Default Risk Research Articles

Optimal strategies for supply chain with credit guarantee using CVaR

In this paper, we explore optimal strategies of a supply chain consisting of one manufacturer, one capital-constrained retailer and one bank, where the bank provides loans to the retailer due to credit guarantees. However, there are default risks if the retailer can not repay the loans. Using conditional value-at-risk (CVaR) to describe risk aversion of the retailer, optimal order quantities of the retailer and optimal wholesale prices of the manufacturer are obtained by solving a Stackelberg game model, where the manufacturer is a leader and the retailer is a follower, respectively. Our numerical results show that the default probability of the retailer are proportional to optimal wholesale prices of the manufacturer. It implies that when the default probability of the retailer is high, the manufacturer should reduce the default risk by setting higher wholesale prices to avoid a burden of a substantial guarantee. Thus, our results can serve as insights for decision-makers of supply chain management.

Insider ownership and default risk: What does the data reveal about Japanese firms?

Insider ownership and default risk: What does the data reveal about Japanese firms?

Dự báo khả năng vỡ nợ của doanh nghiệp nhỏ và vừa tại Việt Nam: Nghiên cứu trên các mô hình học máy

This study develops a model for predicting default risk (DR) for small and medium-sized enterprises (SMEs) in Vietnam using machine learning methods such as Logistic Regression (LR), Decision Trees, XGBoost, and Artificial Neural Networks (ANN). The data is collected from the financial statements of enterprises borrowing from commercial banks and companies listed on the Vietnamese financial market from 2010 to 2022. The performance of the models is evaluated using metrics such as the F1 score and accuracy (ACC). Results show that Decision Trees, XGBoost, and ANN outperform LR. Specifically, ANN achieves an F1 score of 0.756 and an ACC of 0.9345 on the validation dataset, demonstrating excellent predictive capability. The ANN method has significant potential in identifying high-risk customers, thereby optimizing the credit risk management process. The study also identifies key predictive variables, providing insights for developing more effective DR models. Future research could apply advanced hyperparameter tuning techniques and expand the feature set to optimize the model further

Binding Social Capital: Study of Bahrul Ulum Barokah Sejahtera Micro Waqf Bank Customers

This study examines the social capital that ties Bahrul Ulum Barokah Sejahtera Micro Waqf Bank (Bank Wakaf Mikro, BWM) borrowers together. The effective repayment of money lent by BWM clients was the impetus for this study. Refunds were delayed during the COVID-19 outbreak because Santri students)—the primary source of income for small and medium company owners near Islamic boarding schools—were sent home by official guidelines. When students returned to study at pesantren during the New Normal period, pesantren leader imposed limitations on small- and micro-business owners' conduct, raising the risk of loan default. However, this missed payment did not happen, and even 80% of the money in bankruptcy has been recovered. This condition motivates researchers to investigate the many conditions that may exist further. This study employs a mixed method sequential methodology by distributing questionnaires to 95 respondents using random sampling and interviews with seven informants selected purposely. This study applies Robert D. Putnam's social capital binding theory, enhances the analysis, and examines this social capital by finding networks, norms, and trust among BWM clients. According to the findings of this study, bridging social capital is the factor consumers depend on the most to keep up with their repayment responsibilities to BWM. Geographic homogeneity, education, income, and religion are all essential factors in forming binding social capital to return loan funds.

Credit default risk, internal control and stock returns

This paper selects the data of China's A-share listed companies from 2012 to 2022 as a research sample to explore the relationship between the credit default risk of listed companies and stock return. It is found that the credit default risk of listed companies hurts stock return; enterprises with high quality of internal control motivate enterprises to carry out effective risk management and reduce the impact of credit default risk on enterprise operation compared with state-owned enterprises, the negative effect of credit risk on stock return is more significant in non-state-owned enterprises.

Risk assessment when granting credit to non-financial legal entities

Purpose: This study aimed to verify risk assessment procedures when granting credit by a legal entity via financing in negotiations with its customers. Methodology: A documentary approach was used, emphasizing qualitative analysis, during the experimental study conducted at an XYZ organization linked to information technology. Results: They point out that the credit score and rating score, established through the evaluation stages, taking into account the company's history, documentation, guarantees, financial health, cash flow, indebtedness, corporate governance, and market prospects, enable the risk classification of their analyzed clients, ranging from AAA for the "alpha" client to D for the "beta" client. This result made it possible to deduce that credit assessment is appropriate automation in financing decisions for commercial activities, capable of promoting financial flexibility and commercial agility. Customer risk classification is therefore seen as a fundamental tool for improving XYZ's financial decisions, minimizing default risks, and guaranteeing the financial security of its commercial operations, resulting from establishing risk scores for both defaulting and non-defaulting companies. Contributions of the Study: This study makes a relevant theoretical contribution to the field of research by highlighting the importance of validating the criteria used in granting financing, as well as the contextual factors that can affect decisions. The practical contribution of analyzing a non-financial institution under the pandemic context and how they minimize their default by establishing credit analysis mechanisms provides improvements and consequently greater security as lenders.

Females on Boards and Default Risk in the Chinese Real Estate Industry

This study examines the relationship between female directors on boards and default risk in the Chinese real estate industry. While gender diversity is commonly viewed as an effective governance tool in boards to lower the risk of general market firms, we find that there is little influence with female directors in mitigating the default risk in our sample Chinese real estate firms. Nonetheless, once we partition our sample firms into state-owned enterprises (SOEs) and non-state-owned enterprises (non-SOEs), we observe a significant influence of female directors in lowering the default risk of non-SOEs. We further find that the significant relationship between female board representation and default risk in non-SOEs is attributed to non-SOE firms with high financial constraints and a critical mass of female directors. Our results are robust with a matched sample design, an instrumental variable approach, alternative measures of key variables, and inclusion of additional controls. Overall, our findings highlight the particular circumstances in which board gender diversity is effective in mitigating default risk in the unique environment of the Chinese real estate industry.

Leveraging Qardh al-Hasan within Islamic Finance: A Conceptual Framework for Advancing Sustainable Development among Early-stage Enterprises

Early-stage enterprises significantly contribute to economic development through innovation, job creation, and productivity enhancement. However, these enterprises face substantial financial challenges, particularly in securing capital that adheres to ethical and Sharia-compliant principles. This paper investigates the use of Qardh al-Hasan, an altruistic loan concept in Islamic finance, as a strategic tool for supporting sustainable development initiatives within early-stage enterprises. By leveraging Qardh al-Hasan, which embodies social solidarity and economic justice in Islam, the study proposes a conceptual framework to enhance entrepreneurial resilience and sustainable business practices among nascent businesses. Employing a descriptive analysis and a framework-based review, the research explores strategies to optimize Qardh al-Hasan in financing early-stage enterprises, positioning it as an effective mechanism for addressing sustainability challenges. Key findings reveal Qardh al-Hasan’s potential in fostering sustainable development, while highlighting practical challenges such as default risk, management issues, and liquidity requirements. The analysis indicates a deviation of many Islamic financial institutions from the social objectives of Islamic finance, prioritizing economic growth over holistic development. The theoretical implications enhance the understanding of Qardh al-Hasan’s role in achieving economic and social justice, while practical implications advocate for its integration into modern financial systems to support entrepreneurship and reduce social inequality, emphasizing the need for adequate management and supranational support. This paper’s novelty lies in its innovative approach to repositioning Qardh al-Hasan within contemporary Islamic finance, proposing a comprehensive model that addresses both theoretical and practical challenges, thus advancing the sustainable development objectives of Islamic finance by integrating underprivileged segments into the formal economy. Keywords: Sustainable development, Qardh al-Hasan, Islamic finance, early-stage enterprises.

Marketing Channels for Contract Financing Control of High-tech Listed Companies: Basis for Strategic Plan

Abstract. China's high-tech enterprises have experienced exponential growth in both number and market value, with significant contributions to innovation-driven development, as evidenced by the proliferation of listed companies on the Science and Technology Innovation Board and the Beijing Stock Exchange. This study delved into an assessment of corporate governance, internal control management, and risk management within high-tech enterprises in China, with a specific emphasis on contract financing control. Through a combination of analysis of publicly disclosed data, questionnaire surveys, and examination of internal control documents, the research aimed to provide targeted recommendations for enhancing internal control mechanisms and optimizing contract financing-related management systems. The findings highlighted strong compliance with domestic and international laws and regulations among the 10 selected high-tech listed companies, demonstrating robust performance across parent and subsidiary operations. While internal control documents were comprehensive, areas for improvement were identified. Despite favorable impacts of marketing channels on contract financing control strategies, challenges persisted, including identifying risk sources and addressing issues related to contract compliance, digital technology application, and customer security concerns. Notably, challenges in financial control marketing channel construction encompassed cash flow management, customer credit evaluation, bad debt, and default risks.

Eksplorasi Implementasi Prinsip Character, Capacity, Capital, Collateral, dan Condition Dalam Pembiayaan Murabahah di BPRS Bhakti Sumekar Sumenep

The rapid development of the Islamic finance industry does not mean that it does not experience several problems, including financing with murabahah contracts which contain many complex and diverse risks. Risk management is an effort to optimize profits in the Islamic financial industry business and minimize the risk of default for customers. The researcher is interested in researching the application of the 5C principle in murabahah financing at BPRS Bhakti Sumekar Sumenep which aims to find out how the implementation of the 5C principle in murabahah financing at BPRS Bhakti Sumekar Sumenep and what are the factors that cause problematic murabahah financing at BPRS Bhakti Sumekar Sumenep. The research method used by the researcher is descriptive qualitative research with data sourced from primary and secondary data, as well as data collection techniques used in the form of observation, interviews and documentation, while data analysis techniques used are in the form of data reduction, data presentation and conclusion drawing. The application of the 5C principle in murabahah financing at BPRS Bhakti Sumekar Sumenep assesses the seriousness and integrity of the debtor, measures the debtor's business activities and income, measures the amount of capital ownership in business activities, calculates the collateral owned by the customer and looks at and assesses the condition or circumstances of the customer, while the factors that cause problematic murabahah financing at BPRS Bhakti Sumekar Sumenep are in the form of unstable economic conditions, the physical condition of the customer and the factors of business activities are not supportive.

SUKUK RATING: MATURITY, SUKUK STRUCTURE AND GUARANTEE WITH PROFITABILITY AS MODERATION

Introduction: The development of corporate sukuk in Indonesia increases every year, which is why a credible sukuk rating is very necessary. Sukuk is a sharia investment instrument with minimal risk. This research aims to determine the factors that influence sukuk ratings from non-financial factors such as maturity, sukuk structure and guarantee with profitability as moderation through 130 samples of corporate sukuk issued in 2018-2022. Method: The method used is descriptive analysis, Ordinal Logistic Regression and Moderate Analysis Regression with SPSS 25 software. Results: The research results show that maturity and structure sukuk have a significant negative effect, the guarantee has a significant positive effect on sukuk rating. Profitability is not able to moderate the influence of maturity on sukuk rating, profitability weakens the influence of the sukuk structure on the sukuk rating and profitability strengthens the influence of guarantee on the sukuk rating on the sukuk rating. Conclusion and suggestion: Therefore, potential investors must pay attention to the sukuk ranking and the company's level of profitability before deciding to invest. Companies must pay attention to the company's economic and non-economic conditions in order to minimize the risk of default.

Does Fulfilling ESG Responsibilities Curb Corporate Leverage Manipulation? Evidence from Chinese-Listed Companies

Against the backdrop of economic transformation and sustainable development, this paper utilizes listed companies from the Shanghai and Shenzhen A-share markets from 2009 to 2021 as research samples, measures corporate leverage manipulation levels using the XLT-LEVM method, and employs a panel fixed effects model to empirically examine the impact of corporate ESG responsibility fulfillment on leverage manipulation behaviors and its underlying mechanisms. The results show that the performance of ESG responsibility can inhibit the leverage manipulation behavior of enterprises, and this effect is more obvious in enterprises with low analyst attention and excessive debt. Mechanism tests reveal that the fulfillment of ESG responsibilities by corporations exerts both reputational and informational effects, which, by mitigating financing constraints and enhancing information transparency, subsequently curtail corporate leverage manipulation. The analysis of economic consequences demonstrates that the inhibitory effect of ESG responsibility fulfillment on corporate leverage manipulation contributes to reducing the risk of corporate debt default. The research conclusions of this paper hold instructive significance for the positive governance role of ESG performance. Consequently, governments and regulatory bodies should guide and support enterprises in assuming ESG responsibilities, and corporations should increase their investments in ESG and enhance their ESG performance.

Evaluating the Impact of Borrower Characteristics, Loan Specific Parameters, and Property Conditions on Mortgage Default Risk

Evaluating the Impact of Borrower Characteristics, Loan Specific Parameters, and Property Conditions on Mortgage Default Risk

Optimal profit in two-level trade credit eoq model with default risk and reminder cost under finite time horizon having time-dependent demand and deterioration

Trade credit is a type of promotional activity that generally increases demand and revenue but also invites default risk due to dishonest customers. Due to default risk, revenue is lost, and to overcome this, an arrangement is made to remind the defaulters. A retailer dealing with a perishable item wants to exhaust the stock quickly after a certain deterioration level. Demand and deterioration of the products are normally dynamic. The business period of seasonal products is uncertain. Considering these facts, we formulate and analyze a two-level trade credit inventory model, where the wholesaler and retailer give credit periods to their corresponding downstream customers. After a certain level of deterioration, the retailer increases the credit period for the customers for early stock exhaustion, and to reduce default risk, a reminder cost is introduced. These activities increase the profit. The mathematical models under different circumstances are formulated for different time horizons. Some existing results are deduced. The models are numerically solved using a parametric study and the Generalised Reduced Gradient method through LINGO 19.0 software. Some lemmas and theorems are deduced to establish the analytical outcomes. Trade-offs between the number of the business cycle, trade credit, and reminder cost against optimum profit are separately demonstrated. The results with and without reminder cost are compared, and it is shown that the model with reminder cost fetches more profit. Profit under different uncertain environments are evaluated, and they differ marginally. Some beneficial impacts are discussed.

Imperfect financial markets and the cyclicality of social spending

This paper explores the link between default risk and fiscal procyclicality. We show that countries with higher sovereign risk have a more procyclical fiscal expenditure policy, which is driven mostly by transfers. We build a small open economy model with income inequality, social transfers, and default risk to rationalize this fact. Without default risk transfers are countercyclical, inequality is procyclical, and external debt is used to smooth distortionary taxation. With default risk, transfers account for most of fiscal adjustment because taxation becomes costly for the government. Transfers become procyclical and inequality worsens during times when risk premia are high. We confirm the predictions of the model in the data: in recessions in economies with default risk, transfers take the bigger burden relative to government consumption, whereas the opposite is true in economies with low default risk.

Analyst coverage and default risk

This study explores the causal effect of analyst coverage on corporate default risk. Using the exogenous drop of analyst coverage due to brokerage mergers and closuresas a natural experiment, we observe an increase in the probability of default following the coverage termination. This result is driven by firms having large asymmetric information problems (few analysts following and intangible-intensive firms), higher financing constraints, lower stock liquidity and firms operating in countries with a larger domestic stock market size. We explore agency costs and stock liquidity as potentialchannels, finding empirical support only for this latter. Finally, we observe that firms react to the analyst loss by adopting conservative investment and financing policies in the aim to mitigate the increase in default risk.

Using a genetic backpropagation neural network model for credit risk assessment in the micro, small and medium-sized enterprises

In China, with the "Double Carbon" goal within reach, Micro, Small and Medium-sized Enterprises (MSMEs) emerge as pivotal contributors to economic advancement. However, they are now confronted with the imperative of transitioning towards green and low-carbon practices. To facilitate the attainment of peak carbon dioxide emissions and carbon neutrality, a refined approach is imperative. This entails precise capital allocation, enhanced financial services, streamlined management, and robust risk mitigation strategies. Consequently, conducting thorough credit risk assessments for MSMEs becomes a crucial endeavor. However, obtaining substantial loans for them proves challenging due to their elusive credit ratings and potential defaults. To address this issue, this study leverages machine learning and intelligent optimization algorithms to construct a classification model for default and credit ratings of MSMEs, utilizing their daily invoice data. Specifically, twelve indicators pertaining to default and credit ratings are extracted. Subsequently, Principal Component Analysis is employed to reduce dimensionality and synthesize all pertinent information. Following this, the Genetic Algorithm-based Back Propagation Neural Network (GA-BPNN) is utilized to delineate the relationship between indicators and default, as well as credit rating, respectively. The results indicate a prediction accuracy of 0.92 for default risk and 0.86 for credit rating. This underscores the efficacy of GA-BPNN in effectively classifying the underlying default risk and credit ratings of MSMEs, offering a promising approach for decision-making.

New Legal Basis for International Risk Assessment Procedures in Germany: ICAP, ETACA

The new section 89b of the German Fiscal Code finally introduces a legal basis for international risk assessment procedures. Under these procedures, which are designed for cooperation and transparency, the tax administrations of two or more jurisdictions must at the request of the taxpayer provide an assessment of any tax default risks for facts already realized. If the risk is assessed as low, a formal review of these facts in a subsequent tax audit may be redundant.

Klasifikasi Kegagalan Investasi Reksa Dana Sebagai Utang dalam Kasus Penundaan Kewajiban Pembayaran Utang Terhadap Manajer Investasi Dikaitkan dengan Dengan Undang-Undang Nomor 8 Tahun 1995 dan Undang- Undang Nomor 37 Tahun 2004

Along with globalisation, economic development continues to change dynamically in order to achieve success in national economic development. National economic development is the development of equitable economic growth for the greatest prosperity of all Indonesian people based on the principle of kinship in accordance with Pancasila and the 1945 fourth amendment of the Republic of Indonesia. This economic development is marked by the development of a variety of transactions or economic activities, one of which is investment or capital activities through the capital market such as mutual fund investments made through the role of investment managers. In carrying out its business activities, there is a risk of default that can result in a Suspension of Payment against the Investment Manager, one of which is the case of Central Jakarta District Court Decision Number 78/Pdt.Sus-PKPU/2020/PN Niaga Jkt.Pst. This research aims to examine the accuracy of the consideration of the Central Jakarta District Court judge in the related decision regarding the qualification of investment losses as a default charged to the Investment Manager, as well as the judge's consideration in accepting the suspension of payment application against PT Emco as the Investment Manager by the Investor. This research uses the juridical-normative method, which prioritises the use of literature material from positive law as a source with the results of the research described descriptively. The results of this study show conclusion that can be drawn. The judge's consideration in the relevant decision is not correct because the responsibility for default should be borne by the issuer, in addition, the judge's consideration does not conduct further investigation regarding the origin of the compensation agreement between the Investment Manager and the Investor.

Default Risk Model Using Conditional Generative Adversarial Net by High-Dimensional Financial Time-Series Generation

Default Risk Model Using Conditional Generative Adversarial Net by High-Dimensional Financial Time-Series Generation