conjecture to explain the logic of the time-varying law. To achieve this objective, the paper used panel data of non-financial enterprises in Shanghai and Shenzhen A-share markets from 2002 to 2020. We found that the debt default risk and IPO have an inverted U-shape relationship, the inflection point is at 8 years of IPO. Moreover, adding control variables and changing measurement indicators did not change the time-varying law. The theoretical conjecture showed that the default risk is low at the initial stage of IPO. Furthermore, over-investment of managers triggers IPO exuberance, and with the recognition of the credit market, can lead to an increase in the debt level of the enterprises and default risk. However, with time, default risk will decrease as the business behavior is adjusted and impulsive investment is reduced. Therefore, the debt default risk of listed companies presents a significant and robust “inverted U” characteristic over time.

The Influence of Equity Incentive on Corporate Debt Default Risk

As researchers show more interest in debt default risk, work on influencing factors of this risk is put a particular emphasis. Because risk preference of management and corporate financial condition cannot be explained by their traits perfectly, this paper has argued association between equity and debt default risk. Selecting 323 listed enterprises as sample, the study uses descriptive analysis and multiple linear regression analysis to determine the relationship of these two indicators. According to the analysis results, large proportion of equity incentives to the total share capital has passive impact on financial condition. It brings heavy credit burden to companies while large proportion of managerial ownership can decrease debt default risk and promote the stability of financial system. This paper strengthens the idea that there is reasonable and significant association between equity incentive and debt default risk. It also proves that different measuring factors of equity incentive have different directions effects on corporate debt default risk.

The power of scholar: CEO academic experience and corporate debt default risk

ABSTRACT This study investigates the impact of CEO academic experience on corporate debt default risk among Chinese A-share listed companies from 2008 to 2021. The findings highlight the significant role of CEO academic experience in reducing the risk of corporate debt default. Channel analysis further elucidates that CEOs with academic backgrounds contribute to easing financing constraints and enhancing corporate innovation, thereby mitigating debt default risks. Further analysis indicates a more pronounced inhibitory effect on debt default risk for CEOs with academic backgrounds, particularly in financially distressed, high-tech and CEO non-politically affiliated enterprises. The study provides valuable insights for strategic executive selection and promotes the high-quality development of enterprises.

Dissecting the impact of the three E, S, G pillars on credit risk

This study explores the impact of Environmental, Social, and Governance (ESG) scores on the credit risk of Chinese A-share listed companies. Based on the empirical study, we analyse both the individual and combined effects of E, S, and G scores. Our findings indicate that improvements in ESG scores significantly reduce credit risk, particularly among green companies and those with high transparency. This conclusion remains robust after accounting for potential endogeneity bias through the application of the instrumental variable method. Furthermore, our study delves into how ESG scores impact credit risk. An increase in ESG scores reduces a company’s debt default risk by decreasing the negative ESG-related news sentiment, enhancing stock liquidity, lowering financing costs, and improving the quality of internal controls. These insights contribute to a deeper understanding of ESG factors in risk management and offer practical guidance for companies seeking to enhance their ESG performance in relation to credit risk.

Confucian culture and corporate default risk: Assessing the governance influence of traditional culture

Given the prevalence of debt default incidents, this study investigates the influence of Confucian culture on corporate default risk in China. The results underscore Confucian culture's governance impact on corporate default risk. Channel analysis reveals that Confucian culture mitigates the risk of debt default by raising cash holdings and fostering a trustworthy business environment. Furthermore, the legal environment is found to positively moderate the impact of Confucian culture on debt default risk, whereas foreign cultural shocks and local corruption exert a negative influence. These findings not only enrich the literature on mitigating corporate default risk and promoting economic growth but also emphasize the enduring significance of China's revered traditional culture.

Influencing Factors and Prevention of Enterprise Debt Default Risk

In recent years, our country enterprise debt default phenomenon is frequent. In view of the debt default phenomenon, the academic circle has made rich research on the factors influencing the risk of enterprise debt default. However, the existing research results are still lacking in the aspects of review articles and risk prevention. Based on this, this paper makes a comprehensive review of the factors affecting corporate debt default from both internal and external perspectives, and puts forward corresponding preventive measures.

Deleveraging, Debt Default Risk, and Enterprise Innovation: Evidence from China

This study, at the micro level, takes the Chinese central government's implementation of the "deleveraging" policy as a quasi natural experiment. Based on data from listed companies from 2013 to 2017, this study introduces the Metron default distance that balances financial indicators and asset value fluctuations to measure default risk. Therefore, the DID method is used to test the innovation situation of enterprises with high default risk under the "deleveraging" policy. Research has found that companies with significant default risks under policy shocks have significantly improved their innovation levels and increased their innovation achievements. Furthermore, this research studies the mechanism of the "deleveraging" policy on enterprise innovation from three perspectives: enterprise financing, investment, and business management. The implementation of the "deleveraging" policy will enhance the cash holdings and management governance level of enterprises with high default risk, thereby promoting enterprise innovation.

Digital Technologies, Investor Sentiment, Limits to Arbitrage and Value of Firm Cash Holdings in China's A Stock Market is Good

Cash is a firm’s most liquid asset and this asset can add firm value by mitigating firm financial constraints, reducing debt default risk and opportunity costs. But the positive and negative asset pricing effect of cash holdings are related to digital technologies, sustainable performance and investors’ sentiment and limits to arbitrage. The paper finds the digital technologies and sustainable performance, both are negatively associated with the value of cash holding. The current study also scrutinized that firm’s cash holding value appears to be positive in China’s A stock market, and this asset pricing effect is more significant in periods when investor sentiment is high and in firms confronting high level of limits to arbitrage. This research provides evidences on the asset pricing effect of firm cash holdings and on how inefficient capital market affects this asset pricing effect. The findings of this research are useful for firms) improving cash management and have implications for supervising department to improve stock market efficiency.

A Review of Research on Strategic Differences and Debt Default Risk

In recent years, more and more scholars have been studying the impact of corporate strategy on debt default, so as to provide enterprises with more perfect strategy differentiation strategy, thus reducing the risk of corporate debt default, and improving the ability of preventing and coping with unforeseen shocks for enterprises with large strategic differentiation, thus reducing the operational risk of enterprises. In this paper, we look at the measurement indexes of strategic differences and debt default risk, as well as the influencing factors of debt default risk, the current status of the research on strategic differences and debt default risk, and put forward governance proposals for debt default.

Corporate mergers and acquisitions: A strategic approach to mitigate expected default frequency

This study investigates the influence of corporate mergers and acquisitions on debt default risk by analyzing a dataset of 14,990 A-share listed companies from 2010 to 2021. The results demonstrate that corporate mergers and acquisitions effectively mitigate expected default frequency, a conclusion that withstands a variety of robustness checks. Through mechanism testing, it's found that mergers and acquisitions alleviate corporate financing constraints and boost information transparency, subsequently lowering debt default risk. The heterogeneity analysis further reveals that this mitigating effect is particularly pronounced in younger companies, those with weaker internal governance, and companies situated in less marketized regions.

Will green innovation strategies trigger debt default risk? Evidence from listed companies in China

This paper empirically examines the effects of green innovation on corporate debt default risk using data from Chinese A-share listed companies spanning the years 2013 to 2021. The findings indicate that the adoption of a green innovation strategy by enterprises can elevate the risk of debt default. This heightened risk is attributed to over-investment behavior within green-innovating enterprises, which subsequently triggers corporate debt default risk. Notably, this effect is more pronounced in state-owned enterprises and markets characterized by high concentration. Management shareholding may be an effective preventive measure for mitigating corporate debt default risk in the context of green innovation strategies.

Governance network externality: Exploring systemic risk generation mechanisms

We show three potential stages in transforming corporate debt default risk to systemic risk in an interlocking directorate network: network contagion of corporate debt default risk, network transformation, and network cascade of systemic risk. In addition, based on the arguments of ‘too connected to fail’ and ‘too big to fail’ in the scope of systemic risk, nodes with higher network connectivity and larger asset scale can significantly improve the efficiency of risk contagion, transformation and cascade in the network. Finally, a significant risk spillover effect exists between the real and financial sectors. From the perspective of corporate internal governance, we confirm that corporate ‘governance connections’ represented by the director network are crucial in transforming micro corporate risks to macro systemic risks and analyzes the whole process of systemic financial risks from endogenous outbreak to diffusion and finally accumulation and outbreak.

Comparative Analysis of ESG Indicators in Enhancing Debt Default Prediction with Transformer-derived Attention Models

This study explores the application of Transformer-derived algorithms, namely TabNet and Tab Transformer, in predicting corporate debt defaults and compares their performance with classical machine learning models. Concurrently, it assesses the efficacy of incorporating ESG indicators into the corporate debt default risk assessment framework. The research focuses on Chinese A-share listed companies from January 2018 to June 2023, comprising 23 companies with observed defaults and a control group of 846 companies with regular debt maturities. The findings indicate that although attention-based models like TabNet and Tab Transformer provide enhanced interpretability, their performance does not significantly surpass ensemble algorithms such as XGBoost. Attention-based models emphasize the importance of merging the advantages of deep learning with the interpretability of traditional algorithms, especially when dealing with vast, high-dimensional datasets. Additionally, the incorporation of ESG data did not yield a significant improvement in prediction outcomes. Potential reasons for the limited impact of ESG indicators on predictions, including data quality and the comprehensiveness of existing financial disclosures, are discussed. Given the limited sample size and constraints related to test data, future research directions suggest expanding the dataset and diversifying ESG data sources.

Study on contagion of debt default risk of the secured party in the guarantee chain—From the perspective of small and medium-sized enterprises

Study on contagion of debt default risk of the secured party in the guarantee chain—From the perspective of small and medium-sized enterprises