Debt Issuance Research Articles

Трансформация аргентино-американских отношений на рубеже десятилетий

Introduction. The paper examines Argentina-U.S. relations during the administrations of Mauricio Macri and Alberto Fernandez, as well as the transformation of the bilateral ties character at the turn of the decade. The author analyzes the changes paying attention to the challenges that the economic crisis posed to the Argentine leaders, and taking into account the motives of both countries. The study identified the risks for the successful interaction between Washington and Buenos Aires, as well as the leverage of the potential influence of the White House on the Argentine authorities. Methods. The study is based on extensive factual data from the period of the latest two Argentine administrations (2015–2021), the new sources, including documents of the U.S. Department of State. An integrated systematic approach allowed to consider the interaction of Buenos Aires and Washington in the dynamics of Argentine domestic political and economic processes, taking into account global and regional factors. When analyzing changes in the character of bilateral ties, a comparative approach was applied. Analysis. The relations between Washington and the government of Mauricio Macri in 2017–2019 were allied. The main areas of interaction were trade and investment, security and political cooperation. To support his ally and the continuity of government in Argentina, D. Trump facilitated the IMF’s approval of the largest standby to Argentina for the period of Macri’s administration. The problem of payment became a burden for the elected A. Fernandez. Results. The willingness of the White House to help resolve the debt issue and the American investments needed by Argentina deterred A. Fernandez from developing an autonomist foreign policy pushing him to choose a more balanced course. Both topics constitute the points of potential pressure from Washington on the Argentine leader. Bilateral relations became more restrained, but showing no signs of confrontation. Risks for Argentine-American cooperation are posed by the deepening partnership of the South American country with China and by the position of the Argentine authorities on resolving the Venezuelan crisis. Given its desire to be Argentina’s partner of choice, the U.S. is unlikely to firstly use pressure. With the beginning of Joseph Biden’s presidency, the climate agenda became a new area of cooperation.

Duration of executive compensation and maturity structure of corporate debt

While recent studies show that long vesting periods in managerial compensation increase corporate investments, these investments such as research and development contribute to information asymmetry and therefore may affect the maturity structure of corporate debt. We find that firms with longer CEO pay duration have shorter debt maturity, which is consistent with the notion that firms shorten debt maturity to mitigate information asymmetry. This effect is stronger for firms with larger bid-ask spread, less analyst coverage, more growth options, more volatile returns, and lower default risk and for firms in R&D intensive industries. Firms with longer CEO pay duration prefer debt issuance over equity issuance, and they also exhibit higher future investment growth and Tobin's Q. We strengthen the identification by exploiting the quasi-randomly staggered compliance of a regulatory change (FAS 123-R) and the enforceability of noncompetition agreements as exogenous shocks to CEO pay duration. Our paper shows that the duration of executive compensation affects corporate financing decisions.

External sustainability in Spanish economy: Bubbles and crises, 1970–2020

AbstractWe address the issue of the sustainability Spain's external debt, using data for the period 1970–2020. To detect episodes of potentially explosive behavior of the Spanish net foreign assets over GDP ratio and the current account balance over GDP ratio, as well as episodes of external adjustments over this long period, we employ a recursive unit root test approach. Our empirical analysis leads us to conclude that there is some evidence of bubbles in the ratio between Spanish net foreign assets and the GDP. In contrast, the evidence that the ratio between the Spanish current account balance and the GDP had explosive subperiods is very weak. The episode of explosive behavior identified in the position of net foreign assets during the period 2002–2015 was the result of the country's economic expansion 1995–2007. The results also show an external adjustment during the period 2008–2019 after the start of a cyclical economic recession.

Investment and access to external finance in Europe: Does analyst coverage matter?

We aim to determine whether analyst coverage improves European firms’ access to capital markets and investment. Based on a data set that includes firms from several European countries between 2000 and 2015, we implement a treatment effect framework and an instrumental variables (IV) approach, in which the intensity of industry-level waves in coverage is used as an instrument for firm-level coverage. We show that analyst coverage is favorable to firms’ debt and share issuance and their investment expenses. Our paper emphasizes the key role of financial analysts in improving European firms’ financial conditions.

Self-Fulfilling Debt Crises, Revisited

Lack of commitment at the time of auction to repayment of imminently maturing debt can generate a run on debt and immediate default. We show that the same lack of commitment leads to other possible self-fulfilling crises, including issuance of more debt at depressed prices, or a “sudden stop” (forced austerity) in which debt issuance is sharply curtailed. Both outcomes stem from the government's incentive to eliminate uncertainty about imminent payments at the time of auction by altering the level of debt issuance. These outcomes generate a large increase in spread volatility in both a 1-period and a multiperiod quantitative debt model.

Inflation disasters and consumption

Consumers with longer-tailed subjective probability distributions of inflation anticipate lower real consumption growth and are more favorably inclined to purchasing durable goods. I propose a model in which rare inflation disasters increase the cost of future credit by raising debt issuance costs, prompting consumers to stock up on debt and move purchases to the present. Consistent with this theory, consumers with longer-tailed distributions anticipate higher future interest rates. The effects of anticipated tail risks on consumption plans are more pronounced among credit market participants.

International coordination of debt rules with time‐inconsistent voters

AbstractIn this study, we investigate the international coordination of debt rules in an economy consisting of several countries with varying degrees of present bias. A case wherein each country sets its own uncoordinated debt rules is compared with a case wherein all countries have common coordinated debt rules. Countries with weak present‐biased preferences increase their debt issuance and suffer from welfare losses by participating in coordination. In contrast, countries with strong present‐biased preferences reduce their debt issuance and can enjoy welfare improvement by participating in coordination. The contrasting results suggest the possibility that countries with weak present‐biased preferences have little incentive to follow the coordinated rule.

On the determinants of regional government debt in Russia

ABSTRACT This paper provides an analysis of the determinants of regional government debt in the Russian Federation using data from 2005–2017. We document that total indebtedness of Russian regions has grown substantially since 2010 and find significant changes in the structure of regional debt, primarily the increased use of budget credits offered by the federal government. Market debt instruments are determined by a different set of factors than non-market instruments. In fact, poorer and less fiscally independent regions have lower access to budget credits and are forced to rely on more expensive market debt instruments, particularly commercial loans. Budget credits and commercial loans are shown to be substitutes, although the nature of this substitution is contrary to declared redistributive goals of public policy. Finally, we find the presence of horizontal strategic interactions in debt issuance across Russian regions: regions react positively to increased debt issuance in the same federal district.

Unintended Consequences of the Dodd–Frank Act on Credit Rating Risk and Corporate Finance

AbstractPrior research finds that Dodd–Frank Act’s regulations on credit rating agencies (CRAs) increase rated firms’ risk of rating downgrades, regardless of their credit quality. Our difference-in-difference estimates suggest that after Dodd–Frank, low-rated firms, which face steep costs from a further downgrade, significantly reduce their debt issuance and investments compared to similar unrated firms. Our results are not driven by credit supply or the financial crisis. They reveal an unintended consequence of Dodd–Frank: Greater regulatory pressure on CRAs leads to negative spillover effects on firms concerned about credit ratings, regardless of their credit quality.

Corporate cash holdings and disclosure violations: an empirical investigation of Jordanian listed companies

PurposeThis study aims to examine the impact of low-quality financial statements; that is, disclosure violations reported by the Securities Exchange Commission related to the level of cash holdings (CH) of firms listed on the Amman Stock Exchange (ASE).Design/methodology/approachUsing panel data from 107 ASE-listed companies from 2009 to 2018, the study uses generalized method of moment estimation to examine the research hypothesis. This study hypothesize that disclosure violations can affect the level of CH and control for several variables that affect this level.FindingsThe results show that disclosure violations significantly affect the level of CH and that cash flow, capital expenditure and debt issues have a significantly positive impact on corporate CH. On the other hand, the market to book ratio and sales growth were found to be insignificant.Research limitations/implicationsThe limitations of the research include the fact that information on research and development and equity issues were not available, so were not included in the examination.Practical implicationsIt is recommended that managers enhance the quality of disclosures since this allows them to hold lower levels of cash and exploit more investment opportunities. Policymakers are recommended to supervise firm disclosures closely and create ratings for disclosure quality.Originality/valueTo the best of the author’s knowledge, this is the first empirical research on the association between proven low-quality disclosures and the level of corporate CH among Jordanian listed companies.

Is conditional conservatism a source of deviations of financial statements from Benford's Law?

PurposeIn this paper, the authors examine the association between conditional conservatism and deviations of the first digits of financial statement items from what are expected by Benford's Law.Design/methodology/approachThis research uses data of companies listed on the London Stock Exchange. The authors measure deviations of first digits from Benford's Law following Amiram et al. (2015) and firm-year conditional conservatism following previous studies (Basu, 1997; Khan and Watts, 2009; García Lara et al., 2016). The authors use multiple regressions to provide evidence for their hypothesis.FindingsThe results show that conditional conservatism is positively associated with deviations from Benford's Law. The findings are robust across different measures of deviations and conditional conservatism. Also, the authors find that the relationship between deviations from Benford's Law and conditional conservatism is more pronounced for firms with debt issuance, and for leveraged firms facing financial distress. Next, the authors’ analyses confirm previous evidence by showing that the first digits of financial statement items of UK listed companies conform to Benford's Law at the firm-specific level and the market level, and deviations of income statements are larger than those of balance sheets and cash flow statements.Research limitations/implicationsThe research makes significant contributions to the literature. First, this is the first study that provides empirical evidence suggesting that conditional conservatism may be a source of deviations from Benford’s Law. Second, the authors provide evidence confirming previous US findings (e.g. Amiram et al., 2015) showing that the distributions of first digits of financial statement items of UK listed companies also conform to Benford's Law.Practical implicationsThe authors’ findings have implications for auditors. Auditors should be aware of “false positive” for material misstatements when using Benford's Law as a risk assessment procedure. While both conditional conservatism and earnings management are related to deviations from Benford's Law, conservatism-related biases could indicate less audit risks.Originality/valueThe authors provide new and original evidence suggesting that conditional conservatism is related to deviations from Benford's Law.

The Economic Impact of Covid-19 on Small and Medium Enterprises in District Swat

The present study was undertaken for measuring the economic impact of the COVID-19 on Small and Medium Enterprisesn (SME’s) with reference to District Swat. The Primary data was collected from all of the Tehsils of District Swat using a structured questionnaire. For this purpose a sample of 86 SMEs (20%) from all the manufacturing as well as services sector was selected. The collected data was analyzed using descriptive statistics for selected variables through SPSS. According to the findings, majority of the enterprises faced financial issues for retaining their businesses after COVID-19 lockdown. Majority of the SMEs are owned by moderate level of educated people lacking business education and professionalism. Moreover, during COVID-19 SMEs were negatively affected in term of revenues, expenses and profit. In addition, SMEs were also having debt issues which elevated due to COVID-19 lockdown, resulting in taking loans through traditional mechanism to retain their businesses. Government relief programme was also believed as not sustainable/satisfactory by the significant portion during this period. While humanitarian support from landlords in term of rents waive-off was appreciated. Keeping in view its potential, this sector needs to be boosted through professional trainings on financial, management, leadership and other soft skills training program.Furthermore, relief by government support in term additional relief package and free interest loans are recommended.

Bondholders-Stockholders Conflicts and the Issuance of Subsidiary Debt

Bondholders-Stockholders Conflicts and the Issuance of Subsidiary Debt

State-Contingent Government Debt: a New Database

State-contingent government debt has been proposed as a way to reduce costly debt crisis. However, markets for this type of debt remain very limited, for reasons that are not yet fully understood. This paper describes a new database covering state-contingent government debt issued between 1863 and 2020. Based on these data, this paper shows stylized facts regarding the main design features, and market performance, of state-contingent government debt. It also provides a brief history of state-contingent government borrowing, which is contextualized with a simple theoretical model of state-contingent debt. The results show that there have been several small, heterogeneous, issuances of state-contingent debt, which resemble pilot runs in this new asset class. The paper concludes with some common challenges associated to state-contingent government debt.

Sovereign Debt Auction Method and Issuance Cost: Evidence from Iceland

Sovereign Debt Auction Method and Issuance Cost: Evidence from Iceland

BURDEN OF DEBT ON PEASANTRY: A CASE STUDY OF PUNJAB

This study investigates the issue of debt on Punjab farmers. We have conducted survey of two districts of Punjab to examine the debt scenario. A composite development index has been generated to rank all the districts of Punjab then district with the highest index value and with the least has been chosen for the survey. As observed that 66.7 per cent farmers were under debt in sampled households. Marginal and Small farmers per acre intensity is much higher compared to the upper category. Nevertheless, the amount of debt was increased with land holding size. The higher rate of interest charged by noninstitutional is pushing the farmers into debt trap.

Dynamic Debt Issuance with Jumps

Dynamic Debt Issuance with Jumps

New insights into decoupling economic growth, technological progress and carbon dioxide emissions: Evidence from 40 countries

• The macroeconomic fundamentals and material flows have non-linear effects on decoupling. • Economic growth is the main driver of CO 2 emissions. • Stock markets and debt decrease CO 2 emissions, in high-regimes of economic growth and debt. • Technology mitigates CO 2 emissions in regimes of robust growth and low debt, in the European context. Overall, the literature strongly validates the Environmental Kuznets Curve hypothesis and the decoupling of the economy regarding energy intensity and raw materials. However, there is no assessment of whether such evidence derives from the non-linearities of macroeconomic fundamentals from considering a simultaneous supply-demand market perspective of material flows. Therefore, using a sample of 40 countries, we estimated a Panel Smooth Transition Regression model for the period between 1994 and 2016. The results showed that economic growth and material flows are the drivers of CO 2 emissions. They also showed that stock markets and debt issuance reduce CO 2 emissions in high regimes, and the preponderant technological progress in the European context, mainly on the demand side and in high-regimes of economic growth and low-debt regimes, contribute to reductions in CO 2 emissions, even though positive in the low-regimes of economic growth. This study considered the efficiency levels and the evolution of macroeconomic fundamentals, providing new guidance for managers and policy-makers seeking to either innovate public policies and market positions or design sustainable asset investment strategies and portfolios.

On the Question of the Debts of Czarist Russia. The Soviet-French conference of 1926–1927

In this article based on materials from the French Ministry of Foreign Affairs archive, most of which have not yet been introduced into the academic circuit, the author examines the preparation, progress, and results of the Soviet-French conference in 1926–1927, where the question of repayment of debts of the Russian Empire, as well as the possibility of France's loans to the USSR were discussed. French documents show that the Soviet side from the very beginning indicated that the issue of paying off royal debts for it, due to the economic situation in the country, was inextricably linked with the provision of loans. The French delegation, although it did not recognize the connection between these two issues, was ready to discuss them in parallel and showed a real interest both in settling the debt issue and in providing loans. Despite considerable disagreement, the positions of the sides gradually converged during the negotiations, specific figures and details on key issues were agreed on, and a mutually acceptable outcome seemed quite possible. However, the coming to power in France in July 1926 of the government of the National Association, headed by Raymond Poincaré, instead of the Left Bloc, which was constructively disposed towards the USSR, and, especially, the Anglo-Soviet flare-up, followed by a breakdown in diplomatic relations between Moscow and London, led to a rise in anti-Soviet sentiment in France and, consequently, a hardening of the French negotiating position, which ultimately led to the failure of the conference. French holders of Russian securities were primarily the ones who lost out.

The Impact of Cost of Capital on Financial Performance: Evidence from Listed Non-Financial Firms in Nigeria

This study examines whether Cost of Capital (COC) impact on the financial performance of listed non-financial firms in Nigeria for the period 2015-2019. Using two-step system Generalised Method of Moments (GMM), the study found a significant and negative impact of COC on financial performance of listed non-financial firms in Nigeria. This is because profitable firms have the opportunity to finance new investments with retained earnings rather than through a new debt and/or equity issuance. Also, raising the debt level of a firm may result in an increase in distress costs, and as such reduces benefits from the tax shield which consequently result in decline in the value of the firm. Thus, the finding of this study is in line with the pecking order theory of capital structure. The findings, which add to the existing knowledge with regard to the impact of COC on financial performance, should be interesting to the providers of finance. This is because the study helps them to make the decision whether or not to invest in these firms. Since they want their money to be invested where there will be maximum return. However, this result only hold for emerging economies like Nigeria where analyst cash flow forecast is difficult to predict. This is due to the underdeveloped nature of the capital market.