Value Of Debt Research Articles

Enterprise value and risk taking in the banking industry: Cooperatives vs. corporations

This study leverages on a quasi-natural experiment to shed light on the relative merit of the cooperative versus the corporate form. In Italy, a new law forced some cooperative banks to turn into joint stocks banks. This change of ownership structure proves to be Pareto improving for all financial claimholders since it either increases or leaves the value of equity and debt of any seniority unchanged, while reducing the market-based metrics of risks. This evidence challenges the view that the demutualization increases the asset substitution risk, transferring wealth from bondholders to shareholders and heightening the firm risk profile. Therefore, a transition from a cooperative to a corporate form should not cause stability concerns in the banking industry.

The Finance of Cybersecurity: Quantitative Modeling of Investment Decisions and Net Present Value

Despite the growing literature on cybersecurity investment, significant gaps remain unaddressed. First, the existing literature does not differentiate between cybersecurity expenditures, namely investment versus spending, despite the differences in their financial treatments. Second, the literature predominantly employs economic and risk-based models, in which the incorporation of financial parameters is limited. Third, the literature focuses on quantifying market (stock) loss of cyberattacks or conducting a cost-benefit analysis of cybersecurity investments but has yet to bridge these two areas. Thus, our objective is to introduce a new financial model, the Alpha Model, that addresses these gaps. We first provide distinctions between cybersecurity investment (capital expenditure) and spending (operational expenditure). Grounded in Relative Valuation Models and Optimal Capital Structure Theory, we quantify the upper-bound of optimal cybersecurity investment by utilizing book and market values of equity and debt. We also demonstrate that the Net Present Values (NPV) of cybersecurity investment is considerably lower than its book value by incorporating financial parameters of equity and debt financing, inflation-adjusted capital cost, and tax credits of depreciation and interest. To validate our model, we empirically test it by using data from the S&P500 index during 2018–2023. We offer practical implications to key stakeholders, including: (1) industry executives to financially quantify cybersecurity investments and ascertain their actual NPVs, individually and collaboratively with supply chain partners; (2) cybersecurity solution providers to promote business investments in cybersecurity; and (3) insurance providers to price premiums with higher NPVs than the corresponding investments. We also offer several avenues for further research.

Fiscal and Monetary Policy Interactions in a Model with Low Interest Rates

We provide a new Keynesian model where entrepreneurs face uninsurable idiosyncratic investment risk and credit constraints. Government bonds provide liquidity services. Multiple steady states with positive values of public debt can be supported for a given permanent deficit-to-output ratio. The steady-state interest rates are lower than the economic growth rate, and public debt contains a bubble component. We analyze the determinacy regions of policy parameter space and find that a large set of monetary and fiscal policy parameters can achieve debt and inflation stability given persistent fiscal deficits both away from and at the zero interest rate lower bound. (JEL E12, E23, E31, E43, E52, E62, H63)

Analisis Penggunaan Model Zmijewski (X-Score) dan Altman (Z-Score) untuk Memprediksi Potensi Kebangkrutan pada PT Waskita Karya Persero Tbk

This study aims to predict the potential bankruptcy of PT Waskita Karya Persero Tbk. Quantitative descriptive research type. The population used is the financial statements of PT Waskita Karya Persero Tbk with a sample of financial position reports and income statements from 2018-2023. Research data collection was carried out using documentation and literature studies. The analysis technique is the Zmijewski model (X-Score) with the three ratios, namely return on assets, debt ratio, current ratio and Altman model (Z-Score) with four ratios, namely the ratio of working capital to total assets, retained earnings to total assets, earning before interest and taxes to taotal assets, book value of equity to book value of debt. The research results of the Zmijewski model (X-Score) show that PT Waskita Karya Persero Tbk in 2018 is predicted to be a healthy company because the X-Score value is below the value of 0, in 2019-2023 it is predicted that the company has the potential fo bankruptcy because the X-Score value is above the value of 0. Meanwhile the Altman (X-Score) model shows that PT Waskita Karya Persero Tbk in 2018 is in gray zone because the Z-Score value is between 1.1 and 2.60, in 2019-2023 it is ini the danger zone because the Z-Score value is below the value of 1.1.

On the Valuation and Analysis of Risky Debt: A Practical Approach Using Rating Migrations

On the Valuation and Analysis of Risky Debt: A Practical Approach Using Rating Migrations

The Influence of Debt to Assets Ratio and Long Term Debt to Equity Ratio on Return On Investment (Case Study at PT. Indosat Tbk for the Period 2014-2023)

This study was conducted to determine the influence of debt to asset and long term debt to equity ratio on Return on Investment at PT. Indosat, Tbk for the period 2014-2023. The research method used was descriptive associative method. The population in this study was secondary data from the financial reports of PT. Indosat, Tbk. The sample taken used nonprobability sampling technique with purposive sampling method with specific criteria, namely the financial reports per quarter of PT. Indosat, Tbk for the years 2014-2023. To test the influence analysis, Pearson product moment correlation analysis, coefficient of determination analysis, hypothesis testing using t-test and F-test, and multiple linear regression analysis were used. Based on the analysis conducted, it was shown that the correlation value of debt to asset to return on investment is 0.557 which falls into the moderate category, and the correlation value of long term debt to equity ratio to return on investment is 0.012 which falls into the very low category. Based on the determination analysis conducted, it was shown that the contribution of the independent variables (debt to asset and long term debt to equity ratio) to the dependent variable (return on investment) is 0.035 or 3.5%. In conclusion, 3.5% while the remaining 96.5% (100% - 3.5%) is influenced by other variables outside the study.

Analysis of Financial Statements to Assess Financial Performance of Food and Beverage Industry Companies on the Indonesia Stock Exchange

Financial performance assessments are based on increased sales. This can be reflected in a report, a report that describes the development of the company's financial performance in a certain period. These reports are commonly called financial statements. In order for financial statements to be meaningful to interested parties, it is necessary to conduct a relationship analysis of the posts in the financial statements, which is often called financial statement analysis. The purpose of this study is to find out how the financial performance of PT. Sentra Food Indonesia Tbk, PT Mayora Indah Tbk, and PT Indofood Sukses Makmur Tbk based on an analysis of liquidity, solvency, and profitability ratios. The data analysis method used is a quantitative descriptive method using the measurement of liquidity, solvency, and profitability ratios. The results of the study show that financial performance in terms of liquidity as measured by the Current Ratio during the pandemic there was a decline in performance at PT. Sentra Food Indonesia, while in terms of solvency and profitability, the value of debt to equity ratio and return on equity of the three companies tends to fluctuate from year to year.

Tension in Financial Reporting: Reacting to a Peer Bankruptcy Announcement

We investigate if and how a peer’s bankruptcy affects financial reporting by other firms within the industry. Prior research documents that the bankruptcy filing of a peer firm has negative capital market effects on other firms within the industry (lower stock market value and higher cost of debt). We argue that firms within an industry experiencing peer bankruptcies modify their financial reporting to mitigate such negative capital market effects. However, tension arises as to whether such modification is toward more conservative accounting or the opposite. Using a large sample of firms from 1980 to 2018, we find that following a peer firm bankruptcy filing, other firms within the industry exhibit a rise in conditional conservatism in their financial reporting. Our findings are robust to a battery of tests including the exclusion of distressed industries, the 2000 dot-com crash period, and the 2008 financial crisis period as well as employing an alternative proxy for conditional conservatism. The results are not significant for placebo bankruptcies 1 and 2 years before actual bankruptcies. Further analyses show that the spillover effects are more pronounced for firms in homogeneous industries, which exhibit higher leverage, with strong governance mechanisms, and in industries that experience strong market reaction following peer bankruptcy announcements. We also find that the bankruptcy filing of larger and older firms leads to stronger spillover effects.

Analysis of Factors that Influence Financial Distress Conditions using the Debt Service Coverage Ratio Approach (Case Study of the Food and Beverage Industry Listed on the Indonesian Stock Exchange Before and During Covid-19)

Covid-19 condition is known to have had a major impact on the financial performance of issuers. The food and beverage industry is one of the mainstay manufacturing sectors in making a major contribution to national economic growth. The data used in this study was pre-covid data, year 2018 until 2021 during covid. The method used in this study is the Debt Service Coverage Ratio Pranowo et al. (2010). The analysis used in this research is descriptive analysis and panel data regression. The results of this research were that 26 company experienced a decrease in distress, 26 company experienced an company in Profitability, 26 company experienced an increase in Liquidity, 26 company experienced an increase in Efficiency, 26 company experienced a decrease in Leverage, 26 company experienced a decrease in Solvency. Factors that show a significant influence on financial distress in the period before Covid-19 are Efficiency, Liquidity. The factor of increasing efficiency also influences the reduction in the occurrence of financial distress. The factor of increasing liabilities also influences the increase in the occurrence of financial distress. Factors that show a significant influence on financial distress during Covid-19 are Solvability and Efficiency. This shows that during Covid-19, the increase in the value of debt will influence the tendency to increase the occurrence of financial distress. The decline in the value of income during Covid-19 also influenced the increase in financial distress. Advice to investors to be more selective in choosing food and beverage issuers as a place to invest during Covid-19. One important consideration is that investors focus more on factors that have a significant influence on Liquidity, Efficiency, Solvency.

Renegotiable debt, liquidity injections and financial instability

This paper develops a debt-run model to study the effects of liquidity injections on debt markets in the presence of a renegotiation option. In the model, creditors decide when to withdraw their funding and equityholders can renegotiate the contract terms of debt. We show that when equityholders have a large bargaining power, liquidity injections into distressed firms can rather cause more aggressive runs from their creditors, hurting the debt value. This outcome occurs because equityholders can strategically utilize the renegotiation option as a bankruptcy threat, pushing down the debt value below the potential liquidation value of the firm. In such a scenario, a deterred default resulting from emergency capital injections could be detrimental to creditors.

Estimating Asset Parameters Using Levy’s Moment Matching Method

Conventionally, the unknown parameters in Merton’s model are set using a calibration method that estimates the current asset value and volatility from observable stock prices. This paper describes a completely different approach for estimating these asset parameters. The proposed approach uses Levy’s moment matching method to derive an equation for the asset value based on the sum of equity and debt on the balance sheet, with the current debt value treated as an unknown and estimated from stock prices. Empirical analysis reveals that this method results in simpler calculations than the calibration method and can estimate the asset parameters and default probability to the same degree of accuracy. An additional advantage of the proposed method is that it estimates the asset correlation if the current debt value is known, allowing Merton’s model to be extended to multiple companies. The asset correlation obtained by the proposed method is estimated from multiple parameters related to equity, debt, and the evaluation period, which is useful when the influence of equity volatility, leverage, and time must be considered in estimating asset correlations based on equity correlations.

Wealth Redistribution to Extend Longevity in the US

The US is unique among wealthy countries in its degree of wealth inequality and its poor health outcomes. Wealth is known to be positively associated with longevity, but little is known about whether wealth redistribution might extend longevity. To examine the association between wealth and longevity and estimate the changes in longevity that could occur with simulated wealth distributions that were perfectly equal, similar to that observed in Japan (among the most equitable of Organisation for Economic Co-operation and Development [OECD] countries), generated by minimum inheritance proposals, and produced by baby bonds proposals. This longitudinal cohort study analyzed the association between wealth and survival among participants in the Health and Retirement Study (1992-2018), a nationally representative panel study of middle-aged and older (≥50 years) community-dwelling, noninstitutionalized US adults. The data analysis was performed between November 15, 2022, and September 24, 2023. Household wealth on study entry, calculated as the sum of all assets minus the value of debts and classified into deciles. Weibull survival models were used to estimate the association between per-person wealth decile and survival, adjusting for age, sex, marital status, household size, and race and ethnicity. Changes in longevity that might occur under alternative wealth distributions were then estimated. The sample included 35 164 participants (mean [SE] age at study entry, 59.1 [0.1] years; 50.1% female and 49.9% male [weighted]). The hazard of death generally decreased with increasing wealth, wherein participants in the highest wealth decile had a hazard ratio of 0.59 for death (95% CI, 0.53-0.66) compared with those in the lowest decile, corresponding to a 13.5-year difference in survival. A simulated wealth distribution of perfect equality would increase populationwide median longevity by 2.2 years (95% CI, 2.2-2.3 years), fully closing the mortality gap between the US and the OECD average. A simulated minimum inheritance proposal would increase populationwide median longevity by 1.7 years; a simulated wealth distribution similar to Japan's would increase populationwide median longevity by 1.2 years; and a simulated baby bonds proposal would increase populationwide median longevity by 1.0 year. These findings suggest that wealth inequality in the US is associated with significant inequities in survival. Wealth redistribution policies may substantially reduce those inequities and increase population longevity.

The U.S. Public Debt Valuation Puzzle

The government budget constraint ties the market value of government debt to the expected present discounted value of fiscal surpluses. We find evidence that U.S. Treasury investors fail to impose this no‐arbitrage restriction in the United States. Both cyclical and long‐run dynamics of tax revenues and government spending make the surplus claim risky. In a realistic asset pricing model, this risk in surpluses creates a large gap between the market value of debt and its fundamental value, the PDV of surpluses, suggesting that U.S. Treasuries may be overpriced.

FORECASTING UKRAINE'S EXTERNAL PUBLIC DEBT UNDER UNCERTAINTY CONDITIONS

Forecasting external public debt under conditions of uncertainty is important as it allows the country to respond adequately to economic and financial challenges, promotes efficient management of financial resources, formation of a stable financial policy and ensures the country's external debt security, which are critical elements for ensuring economic sustainability and sustainable development. The article's main purpose is to critically analyze and apply existing time-series forecasting methodologies to determine the future values of Ukraine's external public debt in conditions of uncertainty caused by the still unresolved consequences of the COVID-19 pandemic and russia's invasion and full-scale war in Ukraine. Using three forecasting methods, namely trendline extrapolation, exponential smoothing, and autoregressive and moving average models, the paper forecasts the volume of external public debt until 2029 and presents a graphical representation of the debt dynamics from 2011 to 2029. The most pessimistic forecast for the growth of external public debt was revealed when applying the method of data extrapolation based on the trendline. A comparative analysis of the forecast values for the three forecasting methods has revealed common trends in the growth of public debt, as well as the key advantages and disadvantages inherent in each model. Importantly, the article emphasizes the common risks identified in forecasting Ukraine's external debt using time series analysis models, including the problem of achieving only short-term forecasting accuracy and insufficient flexibility taking into account complex and unexpected changes that may arise in conditions of uncertainty and economic instability. The results of the study provide valuable information for policymakers and stakeholders trying to navigate the complexities of managing external public debt under uncertainty.

Analisis Financial Distress dengan Metode Z-Score Altman pada Perusahaan Sektor Teknologi yang Terdaftar di Bursa Efek Indonesia Periode 2019-2022

Technology sector companies are companies that have a major impact on the Indonesian economy because they are the foundation during the Covid-19 pandemic. However, the conditions of Covid-19 and the turmoil of the global economic recession have caused many technology sector companies to experience financial difficulties and even lose investors. The purpose of this study is to determine the level of financial distress, the best companies, and overall faced by technology sector companies during the 2019-2022 period using the Modified Altman Z-Score method for prediction analysis. This research is a non-statistical quantitative method research. The population used was 21 companies, with purposive sampling technique and the samples taken were 4 technology sector companies listed on the Indonesia Stock Exchange during the 2019-2022 period. The indicator variables used in this study are the ratio of Working Capital to Total Assets (X1), Retained Earnings to Total Assets (X2), Earning Before Interest and Tax to Total Assets (X3), and Book Value of Equity to Book Value of Total Debt (X4). The results of this study found that in 2019 there was 1 company in the gray area category. In 2020-2022 all companies were in good health, and PT Hensel Davest Indonesia Tbk (HDIT) became the best company. The conditions of the Covid-19 pandemic and the economic turmoil of the global recession that occurred from 2019-2022 had no impact on the level of financial distress in technology sector companies.

Business-driven technical debt management using Continuous Debt Valuation Approach (CoDVA)

Business-driven technical debt management using Continuous Debt Valuation Approach (CoDVA)

Impact of the Global Financial Crisis and the Tunisia’s Jasmine Revolution on the Corporate Capital Structure: Evidence from Four Arab Countries

This paper provides new evidence on capital structure determinants in the Arab world with special focus on the impact of the 2008 global financial crisis and the Jasmine Revolution on four different corporate leverage ratios. The sample consists of 440 non-financial listed companies from four Arab- Mediterranean countries (Egypt, Jordan Morocco and Tunisia) and the panel data are analyzed from the period 2003–2019. Statistical analysis of results are carried out by using the ordinary least squares ; three dummy variables are included (time, country and industry). The results indicate cross-country variations in four different leverage ratios. Moroccan firms, contrary to those in Tunisia and Jordan, show lower leverage ratios. By contrast, they report higher levels of « size », « profitability » and « growth opportunities ». The results also show that the Jasmine Revolution as well as the 2008 global financial crisis affects the impact of firm-specific determinants : After crisis and Jasmine Revolution, the positive and the negative effects of « size » and « profitability », respectively, become more important. Profitability is the most significant explanatory factor of corporate capital structure in Arab countries. During the two sub-periods, the growth opportunities and their negative impact on the corporate financial decisions depend on the choice of the leverage ratio (total debt versus long term debt – book values versus market values). Asset tangibility is the most critical factor : its positive effect on capital structure is more important before the Jasmine revolution and/or the global financial crisis. The effect is initially positive but becomes negative when leverage ratio is calculated using total values of debt (book and market values of debt). Results on capital structure determinants in the Arabic context not depend only on the choice of the leverage ratio, but also on the period considered.

Laporan Keuangan untuk Mengukur Kinerja Keuangan Berdasarkan Rasio Likuiditas dan Solvabilitas pada PDAM Prabujaya Kota Rabumulih

This research aims to determine the liquidity and solvency ratios to measure financial performance at PDAM in Prabumulih. This research uses types of quantitative descriptive research. This research uses a descriptive method to describe research objects or research results. The data in this research was collected through documentation, observation, and methods of interviews. The research results show the liquidity ratio, calculated from the analysis of PDAM Tirta Prabujaya City Prabumulih’s current ratio and quick ratio for 3 (three) last year, was good. Because the amount of current assets available is huge while the amount of current liabilities is small, this can be seen in the ratio value Liquidity in 2020, 2021 and 2022. The value of the Current Ratio is 8.08 times, 7.48 times and 6.24 times; the value of the Quick Ratio is 6.39 times, 5.78 times and 5.23 times, and the Cash Ratio values are 96%, 30% and 17%. Solvency Ratio, the overall financial performance of PDAM Tirta Prabujaya Prabumulih City during the last 3 (three) years it has been in good condition because its total assets and the company's available capital is greater than the total debt it has company. This can be seen in the 2020, 2021 and 2022 ratio values. The value of Debt to Assets Ratio of 54%, 38% and 69%. Next, the Debt to Equity, Ratio values of 92%, 23% and 94%.

Euro area inflation linked debt: An evaluation

How would the fiscal burden of Euro area (EA) countries have evolved without the issuance of inflation linked bonds (ILBs)? Could debt management through ILBs have decreased their sovereign debt-to-GDP ratio? By exploiting a new dataset on ILBs and the market value of debt in Germany, France, Italy and Spain in 2014–2022, I calculate the holding period return for investors in both nominal and real debt. Based on the government budget constraint, I conduct simulations that demonstrate the significant first-order effects of debt structure choices. Without ILBs the fiscal burden of the largest EA economies would have decreased by around 1% of GDP but in the case of Italy, it would have increased. Timing was also a relevant factor. Germany effectively controlled the cost of funds by managing its share of real debt, while Spain increased it by issuing ILBs when it was expensive. Slight ILB share adjustments could have alleviated their fiscal burden: Germany by 0.9%, France by 3%, Italy by 7%, and Spain by 1.8%.

Present value of firm in case of correlated defaults

In this article, the valuation of firm’s present value in case of correlated defaults is studied. We showed that the valuation of portfolio credit risk can be interpreted as a valuation of the multiple contingent option. In this article, some results for valuation of multiple contingent options are generalized in case of stochastic barriers and the financial interpretation is given. Also, the modelling of other financial risks, notably, the market risk (the change of debt value) and the operational risk (the adequacy of selected credibility criteria) are included in these theorems. Using the principle of conservatism in credit risk assessment, the debtor credibility, the debt value and the firm value are assumed to follow geometric Wiener process.