Financial Default Research Articles

APPROACHES ON FINANCIAL EDUCATION IN HIGH SCHOOL: INTERFACES WITH RESEARCH IN THE AREA

It is of fundamental importance that Brazilian school institutions are concerned with financial education in people's daily lives, since this is indispensable in everyday decision-making, both school and family, because much of what is learned in the school context, is practiced at home. In this sense, the basic question raised for this work is: how to propose a financial education that favors discussions about the family budget of high school students in Brazilian schools? One of the aspects that needs to be pointed out is the problem related to the quality of students' decision-making, with regard to financial education, whether in the formal or non-formal context of teaching. The current situation points to a very significant number of people who have financial defaults, failing to meet their monetary commitments. Thus, in order to maximize studies on this theme, the work sought to collect information and trends on this theme on the national scene, through a bibliographic article, focusing on academic productions related to financial education and aimed at high school. The aim of this study was to show the importance of working on this topic with high school students, the habit since adolescence of having a healthy financial life, which later in adulthood will be put with more practice and experience.

Does corporate social responsibility reduce financial distress risk?

This paper examines how corporate social responsibility (CSR) affects the level of financial distress risk (FDR). Using a sample of 1201 US-listed firms during 1991–2012, our results indicate that firms with higher CSR levels have lower FDR, suggesting that a better CSR performance makes firms more creditworthy and have better access to financing, which is rewarded with less financial defaults. This finding is robust to using alternative proxies of FDR, to controlling for potential endogeneity, and is mainly driven by the community, diversity, employee relations, and environmental dimensions of CSR. Moreover, this relationship is more prevalent in firms with strong governance mechanisms and high product market competition. It is also more exacerbated for less distressed firms and during non-crisis periods. Overall, our findings suggest that the adoption of CSR practices comes with less distress and default risks, likely leading to a more attractive corporate environment, better financial stability and more crisis-resilient economies.

Financial default prediction based on Python data analysis

Financial default prediction based on Python data analysis

Research on financial default risk prediction method based on big data model

Research on financial default risk prediction method based on big data model

Magical banking capital: Neo-endogenous money (NEM)

This research emerges with internal financial constraint. How financial constraint may lead to economic recess or back. This financial constraint is different than external finance constraint, and is not due to lack of gold, etc. It explains the positive relationship between excess return in stock market (ERSM) and non-real funding or riskier credit. The matter comes under imperfect market banking. It includes subsequently banking behavior and failure of central bank policy to control individual banks under these circumstances. In addition, it presents measures to get awareness before default comes, as financial default rare and crisis in financial market comes much before that.

Too fast to live? Effects of growth on survival across the growth distribution

ABSTRACTDo moderate-growth new firms have higher survival rates than fast-growing new firms? To address this question the customer bank records of 6578 new ventures are tracked over their first 10 years, and survival is measured either in terms of continued use of the bank account, or by entry into financial default. Simple bar charts show that it is the 7th or 8th decile of the growth distribution that has the highest survival chances. Although growth enhances survival on average, nevertheless the highest decile of the growth distribution never has the highest survival rates.

Bayesian regularized artificial neural networks for the estimation of the probability of default

Artificial neural networks (ANNs) have been extensively used for classification problems in many areas such as gene, text and image recognition. Although ANNs are popular also to estimate the probability of default in credit risk, they have drawbacks; a major one is their tendency to overfit the data. Here we propose an improved Bayesian regularization approach to train ANNs and compare it to the classical regularization that relies on the back-propagation algorithm for training feed-forward networks. We investigate different network architectures and test the classification accuracy on three data sets. Profitability, leverage and liquidity emerge as important financial default driver categories.

The Liability of Volatility and How it Changes Over Time Among New Ventures

This article theorizes how short-term revenue volatility affects new venture viability and how such volatility develops over time. Tracking the bank accounts of 6,578 new ventures over a 10-year period, we find that, even after controlling for a range of other factors, short-term revenue volatility is a strong predictor of venture exit. Although short-term revenue volatility is associated with the depletion of buffer resources and financial default, surviving ventures do not, on average, decrease their short-term revenue volatility over time. However, short-term revenue volatility decreases at the cohort level due to higher exit rates of volatile ventures.

English

English

OBVIOUS AND HIDDEN FEATURES OF CORPORATE DEFAULT IN BANKRUPTCY MODELS

The aim of this article is to prove the key role of the structure of the research sample used for accuracy determining on the accuracy of bankruptcy models. The creators of these models report the accuracy usually in the range of 60 to 90%. The authors of this article claim that these values are inaccurate and misleading. The real I. type error should be detected on a sample where obvious features of financial default were eliminated. The research tested more than 1200 of thriving businesses and also 270 businesses in future bankruptcy. The research has determined real current accuracy of selected three bankruptcy models on the standard sample of Czech businesses amounting 67.77%, 62.27% and 74.36%. This confirmed hypothesis no. 1, which says that actual accuracy of bankruptcy model is lower than original accuracy indicated by model makers. An accuracy of 58.70%, 61.59% and 65.94% was measured on a sample where businesses with obvious features of financial distress were eliminated. Due to the modification of the test sample, the order of accuracy has changed. This confirmed hypothesis no. 2. The Index of Karas and Reznakova reached the highest overall accuracy of 80.31% including incorrect prediction of bankruptcy also.

Fiscal Distress and Banking Performance: The Role of Macroprudential Regulation

Fiscal fragility can undermine a government's ability to honor its bank deposit insurance pledge and induces a positive correlation between sovereign default risk and financial (bank) default risk. We show that this positive relation is reversed if bank capital requirements in fiscally weak countries are allowed to adjust optimally. The resulting higher requirements buttress the banking system and support higher output and welfare relative to the case where macroprudential policy does not vary with the degree of fiscal stress. Fiscal tenuousness also exacerbates the effects of other risk shocks. Nonetheless, the economy's response can be mitigated if macroprudential policy is adjusted optimally. Our analysis implies that, on the basis of fiscal strength, fiscally weak countries would favor and fiscally strong countries would object to banking union.

A Look into the United Statess Underfunded Pension System

The public pension crisis has come under increasing scrutiny over the past decade as shifting demographic trends, harsh economic conditions and the very nature of pension funds have changed, and not for the better. Pension funds create valuable saving and investment tools for an individual's retirement. They make what seems like the impossible daunting task of saving sufficient funds for retirement completely feasible. All indications lead to these trends continuing, therefore pension plans need to adapt and reform. This paper is to address the pension crisis in the U.S. and intends to provide some recommendations for policy makers. This paper used the U.S. Census Bureau pension data for the fiscal years 2005-2014 to select a sample of 15 states. The time series data will be analyzed using the MDA (Multiple Discriminant Analysis) methodology to assess if a pension plan is bound to fail. MDA is used in the banking industry as a method to predict financial distress or default of bank loans. Once the regression line is determined, it can be utilized to estimate the probability of default. This methodology will be used to determine financial health of public pensions selected in the sample. The Multiple Discriminant Analysis model can be utilized to run a stress test on the public pension plans of those states selected in the sample. The Multiple Discriminant Analysis will enable public pensions and policy makers to somewhat predict the viability of their pensions. The contribution of this paper will be providing pre-warning signals and some policy recommendations for local governments to sustain their pension systems.

History of the World Largest Financial Losses in 1972-2018

Deregulation is often claimed to be the cause for financial distress. Thus it has to lead to financial defaults and losses. However, exact dependence is not clear. To verify it we tried to investigate the roots of world largest financial losses. As we found no source to extensively and completely cover those, we decided to prepare a data set of our own. By choosing a round threshold of USD 100m equivalent of loss amount as of announcement date, we arrived at the set of 117 defaults with total loss of USD 914bn in 46 years. Our key purpose is to make comprehend data set of largest losses.

An enactment theory model of supplier financial disruption risk mitigation

PurposeThe purpose of this study is to examine supplier financial risk through the lens of Enactment Theory, to explore the role of transparency and communication on buyers’ perceptions of supplier default risk. The authors develop a theoretical model proposing that buyer communication with suppliers leads to preemptive actions that may prevent supplier financial default and fewer supply disruptions. The results suggest that reducing equivocality in buyers through communication with suppliers leads to understanding of financial factors not captured through third-party financial indicators, leading to proactive risk mitigation activities that prevent disruptions during recessionary economic cycles. This research proposes that transparency and communication reduces equivocality in buyers, spurring them to take contractual actions that reduces, financial default in key suppliers, which leads to fewer supply disruptions.Design/methodology/approachSurvey data collected from 175 firms in the North America and Brazil during a period of the global recession is used to test the impact of communication with suppliers on supply chain disruptions in periods of economic crisis. This relationship is mediated by proactive contract renegotiation and supplier financial health, supporting a model grounded in Enactment Theory.FindingsResults show that buyers who regularly assess and develop an understanding of their key suppliers’ financial conditions are more likely to re-negotiate contracts that revise payment terms, leading to improved supplier working capital and fewer supply chain disruptions.Research limitations/implicationsValidation of industry-specific financial ratios and figures could provide a richer set of insights and some quantitative measures for establishing baseline on what levels of financial ratios actually result in disruptions. However, future research should consider using a cross-sectional sample and, in addition, a qualitative approach to capture risk from a greater variety of industries and supply chain dynamics.Originality/valueThe notion of effective communication flows as a means for reduction of supplier disruption risk is aligned with Enactment Theory views that emphasize the benefits of risk reduction. Equivocality is reduced in buyers through information exchange and formal assessments in complex environments. This research suggests that while such communication does not have a direct effect on supply disruption risk, it is mediated through proactive buyer actions to improve supplier financial health and contract re-negotiation mechanisms that may preempt financial distress. These are important lessons learned that provide guidelines for supply chain executives in future economic recessions that may occur in the coming years.

Predicting Financial Distress in Tehran Stock Exchange

Companies incur significant costs from the financial distress. Predicting financial distress will have an important role in preventing bankruptcy. The aim of the present study is to predict the financial distress costs using the Leland and Toft models, during 1996 and 1998. This study examines data relating to 49 companies listed in the Tehran stock exchange collected over ten years from 2005 to 2014. Leland and Toft model (1996) considers the financial distress costs and benefits from the tax shield in general. However, Leland and Toft model (1998) considers the financial distress costs and benefits from the tax shield in detail by using parameter. According to the research findings, the companies working in automotive industry are bankrupt, but the companies working in food and beverage, pharmaceutical, base metals and cement industries have a good distance from financial default. The results help to improve the decision-making process and to avoid the financial distress.

European and American Perspectives on the Choice of Law Regarding Cross-Border Insolvencies of Multinational Corporations – Suggestions for South Africa

An increase in economic globalisation and international trade has amounted to an increase in the number of multinational enterprises that have debt, own assets and conduct business in various jurisdictions around the world. This, coupled with the recent worldwide economic recession, has inevitably caused the increased occurrence of multinational financial default, also known as cross-border insolvency (CBI).
 
 The legal response to this trend has, inter alia, produced two important international instruments that were designed to address key issues associated with CBI. Firstly, the United Nations Commission on International Trade Law (UNCITRAL) adopted the UNCITRAL Model Law on Cross-Border Insolvency (the Model Law) in 1997, which has been adopted by nineteen countries including the United States of America and South Africa. Secondly, the European Union (EU) adopted the European Council Regulation on Insolvency Proceedings (EC Regulation) in 2000. Both the EC Regulation and Chapter 15 adopt a “modified universalist” approach towards CBI matters.
 
 Europe and the United States of America are currently the world leaders in the area of CBI and the CBI legislation adopted and applied in these jurisdictions seems to be effective. As South Africa’s Cross-Border Insolvency Act is not yet effective, there is no local policy guidance available to insolvency practitioners with regard to the application of the Model Law. At the basis of this article is the view that an analysis of the European and American approaches to CBI matters will provide South African practitioners with valuable insight, knowledge and lessons that could be used to understand and apply the principles adopted and applied in terms of the EC Regulation and Chapter 15, specifically the COMI concept, the “establishment” concept in the case of integrated multinational enterprises and related aspects. 

Recurrent default or policy-optimal taxation

This paper investigates the syndrome of “this time is different” with respect to Reinhart and Rogoff’s (This time is different: eight centuries of financial folly Princeton University Press, Princeton, 2011) interpretation of their extensive, historical data on financial default, and with particular regard to public debt in a closed-economy. Recurrent and over-generous promises to credulous investors of an ex ante, policy-optimal return amounts to an extra policy instrument in boosting the demand for public debt. In a numerical simulation of a version of the Diamond (Am Econ Rev 55:1126–1150, 1965) model, we find that the incentive for the policy-maker to pursue this strategy is trivial if taxes can be set at a policy-optimal level, but possibly over-riding if they cannot. Thus, the main result lines up with the empirical conclusion of Reinhart et al. (Debt intolerance. Debt intolerance, 2003) that “debt intolerant countries have weak fiscal structures”. The subsidiary result of the model is that defaulting countries will also have higher shares of public expenditure. Thus the model also predicts Wagner’s Law to the extent that fiscal structure is correlated with economic development.

Real Effects of Bankss Financial Reporting Frequency

We examine the effects of banks’ financial reporting frequency from 2000 to 2014 and find that quarterly reporting improves their loan portfolio quality. Sample banks experience a relative decrease of about 11 percent in their nonperforming loans after switching to quarterly financial disclosures. Consistent with market discipline enhancing lending practices, these results are stronger in regimes with weaker depositor insurance and external monitoring, and in those with stronger capital markets. We also find that banks that provide quarterly financial information experience lower deposit interest rates and credit default swap spreads. Collectively, our findings suggest that quarterly reporting reduces banks’ risk-taking.

Rights of Parties in Maritime Collateral Management The Nigerian Perspective

The concept of collateral management has evolved in Nigeria into a species of credit enhancement and protection which is employed to diminish credit risks. As a form of legally binding contract in credit risk control, the use of these kinds of agreement was recognized in ACB Merchant Bank Nig. Ltd. v Panalpina World Transport Nig. Ltd. Collateral management has gained recognition as an effective support function and has been adopted as a tool to control assets, both of the lenders and borrowers. This owes largely to the fact that post global financial/economic crunch exposed the weakness of credit control particularly in the finance sector and made a show of the failings in legal structures for fencing loans and borrowings. A default in repayment is thus marginally reduced by effectively managing control over the collateral provided. In Nigeria, until recently, over 50% of collateral available to financial institutions and credit based businesses were left idle, resulting in huge losses. The need to employ and engage collateral was therefore looked upon as the solution to avoiding collateral shortfalls especially as a precursor to or during financial crises or default by a counter party. This has further necessitated the evidential need for proper documentation in order to provide adequate reference data and avoid seemingly questionable legal issues in the long run.

Too Fast to Live? Effects of Growth on Survival Across the Growth Distribution

Several theories suggest that excessive fast growth may lead to failure. We explore survival across the growth rate distribution for a cohort of 6579 new ventures, tracked over their first 10 years, using customer records data from a major UK bank. We measure failure though termination of the business account (as opposed to either continuation or switching the account to a rival bank), or through entry into financial default. Unconditional bar charts show that it is the 7th or 8th decile of the growth distribution that has the highest survival chances. Although growth enhances survival on average, the highest decile of the growth distribution never has the highest survival, and there are significant non-linearities beyond the quadratic case (specification tests prefer higher-order polynomials). Our findings have implications for the current policy interest in high-growth firms.