Debt Levels Research Articles

On the (de)stabilization role of protectionism

To what extent protectionism affects growth and (de)stabilizes the economies? Although the impact of protectionism on growth has been widely explored without reaching a consensus, few has been said on its impact on macroeconomic stability. The present paper attempts to gauge more precisely its implications using a Barro-type (Barro, 1990) endogenous growth model with public debt and credit constraint where tariffs are a proxy of protectionism. Our main result is to show that when the debt level is high, and the share of foreign goods in total consumption is large enough, increasing tariffs may have a destabilizing effect generating some expectation coordination failures between multiple equilibria. We also exhibit some trade-off between tariffs and growth as tariffs are beneficial only to the low growth equilibrium which may only appear when the international interest rate is low enough. Finally, focusing on the local stability property, we show that the high BGP is always characterized by local indeterminacy, while the low BGP is always a saddle point. We then prove that tariffs may be responsible for the existence of large self-fulfilling fluctuations.

Targeting Debt in Pakistan: A Structural Macro-Econometric Model

Unsustainable debt levels pose serious economic risks, potentially leading to financial instability when repayments become challenging. This paper investigates the intricate dynamics of Pakistan's debt. It aims to assess its sustainability within a broader eclectic and dynamic framework of responsible fiscal management using macro-econometric analysis. A structural macro-econometric model (MEM) based on five blocks has been developed, i.e., Government, Price, Real, Monetary, and External sectors. Moreover, it comprises sixteen behavioral equations along with ten identities. The Generalized Method of Moments (GMM) has been used to estimate the system of behavioral equations and identities to solve the endogeneity problem, while the Guass-Seidel algorithm is used for model simulation purposes, including dynamic & stochastic simulations. Forecasting has been done from 2023 – 2030. Moreover, three main policy variables, i.e., inflation, exchange rate, and government expenditures, have been given shocks to evaluate their impact on future external borrowing, interest payments along with imports, exports, and net foreign and domestic assets. The results revealed that an effective monetary & fiscal policy must be designed to stabilize the economic conditions to manage external debt and repayments effectively. Moreover, to cope with unsustainable debt conditions, it is required to follow strict fiscal discipline via designing & adhering to a budget that prioritizes inflationary controls and responsible spending practices.

Assessing financial stability in Southeast Europe (SEE): An econometric perspective

In the last decade, the global financial landscape, including Southeast Europe's eleven diverse economies, has been significantly impacted by multiple financial crises. These crises have led to economic downturns, unemployment spikes, and unstable financial structures. This study investigates financial stability and risks in Southeast Europe from 2012 to 2021, focusing on Albania, Bosnia and Herzegovina, Bulgaria, Cyprus, Montenegro, Greece, Croatia, North Macedonia, Kosovo, Serbia, and Turkey. It aims to identify factors influencing financial stability amid distinct economic challenges posed by global crises. Utilizing the Financial Stability Index (FSI) as the dependent variable, alongside the Banking Stability Index (BSI), inflation rate, GDP, and public debt as independent variables, the research employs data from the World Bank and The Global Economy. Analysis through STATA software and methods like OLS, OLSR, FE, RE, and GMM reveals the critical role of banking in financial stability, with a robust BSI positively impacting it, while inflation poses additional risks. The study advises Southeast European policymakers to prioritize banking stability and economic growth to enhance financial stability, while also managing inflation and public debt to reduce future financial risks. Our findings suggest that a one-unit increase in the BSI is associated with a 3.35-unit increase in the FSI, highlighting the banking sectors significant influence on regional financial stability. High public debt levels, conversely, are found to correspond with reduced financial stability, with a strong negative correlation of -0.634 between FSI and public debt. These findings underscore the importance of robust banking systems and sound fiscal policies in maintaining financial stability in the face of economic adversities.

An Inductive Approach to Quantitative Methodology—Application of Novel Penalising Models in a Case Study of Target Debt Level in Swedish Listed Companies

This paper proposes a method for conducting quantitative inductive research on survey data when the variable of interest follows an ordinal distribution. A methodology based on novel and traditional penalising models is described. The main aim of this study is to pedagogically present the method utilising the new penalising methods in a new application. A case was employed to outline the methodology. The case aims to select explanatory variables correlated with the target debt level in Swedish listed companies. The survey respondents were matched with accounting information from the companies’ annual reports. However, missing data were present: to fully utilise penalising models, we employed classification and regression tree (CART)-based imputations by multiple imputations chained equations (MICEs) to address this problem. The imputed data were subjected to six penalising models: grouped multinomial lasso, ungrouped multinomial lasso, parallel element linked multinomial-ordinal (ELMO), semi-parallel ELMO, nonparallel ELMO, and cumulative generalised monotone incremental forward stagewise (GMIFS). While the older models yielded several explanatory variables for the hypothesis formation process, the new models (ELMO and GMIFS) identified only one quick asset ratio. Subsequent testing revealed that this variable was the only statistically significant variable that affected the target debt level.

Driving force of value reversal in Chinese overleveraged firms: The mechanism and path of private placement.

To stimulate economic growth, China has launched multiple economic stimulus plans in recent years, intensifying corporate debt financing and subsequently elevating the leverage levels. Addressing and effectively reducing the leverage levels of our country's enterprises has emerged as a pressing issue in the trajectory of our economic development. This paper primarily investigates the drivers, pathways, and mechanisms for reversing the over-leveraged values of enterprises. Key findings include: (1) Excessive indebtedness exerts a negative impact on corporate value, with the suppressing effect intensifying as the degree of over-leverage increases; (2) Over-leveraged enterprises can effectively decrease their debt levels and enhance their value through private placement. Further research suggests that this mechanism operates by amplifying the operational leverage of over-leveraged enterprises post private placement and alleviating financing constraints, thereby elevating corporate value. (3) Compared to non-state-owned enterprises, state-owned enterprises exhibit higher levels of indebtedness. Among over-leveraged firms, enhancements in corporate governance and increased investment efficiency can positively transform corporate value. This study offers valuable insights for the ongoing supply-side structural reforms and governance guidance from the regulatory bodies.

Outward FDI, Profit Shifting, and Its Impact on the Tax Payments of the Parent Firm: A Case of Indian Manufacturing Firms

Outward FDI, Profit Shifting, and Its Impact on the Tax Payments of the Parent Firm: A Case of Indian Manufacturing Firms

Public Debt and It’s Impact on Bank Behaviour and Financial Efficiency: Ghana in Perspective

This study explored the impact of public debt on bank behaviour and financial efficiency in Ghana amid rising global and national debt levels exacerbated by the COVID-19 pandemic’s economic repercussions. An exploratory research design employing a quantitative approach was used to analyze the perceptions of 201 banking professionals across Ghana. The study utilized cluster and purposive sampling techniques to ensure a representative sample. Data were collected on banks’ risk-averse behaviour, credit availability, interest rates, and investment decisions in relation to public debt levels, using survey instruments and regression analysis to quantify the impacts. The findings reveal significant concerns among banking professionals regarding the influence of high public debt on conservative lending practices, increased interest rates, reduced credit availability, and adverse effects on banks’ profitability and the financial system’s stability. Regression analysis confirmed a negative relationship between public debt and financial efficiency, indicating that rising public debt levels may hinder the sector’s operational effectiveness. These results underscore the critical need for strategic fiscal management to mitigate the risks associated with high public debt levels on financial stability and development. Policymakers and financial institutions are urged to consider measures that promote financial sector efficiency and sustainable debt levels, including fiscal consolidation strategies, diversification of investment portfolios, and enhancement of risk assessment models. This study contributes to the empirical discourse on the effects of public debt on financial development by providing insights specific to the Ghanaian context, which has been relatively underexplored.

Torn between two debt types? The role of managerial ability in a firmʼs choice between bank loans and public debt

Motivated by the theoretical literature on firms' choice between bank loans and public debt, this paper analyzes whether more able managers choose a higher fraction of public debt. We find that firms with more able managers choose a higher level of public debt. We also find that the use of public debt by more able managers is positively associated with wealth creation for shareholders and negatively associated with bankruptcy risk. Our cross-sectional analyses suggest that this baseline relationship is conditional on a better information environment. We address endogeneity issues in multiple ways and run an extensive array of robustness checks. Overall, our findings are consistent with the prediction that managerial ability mitigates the information monopoly of banks.

Does corporate governance moderate the impact of earnings management on capital structure of the listed corporations on Palestine and Amman Bourses

The purpose of this research is to investigate the moderating role of corporate governance on the relationship between earnings management and debt level in capital structure. The paper used a hypothesis-testing research approach to gather data from the annual reports of 13 industrial companies listed on Palestine Exchange and 25 Jordanian companies listed on Amman Stock Exchange from 2013 to 2020. Descriptive and inferential statistics were employed, along with correlation analysis to evaluate linear relationships between variables. The fixed and random effect regressions were utilized to develop the research model. In the case of Palestinian manufacturing firms, the results revealed that Earnings Management (EM) had a significant negative impact on debt level. According to the moderating role of Corporate Governance (CG), larger boards and the existence of female members on the board of directors causes an increase in the high-leverage impact of EM, whereas CEO duality mitigates the high-leverage impact. However, in the case of Jordanian manufacturing firms, EM showed an insignificant impact on debt level. Regarding the moderating role of CG, it was proved that the presence of female members on the board of directors increased the firm’s reliance on debt financing as a result of EM practices, while institutional investors mitigate the effect of EM on debt financing, leading to a decrease in reliance on debt. The findings of this research are suitable for the regulators while formulating policies on the Corporate Governance and the Impact of Earnings Management on Capital Structure. These findings have guided the policymakers that they should enhance their focus on Palestine and Jordan companies to test Corporate Governance Moderates the Impact of Earnings Management on Capital Structure. This study is also helpful for the new researcher while investigating this area in the future.

Peran Kepemilikan Manajerial dalam Hubungan Antara Tingkat Utang, Siklus Operasi, dan Ukuran Perusahaan Terhadap Persistensi Laba

This research aims to analyze the effect of debt level, operating cycle, and firm size on earnings persistence with managerial ownership as a moderating variable in consumer goods companies listed on the Indonesia Stock Exchange in 2020 – 2022. The data used in this study are data secondary with the sampling technique using purposive sampling based on certain criteria so that 53 companies were selected as research samples. Data analysis used multiple linear regression analysis using SPSS 25. The result showed that debt level and operating cycle had an effect on earnings persistence, while firm size had no effect on earnings persistence. Debt level, operating cycle, and firm size moderated by managerial ownership have no effect on earnings persistence.

DETERMINASI PERSISTENSI LABA: Peran Volatilitas Penjualan, Arus Kas Operasi, dan Tingkat Hutang pada Sektor Properti dan Real Estate di Indonesia

Profit persistence can be interpreted as the possibility that a company's profit level will repeat itself in the future. This study aims to determine the effect of sales volatility (X1), operating cash flow (X2) and debt levels (X3) on profit persistence (Y) in Properties and Real Estate companies listed on the Indonesia Stock Exchange for the 2017-2021 period. Sampling in this study used a purposive sampling technique and obtained 13 sample companies. The data analysis method used is quantitative data analysis, namely using panel data regression analysis and using the EViews 12 tool. The results of this study indicate that partially operating cash flow has an effect on earnings persistence. Meanwhile, sales volatility and debt levels partially have no effect on earnings persistence. Meanwhile, simultaneously sales volatility, operating cash flow and debt levels affect earnings persistence with an R2 contribution of 21.35%.

Exorbitant Privilege and the Sustainability of US Public Debt

We study the extent to which the perceived cost of losing the exorbitant privilege the United States holds in global safe asset markets sustains its public debt safety. Our findings indicate that losing this special status in the event of a default significantly augments the debt capacity for the United States. Debt levels would be up to 30 percent lower if the United States did not have this special status. Most of this extra debt capacity arises from the loss of convenience yields on Treasuries, which makes debt more expensive following its loss, providing strong incentives to repay debt.

The Long-Term Impact of Student Debt on Career Choices and Social Mobility of Low-Income Students

This paper explores the long-term impact of student debt on the career choices and social mobility of low-income students in the United States. Utilizing a mixed-methods research design, the study combines quantitative data from national surveys and secondary sources with qualitative insights from in-depth interviews. The findings reveal that low-income students graduate with significantly higher levels of student debt compared to their higher-income peers, which constrains their career options and compels them to prioritize financial stability over personal interests. This debt burden also impedes their ability to achieve upward social mobility, as it limits their capacity to save, invest, and make significant life purchases such as buying a home. Moreover, the psychological stress associated with substantial debt further exacerbates these challenges, leading to chronic stress and mental health issues that impede career progression and overall quality of life. The intergenerational effects of student debt are also profound, as financial strain on parents and subsequent economic instability experienced by their children perpetuate cycles of poverty. This study underscores the need for comprehensive policy interventions to alleviate the burden of student debt and promote greater economic equity.

Do Intra-industry Peer Effects Influence the Debt Financing Policy of Companies Listed in Thailand?

Rational imitation of financial policies, namely peer effects, was documented to prevail among firms within an industry in both developed and top emerging economies. Lacking evidence from medium-sized emerging Asian countries, this study examined intra-industry peer effects, i.e., imitation, on debt financing at Thai listed companies. The sample consisting of the firms listed on the Stock Exchange of Thailand (SET) during the years 2001–2018 was incorporated to discover those effects. Numerous databases associated with the SET (e.g., SETSMART) and the firms’ websites were used to collect financial numbers. With 6,058 firm-year observations, unbalanced panel data was then analyzed by using the random-effects and fixed-effects ordinary least squares models as well as the two-stage least squares regression. The main findings show that a focal firm imitates the long-term debt financing of its industry peers. Using the instrument approach to address endogeneity, the key results are confirmed. Peers’ equity shock as the instrumental variable decreases their financing with debt, subsequently lowering debt levels at a focal firm. This mimicking was operated through peer action, not peer character, i.e., performance. In additional tests, severe market competition was found to strengthen the uniformity of decision-making on debt finance among industry peers. Meanwhile, the high cost of information embedded in innovation-driven businesses has not been found to both promote and reduce peer effects on debt finance. Including the extra control variables at firm-specific levels, the key results remain robust. This study highlights a vein of social learning theory and competition-based theory in discussing herding behaviors toward all member firms in a certain industry. The conclusions enrich the literature on peer effects on debt finance policy.

EFFECT OF GREEN ACCOUNTING, LEVERAGE, FIRM SIZE ON FIRM VALUE WITH PROFITABILITY AS INTERVENING VARIABLE

Purpose: This study investigates how green accounting practices, leverage (debt levels), and company size influence profitability and ultimately firm value. The research focuses on companies listed in the Jakarta Islamic Index (JII). Previous research on these relationships has yielded mixed and inconsistent results. They point out that few studies have examined these variables together in a single model. This study aims to address this gap by creating a new model that explores the combined effects of green accounting, leverage, and size on profitability, and ultimately, firm value within the JII context. Theoretical Framework: This research is grounded in two key theories: stakeholder theory and signaling theory. While past empirical studies haven't yielded definitive results, this research offers a fresh perspective. The novel model developed in this study builds upon existing knowledge by examining how several previously linked variables interact and influence firm performance. Design/Methodology/Approach: This research employed a descriptive approach, analyzing financial data from company annual reports. To understand the relationships between the variables, a statistical technique called Structural Equation Modeling (SEM) was used. The study focused on companies listed on the Jakarta Islamic Index (JII) of the Indonesian Stock Exchange between 2019 and 2022. A 120-sample size from 30 companies was chosen strategically using a purposive sampling method from the JII. Result and Discussion: This study found that leverage (debt) and company size have a positive and statistically significant impact on profitability. Interestingly, green accounting practices did not have a clear influence on firm value. There was a negative effect, but it wasn't statistically significant. Firm size itself also did not directly affect firm value in a statistically significant way. However, profitability itself has a strong and positive impact on firm value. Additionally, profitability can act as an indirect factor, mediating the relationship between leverage and firm value. Based on these results, the study recommends that companies listed on the Jakarta Islamic Index (JII) consider strategic use of debt financing. This can be a way to improve profitability and ultimately attract investors, leading to a higher firm value. Originality/Value: This research introduces a novel model that investigates the interconnected effects of several variables with proven relationships.

Effective Tax Rates: Firm Size, Leverage and Return on Assets

The Effective Tax Rate (ETR) assesses a company's proficiency in managing its tax burden by comparing tax expenses to total net income. A lower ETR percentage indicates better tax effectiveness. Companies utilize the ETR as a benchmark for shaping their tax policies. It serves as a tool for gauging how well a company handles its tax system. This study seeks empirical evidence on the impact of firm size, leverage, and return on assets on effective tax rates. The independent variables include firm size, debt level, and return on assets, while the dependent variable is the effective tax rate. The research focuses on food and beverages sector companies listed on the Indonesia Stock Exchange (IDX) from 2020 to 2022. The sample comprises 34 companies selected through purposive sampling. The analysis employs multiple linear regression, revealing that firm size and return on assets do not influence effective tax rates, whereas leverage significantly affects the effective tax rate

Influence of Debt Financing on Income Smoothing Practices among Listed Deposit Money Banks in Nigeria

This study examined the influence of debt financing on income smoothing among Nigerian listed deposit money banks. The study is specifically examined the influence of total debt ratio on income smoothing. Data collected from sampled twelve (12) listed Nigerian DMBs out of the fourteen (14) listed banks for period from 2009 to 2021. Data were analyzed using random effect panel regression. The results revealed that total debt to equity ratio exerts negative and significant influence on income smoothing measured by absolute discretionary accrual (t= -2.87; p<0.05) respectively. These implied that an increase in total debt ratio will reduce income smoothing. This suggests that the probability of being income smoother is lower when a firm has higher total debt. The study concluded that total debt ratio was negatively influenced the income smoothing among listed deposit money banks. The study therefore, recommends that Nigerian banks should carefully manage their debt levels so as to avoid income smoothing practices by management.

The Impact of Unexpected FOMC Actions on Corporate Earnings Expectations

This paper fills a gap in the literature by examining the impact of unexpected Federal Open Market Committee (FOMC) actions on the markets expectations of U.S. corporate earnings by examining the sell-side analysts' quarterly earnings forecasts from 1989 to 2022. This paper reveals a significant negative correlation between analysts' earnings forecasts and unexpected changes in the target interest rate. This correlation weakened after the Federal Reserves implementation of Forward Guidance as a monetary tool in 2004, which appears to enhance the market's ability to predict target rate adjustments. In addition, this paper shows that with a given amount of unexpected target rate changes, value firms display greater earnings forecast revisions from analysts than growth firms. Debt levels or profitability factors cannot fully explain this phenomenon. The findings of this paper contribute to the knowledge of how FOMC actions exert influence on equity valuations and the transmission mechanisms of monetary policies.

A Study on the Financial Situation Changes of Major A-share Real Estate Companies Since the Adjustment of Purchase Restriction Policies

To prevent over expansion of property bubbles in China, housing purchase restriction policies were put into effect in 2010. Nevertheless, to be adaptable to economic conditions at that time, there was firstly a relaxation of housing purchase restriction policies in 2014 and after that, several more adjustments were made. By analyzing the financial indicators of the main real estate enterprises in A-share market, this paper wants to find the general trends and common features of those corporations under policy adjustments and changeable market environment. The analysis results show that the majority of firms kept high levels of debt and inventory all the time and from 2014 to 2019, most companies net income margins, net income and operation revenue generally kept increasing. However, as the Coronavirus pandemic broke out at the end of 2019, those profitability measures started to decrease widely and sequentially, even with a new round of policy easing. Facing with this situation, it is suggested that to prevent debt risks, property enterprises could take deleveraging and destocking into consideration and to achieve a soft landing of the housing market, new ways of policy adjustment could be implemented by the government.

Internal Factors Affecting Firm Value (Case Study of Manufacturing Companies in Indonesia)

Despite the pivotal role of the manufacturing sector in the Indonesian economy and its continuous growth, there exists a dearth of comprehensive research on the determinants of firm value within this sector. The lack of understanding regarding how financial factors such as leverage, liquidity, profitability, and firm size impact firm value among manufacturing companies listed on the IDX hinders effective decision-making for investors, creditors, stakeholders, and company management. This study aims to Investigate the effects of firm size, profitability, liquidity, and leverage on firm value is the main purpose of this study, which focuses on manufacturing companies listed on the Indonesia Stock Exchange (IDX). The population comprises manufacturing companies listed on the Indonesia Stock Exchange from 2018 to 2022. Using purposive sampling technique and going through the sampling criteria, a final sample of 82 companies was used in this research. The data analysis method used in this study was a regression analysis using SPSS software. The study revealed that higher debt levels (Leverage) and excessive cash reserves (Liquidity) were linked to decreased firm value. Additionally, the finding also shows that as companies became more profitable, their overall value tended to decrease. On a positive note, larger firms (Firm Size) exhibited higher company value. The findings have implications for investors, creditors, and stakeholders navigating the Indonesian manufacturing sector, providing nuanced insights into financial determinants of firm value. These findings emphasize the importance of a balanced financial strategy for companies and highlight the advantages of size in the economic landscape.