Debt Research Articles

Generalist CFO and corporate debt finance: evidence from the Chinese market

PurposeThis study examines the relationship between chief financial officer (CFO) general ability and corporate debt financing, using all Chinese listed companies as the sample. It has significant implications for corporate shareholders and investors. Companies aiming to increase the proportion of external capital should prioritise the CFO's general ability. Similarly, investors can consider this a valuable sign before making investment decisions.Design/methodology/approachThis study follows Custódio et al.'s (2013) approach to measuring the CFO general ability index (GAI) in five dimensions, while the D/E ratio is treated as the primary proxy of corporate debt financing. This study investigates the linear relationship between CFO general ability and corporate debt financing by using the ordinary least squares (OLS) regression with controlling year and industry fixed effect simultaneously.FindingsBased on a sample dataset of all listed firms in China from 2008 to 2023, this paper identifies a significant positive correlation between CFOs' general management skills and corporate debt financing. This finding underscores that generalist CFOs prefer debt financing over equity financing. The paper also suggests that corporate innovation could be a potential mechanism through which CFOs' comprehensive management skills influence debt financing.Originality/valueThis study expands upon prior research by establishing a positive correlation between generalist CFOs and debt financing. Previous studies investigating the influence of CFO demographic characteristics have predominantly concentrated on singular dimensions, such as educational background, varied professional experiences and career trajectories, often overlooking the significance of past work experience. Secondly, this paper enriches the financial literature by introducing a novel determinant that substantially impacts debt financing.

Breaking down entrepreneurial barriers: exploring the nexus of entrepreneurial behavior, innovation, and bank credit access through the lens of the theory of planned behavior

Access to finance is a primary concern for enterprises, serving as a critical component of tangible resources within the Resource-based View (RBV) framework and driving entrepreneurial activities globally. Bank credit stands as the preferred source of debt financing for enterprises, yet information asymmetry between lenders and borrowers poses significant credit obstacles. To address these challenges, we leverage the Theory of Planned Behavior (TPB), contending that entrepreneurs’ personal attitudes, perceived behavioral control, and subjective norms influence bank credit access. Additionally, we argue that innovation performance, an intangible resource within RBV, facilitates credit access by enhancing firms’ quality and creditworthiness from lenders’ perspectives. This paper aims to examine the relationships between TPB constructs, bank credit access, and innovation performance, as well as the mediating role of innovation performance, through an analysis of 1367 enterprises across diverse European countries. Our findings reveal that innovation performance fully and inconsistently mediates the relationships between personal attitude-credit access and subjective norm-credit access, as the direct impacts of personal attitude and subjective norm on bank finance are found to be insignificant and negative, respectively. These results underscore the pivotal role of innovation performance in linking entrepreneurial behaviors to credit access, contributing to the uniqueness of this research within the entrepreneurship literature. Moreover, our study emphasizes the need for training initiatives that foster innovative and entrepreneurial attitudes among firm executives, thereby facilitating easier credit access. As highlighted by our cross-cultural analyses, these implications extend beyond national borders, offering valuable insights for enhancing credit accessibility across diverse contexts.

Blinded by the ‘green-halo’? Equity in financing climate adaptation of urban sanitation

Adapting urban sanitation systems to changing climate conditions will require substantial investments. However, there is a gap in understanding the funding strategies for such adaptation measures, especially amid concerns that resilience measures might reinforce existing urban sanitation inequalities. Through cross-case document analysis and complementary key informant interviews, we examined the sanitation adaptation investments in eight cities, focusing on their funding arrangements and social and intergenerational equity implications. Debt financing of sanitation adaptation often relies on repayment through customer bills with only opaque considerations of the affordability for different socio-economic customer groups. The lack of appropriate accounting for the lifecycle costs of resilient infrastructure threatens to mortgage future generations. There is no convincing evidence that ‘greening’ of adaptation financing either shifts or redistributes the financial risk more equitably nor does it make the repayment of the investments substantially cheaper for customers. We conclude that a public sector funding approach is most appropriate to ensure social and intergenerational equity within climate-resilient sanitation systems.

Концептуальні рамки управління борговим фінансуванням публічних бюджетів

Introduction. Overcoming the consequences of the COVID-19 pandemic and full-scale Russian aggression against Ukraine caused the destruction of a stable system of managing financial flows not only in our country, but also in many states. Market and regulatory mechanisms for mobilization and the use of financial resources were undermined. Fiscal consolidation measures were changed in favor of expansion. The need to increase the resource base on the basis of state debt has intensified. The use of standardized approaches in the field of fiscal policy did not make it possible to limit risks under new conditions. The task of implementing new conceptual approaches to the management of public budget financing based on the use of debt instruments has arisen. Problem Statement. An increase in debt financing of public budgets helps to expand the volume of resources for the implementation of state plans. At the same time, the pressure on the financial system is growing, which requires making significant changes to the formation of the structure of debt instruments, their placement on domestic and foreign financial markets, attraction of resources on preferential terms from foreign partners, fulfillment of repayment and servicing obligations, refinancing and restructuring of loans. Determining rational management decisions on these issues involves the development of a conceptual framework for public debt financing. The purpose is to study the formation of a conceptual framework for managing debt financing of public budgets and their use in the practice of public administration. Methods. Research methods are used: historical, logical, abstraction, description, generalization, comparison, grouping, analysis and synthesis. Results. The adoption of the debt framework guides the definition of debt strategy, debt management goals, indicators of its volume and structure, debt management tasks, as well as mechanisms and tools for their implementation. The debt strategy reflects the orientation of the debt policy, the goals of public debt management for long and medium-term periods, its indicators, the use of tools and mechanisms for achieving the adopted goals, the formation of the debt portfolio for the specified terms, the classification of risks of government debt management taking into account their impact on the performance of state budget, the application of refinancing and restructuring mechanisms for state liabilities. Conclusions. The conceptual framework for managing debt financing of public budget is an important guiding document aimed at taking into account the conditions for placing debt obligations among investors (state institutions, non-state depositors, non-residents), access to international financial markets, cooperation with international organizations and financial institutions, acceptance of debt portfolio (the structure of state budget financing), built according to types of debt instruments, sources of financing, currencies of loan repayment and servicing, repayment terms, loan servicing rates and debt refinancing. The development and implementation of the conceptual framework for the management of public debt transactions is important for Ukraine. In the conditions of overcoming the consequences of the war and post-war reconstruction, it is necessary to apply a comprehensive approach to the formation, distribution and use of resources raised on the basis of the use of public debt instruments.

A Theoretical Study of the Impact of ESG Performance on the Cost of Corporate Debt Financing

With the increasing global attention to environmental protection, social responsibility and corporate governance (ESG) issues, the ESG performance of enterprises has become an important indicator for creditors to assess their non-financial performance. This paper analyzes the development status quo of ESG ratings in China and the situation of corporate debt financing, combines information asymmetry theory, principal-agent theory, contract theory and other in-depth discussion of the impact of corporate ESG performance on its debt financing costs, so as to put forward targeted recommendations to further enhance the attention of China's listed enterprises to ESG ratings, as well as to reduce the cost of corporate debt financing measures put forward to lay a more solid theoretical foundation, to help enterprises better achieve high-quality and high quality of corporate governance. It lays a more solid theoretical foundation for further improving China's listed enterprises' attention to ESG ratings and proposing measures to reduce the cost of corporate debt financing, and helps enterprises better realize high quality and sustainable development.

Debt financing, the pandemic, and Federal Reserve interventions

Debt financing, the pandemic, and Federal Reserve interventions

Blockholders, Environmental Information Disclosure, and the Cost of Debt

ABSTRACT Debt financing is an essential source of external funds for Chinese-listed companies, but enterprises in heavily polluting industries face more severe financing difficulties due to the “financing penalty effect.” Solving the financing difficulties of heavy pollution enterprises has become a hot topic in academic and practical circles. This article applies heavily polluting listed companies from 2013 to 2022 in China as a sample to examine the impact of multiple blockholders (MB) on debt financing costs (DFC), considering the intermediary role of environmental information disclosure (EID). This article reveals that improved environmental information disclosure, driven by multiple blockholders, especially state-owned ones, can effectively reduce debt financing costs for heavily polluting enterprises compared to those dominated by a single major shareholder. These findings remain robust even after considering a series of checks, including the instrument variable method, propensity score matching (PSM), and alternative variables. In cases where the separation of ultimate control rights and cash flow rights is slight or the entity is state-owned, state-owned blockholders tend to exert a more effective governance role. Our research helps understand the role of multiple blockholders in corporate “green governance” and can provide a reference for alleviating the financing constraints of heavy-polluting enterprises.

Long-Term Impact of Mergers and Acquisitions on Firm Performance: A Panel Data Study

Purpose - This study aims to examine the long-term impact of mergers and acquisitions (M&As) on firm performance, particularly within the pharmaceutical industry. Using a panel data regression model, the study assesses how key financial ratios such as Net Profit Margin, Return on Capital Employed (ROCE), Debt to Equity Ratio, and Enterprise Value influence postmerger firm performance over time. Design/methodology/approach - A panel data approach has been conducted using data from 10 pharmaceutical companies from their post-merger period, focusing on the effects of M&As on firm performance as measured by Net Profit Margin. Financial ratios related to profitability, liquidity, and valuation were used as independent variables. Findings - The study finds that M&As have a positive long-term impact on firm performance, particularly in companies with strong Earnings per Share (EPS), efficient capital management, and good liquidity. ROCE, Debt to Equity Ratio, and Current Ratio were significant predictors of improved Net Profit Margin, highlighting the importance of financial efficiency and debt management in the post-merger phase. Research limitations/implications - The focus on the pharmaceutical industry limits the generalizability of the findings to other sectors. Future studies should examine a broader range of industries to better understand the effects of M&As across different contexts

Credit Choices in Rural Egypt: A Comparative Study of Formal and Informal Borrowing

Access to finance is essential for fostering financial inclusion, improving household economic well-being, and stimulating economic growth. However, if not prudently managed, it can become a double-edged sword, increasing the risk of over-indebtedness, particularly among low-income households. This paper investigates the borrowing behavior of rural households in Egypt, exploring whether it is motivated by the optimization of intertemporal consumption or reflects deeper financial vulnerabilities. The study enhances our understanding of rural households’ financial behavior in Egypt and contributes to the literature by introducing perceived general self-efficacy as a key behavioral factor. The paper employs a quantitative methodology using a probit analysis of the Egypt Labor Market Panel Survey to explore the factors affecting the demand for formal loans, informal borrowing, and Rotating Saving and Credit Associations (RoSCAs). The results show that informal credit plays a dominant role in meeting rural households’ financial needs. A significant positive relationship between formal and informal credit suggests they are complementary. Elderly, married, less educated, and poorer individuals are more likely to seek both forms of credit, with employment stability being a key differentiator. Self-efficacy also has a significant positive effect. No significant regional differences are observed, except in the case of informal borrowing, with rural households in Upper Egypt showing less reliance, suggesting that social image may influence financial behavior in this region. The results suggest that demand for credit is driven by economic and financial vulnerability of rural households. The paper highlights key policy implications. First, to enhance participation in formal credit market, credit policies should offer more affordable, tailored credit relevant to starting a business rather than financing consumption, part of which is conspicuous. Second, the low self-efficacy among the rural poor suggests a need for policies that combine credit access with financial literacy and debt management support to prevent over-indebtedness.

The Effect of Financial Leverage, Profitability and Dividend Policy on Firm Value

This research provides valuable insights into the factors influencing company value within the manufacturing sector, specifically the cement subsector in Indonesia. Financial leverage, profitability, and dividend policy are key variables examined, as they significantly impact a company's financial health and market perception. Financial leverage reflects a company’s reliance on debt financing relative to equity, and the study shows that higher leverage can positively affect company value if managed effectively, thereby increasing returns for shareholders. Profitability, often measured through indicators such as Return on Assets (ROA) or Return on Equity (ROE), also plays a significant role in enhancing company value, as it reflects efficient resource management and attracts investor interest. Additionally, a consistent dividend policy reinforces the company’s reputation and draws investors, contributing positively to company value in the stock market. The findings emphasize that cement subsector companies with balanced leverage, solid profitability, and a consistent dividend policy tend to perform better in terms of company value, providing essential insights for stakeholders in optimizing strategies to maximize company value.

Financing Sustainability: Unveiling the Role of Government Debt in Carbon Reduction Performance

The existing literature on government debt has predominantly focused on its influence on economic growth, with relatively limited attention paid to its ecological implications. Government debt, as an important financial tool, plays an essential role in improving the quality of economic development, yet its impact on sustainable governance remains underexplored. Against this backdrop, this paper investigates the relationship between government debt and carbon reduction using a sample of Chinese listed companies from 2010 to 2023. After excluding missing and financial firm data, our final sample includes 26,535 observations. We obtained these data from the China Security Market Accounting Research (CSMAR) database and the Wind database. This study utilizes ordinary least squares (OLS) as the baseline regression and identifies a significant positive impact of government debt on carbon emissions. Further, the moderating analysis suggests that the positive impact of government debt on carbon reduction is particularly stronger in state-owned (SOEs) and heavily polluting enterprises. To ensure the robustness of these findings, we also use fixed-effects models and the generalized method of moments (GMM), validating the consistency of the findings. This research provides critical practical and theoretical insights for regulators and adds to the prevailing body of literature on emissions reduction.

Development of a Pomegranate Fruit Disease Detection and Classification Model using Deep Learning

Background: India’s economy heavily relies on agriculture, which provides a living for a significant portion of the nation’s population. Agriculture in India faces several challenges, including fruit diseases. Pomegranate cultivation is widespread across various states in India, with Maharashtra, Karnataka Andhra Pradesh, Gujarat and Tamil Nadu being major pomegranate-producing states. Fruit disease detection and classification play a significant part in refining crop yield: water scarcity, soil degradation, outdated farming techniques and the impact of climate change. Farmer suicides are a distressing issue, often linked to financial burdens, crop failures and debt. Manual disease detection methods are labor-intensive, time-consuming and prone to errors. Furthermore, understanding the data usually requires the knowledge of qualified specialists. These restrictions may make it more difficult to detect diseases promptly and increase the chance that the disease will spread across the flock, which could have dangerous results. Methods: In this paper, we use the PomeNetV2 Convolutional Neural Network (CNN) architecture and also examine 4 diseases of pomegranate fruit with names: Alternaria, Anthracnose, Bacterial Blight, Cercospora and Healthy. We used a proposed dataset of 5099 pomegranate fruit disease images. We compared the results of the proposed pomegranate fruit disease classification method with those of existing works. Result: Based on our experimental findings, the suggested framework outperforms all other state-of-the-art models with an accuracy of 99.02% for 75 epochs in identifying healthy and diseased pomegranate fruit.

Borrower discouragement: Explaining under-represented racial minority entrepreneur’s relationship with debt financing

This study examines the factors influencing borrower discouragement among underrepresented racial minority entrepreneurs (URMs) in the United States, focusing on their engagement with debt financing. Despite their significant economic contributions, URMs face systemic challenges in accessing financial resources essential for growth. The research explores how experiences in racialised environments lead to feelings of stereotype threat, which in turn result in borrower discouragement. An experiment involving 186 entrepreneurs revealed that stereotype threat fosters a prevention focus while diminishing a promotion focus. Interestingly, stereotype reactance can mitigate the impact of stereotype threat on prevention focus. These findings enhance our understanding of the micro-processes in debt acquisition for URMs, contributing to URM entrepreneurship literature and resource acquisition research. They also have practical implications, highlighting the need for strategies to counteract borrower discouragement and support URMs in their entrepreneurial endeavours.

The interplay of board gender diversity, debt financing, and sustainable investment: evidence from Europe

ABSTRACT In this study, we examine the moderating effect of debt financing on the relationship between board gender diversity (BGD) and sustainable investment. Using a quantitative approach with a sample of 10,840 firm-year observations from publicly listed European firms during 2012–2022, we employ ordinary least squares and instrumental variable regressions to test our hypotheses and assess the moderating effect of debt financing. Our results, based on a theoretical framework that draws insights from stakeholder theory and agency theory, show that BGD has a positive and significant impact on sustainable investment, while debt financing has a negative and significant effect. Additionally, we find that debt financing negatively and significantly moderates the relationship between BGD and sustainable investment, attenuating the positive impact of BGD on sustainable investment. Our findings suggest that firms need to focus not only on the importance of BGD but also on the optimal use of debt financing to ensure effective investment in sustainable development. Our results are robust to alternative variable specifications and endogeneity concerns and offer important implications for practitioners and policymakers.

The Importance of ESG in Financing and Investment Decisions

ESG has become one of the most important topics for investors around the world, and this article explores the importance of environmental, social and governance (ESG) factors in financing and investment decisions. This paper first introduces the concept of ESG from the perspective of investment and financing, and analyzes the impact of ESG on financing cost, investor demand and its application in debt financing. This paper further discusses the role of ESG factors in investment evaluation and the correlation between investment returns and ESG performance. Therefore, ESG is becoming more and more important in the process of investment and financing, and enterprises should pay more attention to and actively respond to the development and changes of ESG.

Financial well-being, anxiety and payment delinquency among student loan holders in the United States: insights from the COVID-19 pandemic

PurposeThe COVID-19 pandemic presented unprecedented challenges, particularly intensifying the financial and psychological burden for individuals with student loans in the United States. Firstly, this study examined the association between student loan ownership and financial well-being during the pandemic. Secondly, among student loan holders, we tested the association of financial anxiety and payment delinquency with COVID-19 shocks and financial knowledge. Lastly, we investigated the associations between the recipients of student loans and their financial well-being, anxiety and behaviors concerning student loans.Design/methodology/approachUtilizing data from the 2021 National Financial Capability Study, we explored how unprecedented economic disruptions have affected student loan holders' financial well-being, levels of debt anxiety and payment delinquency, considering financial knowledge as a critical factor. We conducted Ordinary Least Squares (OLS) and logistic regressions to examine the associations addressed in the purpose of the study.FindingsThe results of regression analyses indicate that individuals with student loans generally experienced lower financial well-being than those without loans. Among student loan holders, COVID-19 shocks were positively associated with student loan anxiety and payment delinquency. Additionally, subjective financial knowledge showed a positive association, while objective financial knowledge displayed a negative association with loan delinquency. Lastly, respondents who secured loans for themselves exhibited lower levels of financial well-being than other student loan holders.Originality/valueThis study represents one of the initial efforts to investigate the issues of financial well-being, debt anxiety and payment delinquency among student loan holders, along with their associations with the potential COVID-19 shocks they experienced. The research shed light on the acute financial stress and mental health challenges faced by student loan holders during global crises, highlighting the significance of effective policy development for student debt management and borrower support during times of economic uncertainty.

Sponsor Reputation and Capital Structure Dynamics in Leveraged Buyouts

We examine whether leveraged buyout (LBO) sponsors’ reputations as borrowers affect the refinancing terms of their portfolio companies. In 510 U.S. LBOs for which we can reconstruct debt financing activity, 67% of financing events occur one quarter before the earliest existing debt maturity. These On Time events generally improve borrowing terms, whereas Early events feature more dividends, leverage, and higher cost. In each case, dividend issuance decreases and cost increases with the proportion of the sponsors’ recent exits that are failures. Effects are absent for matched firms and prior to the LBO and are procyclical; sponsors with recent failures miss opportunities to decrease financing costs in good times. This paper was accepted by Bo Becker, finance. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.00971 .

A new approach to assessing a company’s financial indicators: taking into account business and financial risks

There are two main methods for estimating the value of assets. The first method is the well-known CAPM (Capital Asset Pricing Model), which uses the risk-free rate as the initial return and takes into account only the business risk associated with investing in a specific asset, and not in the market as a whole. The second method is associated with the use of one of two main theories of capital structure (Brusov–Filatova–Orekhova (BFO) theory and Modigliani–Miller (MM) theory), which take into account only the financial risk associated with the use of debt financing and allow the calculation of all financial indicators of a company of arbitrary age (BFO theory) or perpetuity one (MM theory). The article develops a new approach related to the use of the company’s current profitability, taken from the annual report, as a seed profitability of an asset (company). As part of the new approach, a methodology has been developed that makes it possible to calculate all the main financial indicators of a company within the framework of capital structure theories, taking into account both financial and business risks. Transition from CAPM to a new methodology significantly improves the accuracy of the estimate. The new approach, unlike CAPM, has forecasting capabilities.

The Bond Market: A Pillar of Risk Management and Economic Stability

This essay investigates the utility of the bond market in risk management, corporate finance, and economic forecasting. It explores how the bond market’s inherent characteristics of safety, stability, and liquidity make it a crucial component of the global financial system. By examining the issuance of debt instruments, such as bonds, and their role in maintaining corporate control while accessing capital, the essay highlights the advantages of debt financing. Moreover, it underscores how these attributes help corporations manage financial risks and optimize their capital structure. Furthermore, the bond market’s predictive power is analyzed through key indicators like the yield curve and credit spreads, which provide early warnings of economic downturns. The yield curve, in particular, is known for its ability to forecast recessions when it inverts. Credit spreads, the difference between yields on corporate bonds and government securities, also serve as a barometer for economic health and investor sentiment. To bring these theoretical insights into a practical context, the essay includes case studies, such as Apple Inc.’s strategic use of debt. Apple's case demonstrates how a company can leverage debt to finance growth while preserving equity and maintaining financial flexibility. These examples illustrate the tangible benefits and strategic importance of the bond market in corporate finance. The essay concludes with suggestions for leveraging the bond market’s predictive capabilities, emphasizing the need for continuous monitoring and analysis of bond market signals to inform economic and financial decision-making. It also explores future research directions in the evolving financial landscape, considering how technological advancements and regulatory changes may impact the bond market's role in global finance.

FinTech business models focus on financing SMEs

ABSTRACT Small and medium-sized enterprises (SMEs) are economically important but are caught in a financing dilemma. Reasons for these financing problems are, among others, information asymmetries. Financial technologies (FinTech), in an intermediary role, could help to solve these information asymmetry problems and in this way solve the financing problems of SMEs. Therefore, FinTech as intermediaries for financing SMEs must develop a unique and enduring business model. Due to less empirical data, we will deductively show some first steps on the way to business model generation for FinTech as a practical guide. We are searching for similarities in the market development of creditworthiness assessment for SMEs, done by FinTech, as we saw it in the past for rating agencies concerning large companies. In particular, we analyze the business model of FinTech in the role of an intermediary in SME financing, with focus on customers, value propositions, key resources, and key activities. Our article contributes a first step in a conceptual but practical outline of business model generation for the ecosystem of FinTech in an intermediary role in solving debt financing restrictions of SMEs. In this overview article, we derive our results from a theoretical point of view but try to contribute meaningful and practical knowledge for all stakeholders in the SME financing system.