Excessive Debt Research Articles

Excessive Public Debt and Social Rights in the Eurozone Periphery

In recent years a number of Eurozone Member States that had accumulated excessive public debt during the last decade were forced to apply for financial assistance in the form of loans from the International Monetary Fund (IMF) and other Eurozone Member States. The bailout programmes have been accompanied by extremely strict conditions, which have led to the devastating curtailment of social expenditure. In turn this has led to disproportionate infringements of social and economic rights. This paper examines the reconcilability of its austerity measures using the example of the most heavily indebted state, Greece. The measures were finally incorporated in acts of secondary European law, with the rights entrenched in the Charter of Fundamental Rights of the EU. The authors conclude that the strict austerity dictated by the Troika has undermined the European social constitutional order to the extent that it could be described as a fraude aux Traités.

Political Economics of External Sovereign Defaults

We develop a dynamic recursive model where political and economic decisions interact, to study how excessive debt-GDP ratios affect political sustainability of prudent fiscal policies. Rent seeking groups make political decisions – to cooperate (or not) – on the allocation of fiscal budgets (including rents) and issuance of sovereign debt. A classic commons problem triggers collective fiscal impatience and excessive debt issuing, leading to a vicious circle of high borrowing costs and sovereign default. We analytically characterize debt-GDP thresholds that foster cooperation among rent seeking groups and avoid default. Our analysis and application helps in understanding the politico-economic sustainability of sovereign rescues, emphasizing the need for fiscal targets and possible debt haircuts. We provide a calibrated example that quantifies the threshold debt-GDP ratio at 137%, remarkably close to the target set for private sector involvement in the case of Greece.

Expense Management Strategies Within Financially Successful Christian Universities

This study identified the business strategies and tactics employed by three financially successful Christian institutions of higher education to drive a positive net income. In addition, this study explored the linkages between operational decisions and the institutions' Christian mission. The three institutions in this study declared an uncompromising mission to educate students from a Christian worldview. The planning processes were consistently integrated into the routine structures and cycles, with the institutions' Christian identity being the lens through which planning was filtered. The investigated institutions also employed a business framework in their operations, intentionally living within their means by managing the effectiveness and efficiencies of the institution and by avoiding excessive debt. It was evident that strategic planning processes that included strong tactical planning and follow-through, combined with conservative fiscal management, were critical to the success of these private, not-for-profit Christian institutions. These institutions demonstrated that good fiscal business decisions, when made through the lens of the Christian mission or ethos, are evidence of good stewardship.

Economic performance and corporate financial management of shipping firms

In an increasingly competitive environment, the importance of the economic performance of the maritime sector has been emphasized in the research of the past two decades. Recently, shipping firms have increasingly entered stock markets as an alternative source of finance, avoiding thus excessive debt exposure. It is here considered necessary to use performance measures which combine shareholders’ values with aspects of organizational management. Economic Value Added and Tobin’s Q are used to evaluate the economics performance of shipping firms. Main elements of financial management are used to investigate the determinants of economic performance of shipping companies. 64 international shipping companies listed in Bloomberg Shipping Indices are included in our sample. A panel regression is used to examine the impact of financial strategies on performance, across three market segments. This analysis provides shipping companies with managerial and strategic insights on how financial options influence economic performance. We identify unique common performance-determining characteristics such as operational ones; profitability; and leverage ratio; among tanker, dry bulk and container shipping markets.

Indebted Households Profiling: A Knowledge Discovery from Database Approach

A major challenge in consumer credit risk portfolio management is to classify households according to their risk profile. In order to build such risk profiles it is necessary to employ an approach that analyses data systematically in order to detect important relationships, interactions, dependencies and associations amongst the available continuous and categorical variables altogether and accurately generate profiles of most interesting household segments according to their credit risk. The objective of this work is to employ a knowledge discovery from database process to identify groups of indebted households and describe their profiles using a database collected by the Consumer Credit Counselling Service (CCCS) in the UK. Employing a framework that allows the usage of both categorical and continuous data altogether to find hidden structures in unlabelled data it was established the ideal number of clusters and such clusters were described in order to identify the households who exhibit a high propensity of excessive debt levels.

Co-operative wineries: Temporal solution or efficient firms? The Spanish case during late Francoism, 1970–1981

Part of economic theory has regarded co-operative firms as useful tools for dealing with market failures during periods of economic contraction, but also as suffering severe efficiency problems during periods of growth. The main aim of this article is to test this hypothesis in the case of Spanish co-operative wineries during the years of late Francoism. In order to do this, the balance sheets of 75 co-operative firms from the 1970s have been subject to financial-ratio analyses. The main conclusion is that these firms were inefficient due to their excessive financial debt. The Spanish Francoist government promoted their creation and granted financial aid – for their value as social and economic control systems – framing them within a rigid corporate system typical of authoritarian states. This involved limited autonomy and conditions conducive to free-riding behaviour, which is at the core of their inefficient performance.

Reducing Private Sector Debt and Restoring Bank's Capacity to Lend: A Policy Proposal for the Euro Area

An environment of low growth and low inflation in the euro area does not foster swift private sector deleveraging. Yet, reviving growth is critically dependent on how quickly excessive levels of debt can be reduced, particularly in sectors that remain unprofitable. This is essential to support a structural rebalancing of the economy towards higher growth. So far, the pace of deleveraging in the euro area countries that accumulated excessive private sector debt before the crisis remains slow pointing to institutional challenges and other impediments to reduce debt levels. At the same time, the share of non-performing loans in bank balance sheets in countries that experienced rapid credit growth have continued to increase. This development is not new as reducing private sector debt and restoring the health of the banking system are inter-related. By drawing on the experiences of other countries that have dealt with these issues in the past while taking note of the lessons learnt, this paper aims to stimulate debate on policies that foster speedy resolution of non-performing loans and reduction of private sector debt, which in turn, will help revive growth.

How Europe’s Political Leaders Made Sense of the Euro Crisis: The Influence of Pressure and Personality

The Greek announcement of its excessive debts led to one of the most severe crises the EU has faced since its inception. The crisis soon evolved into a full leadership crisis as European political leaders struggled to come up with a common solution to the challenges they faced. Theories of leadership and crisis management identify several factors that may contribute to these differences. This article examines to what extent leaders’ personal traits and external pressure influenced how six political leaders made sense of the situation. The study finds that a leader’s belief that they can control events, their self-confidence, as well as economic pressure provide a partial explanation of how European leaders make sense of the crisis. The traits of cognitive complexity and openness to information do not exert an influence in the cases discussed here. These findings indicate that any comprehensive understanding of how leaders make sense of crises should take note of specific individual as well as contextual factors.

The nexus between output fluctuations and fiscal deficits: empirical evidence on Ghana

Ghana is presently confronted with persistent budget deficits and burgeoning public debt in excess of 52% of GDP and frequent fluctuations in total output below its long–run trend. This is of great concern which has issues for the country's long term growth and debt sustainability. Though the persistent deficit is a common knowledge, the driving force behind the deficit has remained quite elusive. The paper sets out to find the causal relationship between the recurrent budget deficit and output fluctuations in Ghana. With cyclical component of annual real GDP and fiscal deficit to GDP ratio time series data from 1960–2012, and subject to various econometric techniques and three estimation methods (OLS, SUR and VAR), the paper finds a bi–directional causal relationship between fluctuations in output and fiscal deficits to GDP ratio.

GOVERNANCE ISSUES IN PAKISTAN AND THEIR IMPACT ON INCOME INEQUALITY

Purpose- The purpose of this paper is to investigate the relation between governance of a country and its impact on income inequality. The World Bank, Economic Freedom Network, Fraser Institute and World Economic Forum have been defining and measuring the governance indicators. Methodology/Sample – This study takes six governance indicators score from -WWGI for the year 2000 and 156 counties data to calculate correlation between wealth Gini and governance indicators. The statistical analysis is comprised of OLS estimation and Correlation analysis. Findings - We found significant negative relation between governance indicators and wealth inequality, income inequality. Bad governance has deep impacts on the economy of Pakistan. Excessive debt, high fiscal deficit, high inflation, low tax to GDP ratio, high trade deficit, lack of adequate capital formation and severe energy crisis are some economic challenges faces by Pakistan from decades. Practical Implications – This study suggests that improvement in governance is not a single day task, it cannot be achieved at once, and it is not related to any department or institution. It’s a process that will establish equality, effective management of economic resources.

DOMESTIC INVESTMENT CLIMATE AND FOREIGN DIRECT INVESTMENT IN SOUTH ASIA: A PANEL DATA EVIDENCE

Purpose- The purpose of this paper is to investigate the relation between governance of a country and its impact on income inequality. The World Bank, Economic Freedom Network, Fraser Institute and World Economic Forum have been defining and measuring the governance indicators. Methodology/Sample – This study takes six governance indicators score from -WWGI for the year 2000 and 156 counties data to calculate correlation between wealth Gini and governance indicators. The statistical analysis is composed of OLS estimation and Correlation analysis. Findings - We found significant negative relation between governance indicators and wealth inequality, income inequality. Bad governance has deep impacts on the economy of Pakistan. Excessive debt, high fiscal deficit, high inflation, low tax to GDP ratio, high trade deficit, lack of adequate capital formation and severe energy crisis are some economic challenges faces by Pakistan from decades. Practical Implications – This study suggests that improvement in governance is not a single day task, it cannot be achieved at once, and it is not related to any department or institution. It’s a process that will establish equality, effective management of economic resources.

The Islamic Implication of the Standard Benchmarks in the American Islamic Mortgage Product

This paper examines the permissibility of the American Islamic mortgage sector use of the standard metrics synonymous with the conventional and conforming mortgage; debt to income ratio and loan to value. For this purpose, section one will discuss the formation of the traditional conventional mortgage juxtaposed with the reduction in the savings as well as an increase in spending by Americans. The second section will explore the relevant Islamic financial views on overspending and the correlation with negative societal effects such as excessive debt, grief as well as the lack of fulfillment of the rights of other. The conclusion will correlate the current American Islamic finance mortgage options to the overspending mentality due to the overwhelming adherence to the standard benchmarks. The conclusion suggests that mortgages structured with the conventional benchmarks have had a detrimental effect on personal and societal well-being, albeit labeled Islamic or not. Suggested further is the moving away from the conventional benchmarks in the next evolutionary model of the American Islamic mortgage product.

An empirical analysis of the sustainability of Ghana's trade deficits

Trends in the trade balance of Ghana show a consistent and excessive deficit in the Ghanaian economy (but for brief episodes of surpluses). The key concern regarding this trend is that Ghana could be on the path of insolvency as they build up excessive net foreign debt from financing the trade gap with capital inflows. Using the inter-temporal budget constraint model of Husted (1992), this study assesses the sustainability of Ghana's trade deficits via a test of the country's inter-temporal budget constraint. Employing time series data of Ghana for the period 1983-2012 and using the bounds testing approach to cointegration under the autoregressive distributed lag (ARDL) model, the study found the existence of a long-run relationship between Ghana's exports and imports. The results of the Wald's restriction test imposed on the long-run parameter indicate that Ghana fails to satisfy the sufficient condition for sustainability of its trade deficits. The study also established the existence of a bidirectional causality between Ghana's exports and imports both in the short run and the long run. The overall conclusion drawn from the study is that Ghana fails to satisfy its international budget constraint and that its trade deficits are unsustainable.

Effect of Leverage on Performance of Non-financial Firms Listed at the Nairobi Securities Exchange

Managers strive to maximise shareholder wealth by making rational financing decisions regarding optimal capital structure which would minimise its cost of capital. In attempt to magnify the return to shareholders, managers employ the use of debt. When excessive debt financing is employed by a firm, it increases the cost of financing and the financial risk of the firm leading to decreasing the return on equity as a result of financial distress. Do the various debt equity ratio levels lead to different financial performance when compared for high levered and low levered firm, high growth and low growth firm or large and small firms? A causal research design was used to establish the cause and effect relationship between financial leverage and the financial performance of the firms. The target population was 61listed firms on the Nairobi securities exchange by December 2013.Purposive sampling was used to select 38 non-financial companies. Financial companies were eliminated because the company’s capital structures have specific characteristics affected by industry regulatory requirements. Secondary data was obtained from published financial statements of the sampled companies for the six year period from 2008 to 2013.Ordinary Least Square method was used to establish the cause effect relationship among variables; Hypotheses were tested at 5% significance level using t-statistic. The study found that there was no significant difference in financial performance between highly levered and lowly levered firms and that there existed a negative relationship between Leverage and firm’s performance. There were also no significant differences in financial performance between high growth levered firms and low growth levered firms and that there existed a negative relationship between a firm’s growth opportunity and financial leverage ratio. There was no significant difference in financial performance between large levered firms and small levered firms. The findings of this study may act as a policy guideline to finance managers involved in managing firms on the contribution of financial leverage and its association with return on equity to maximise shareholder wealth

Indebted Households Profiling: A Knowledge Discovery from Database Approach

A major challenge in consumer credit risk portfolio management is to classify households according to their risk profile. In order to build such risk profiles it is necessary to employ an approach that analyses data systematically in order to detect important relationships, interactions, dependencies and associations amongst the available continuous and categorical variables altogether and accurately generate profiles of most interesting household segments according to their credit risk. The objective of this work is to employ a knowledge discovery from database process to identify groups of indebted households and describe their profiles using a database collected by the Consumer Credit Counselling Service (CCCS) in the UK. Employing a framework that allows the usage of both categorical and continuous data altogether to find hidden structures in unlabelled data it was established the ideal number of clusters and such clusters were described in order to identify the households who exhibit a high propensity of excessive debt levels.

Credit cards, financial responsibility, and college students: an experimental study

Policymakers are concerned about the limited financial expertise of young adults because their naivete leaves them vulnerable to the perils of excess debt. We report the results of three experiments designed to investigate college students' mental representations of credit cards, focusing on linkages to financial responsibility. Students complete an inferential reasoning task in which they assess conditional relations to provide evidence on their rudimentary understanding of what credit card ownership entails. The findings suggest that students readily associate credit card ownership with the need to exercise financial responsibility. Yet, they have difficulty correctly assessing conditional relations. While these young adults believe that they should be financially responsible, their mental models do not fully describe the linkages between credit card ownership and financial responsibility. Additional investigation indicates that analogical transfer can be used to enrich students' mental models, underscoring an obligation to exercise financial responsibility.

La contabilidad gubernamental y la rendición de cuentas del endeudamiento en el estado de Baja California Sur, México

Los cambios en la normatividad contable han implicado que la administración pública estatal emita información financiera sobre las obligaciones financieras. La normatividad contable, establece la obligación de preparar la información financiera sobre los pasivos gubernamentales, y se están plasmando esfuerzos para preparar dicha información financiera.Por la utilidad y la conveniencia de la información financiera, este trabajo está orientado a reflexionar sobre los aspectos que deben ser atendidos para revelar el instrumento de endeudamiento en el ámbito de la administración pública estatal.La deuda pública a corto plazo, es una fuente de financiamiento que puede ser necesaria para el desarrollo económico y social de una economía, sin embargo, a mediano y a largo plazo, puede tener consecuencias importantes y significativas, principalmente, porque esta herramienta es muy utilizada y este uso indiscriminado puede traer consigo severos problemas tanto de excesivo endeudamiento como de insolvencia.Por ello, la presente investigación plantea, efectuar una revisión de los mecanismos de endeudamiento estatales tanto bancarios como bursátiles, ya que, para conseguir el financiamiento requerido, los estados emiten diversos instrumentos financieros y, en muchas ocasiones, se suelen rebasar los límites de deuda establecidos por la ley.En el resultado del estudio se comprende que el mecanismo del endeudamiento está vinculado con la norma contable y legislativa y, aún, falta el compromiso de la autoridad para revelar los instrumentos financieros con los que se contraen las obligaciones financieras, con el fin de acotar límites de deuda.

Economic stagnation in the United States: underlying causes and global consequences

This paper analyzes the causes of the slow recovery of the US economy since the financial crisis and Great Recession of 2008-9. Fallen house values and excessive household debts continue to depress consumer spending, while corporations are failing to invest in spite of record profits. The increasingly unequal distribution of income limits demand, while long-term structural transformations continue to erode employment creation. An expansionary monetary policy has been incapable of sparking a more robust recovery and fiscal policy has been shifted to an austerity stance. In this context, Brazil and other emerging market nations cannot count on the United States to continue to be the leading source of global demand as it was in previous decades.

Risk Profiles for Re-Profiling the Sovereign Debt of Crisis Countries

This paper uses a risk-management approach to re-profile the sovereign of countries facing crises. Using scenario analysis we develop a risk measure of the sovereign's -- Conditional Debt-at-Risk -- and an optimization model is used to trace risk profiles that tradeoff expected cost of financing against the Conditional Debt-at-Risk. The risk profiles are particularly informative for crisis countries, as they allow us to identify, with high-probability, unsustainability. We develop risk profiles for two Eurozone countries with excessive debt, Cyprus and Italy, both in their current form and under various forms of restructuring or rescheduling, and show how to assess sustainability. We also develop the risk profiles for a proposal to impose debt sanctions in the Ukrainian crisis and show that the (financial) impact could be substantial.

The Market Structure of Securitisation and the US Housing Bubble

Housing finance and, specifically, the subprime private label securitisation market in the US, was at the epicentre of the global financial crisis. Excessive debt expansion in the run-up to the crisis resulted in credit risk, under-identified and mispriced ex ante, and in systemic risk. This paper considers the role of financial innovation in debt markets and the changing market structure of securitisation in the evolution of the US housing price bubble. New financing vehicles contributed to growing risk, but the more salient factor was the change in the structure of securitisation, which led to unsustainable levels of debt.