Financial Vehicles Research Articles

Local officials’ promotion incentives and issuance of urban investment bonds

This paper investigates the effects of local officials’ promotion incentives on the issuance of urban investment bonds (UIBs) in China. Based on data from 2014 to 2019, we find that local officials’ promotion incentives have a positive effect on the amount of UIBs but a negative effect on the cost, and these effects are much stronger in cities with a lower level of marketization and greater pressure on economic growth. We also find that before issuing bonds, local officials with strong promotion incentives intervene in the issuance of UIBs by transferring state-owned equity, providing fiscal subsidies, and injecting land assets to local government financing vehicles. The study enriches the understanding of the UIB market and Chinese local government debt.

Research on PPP Enterprise Credit Dynamic Prediction Model

The debt default risk of local government financing vehicles (LGFVs) has become a potential trigger for systemic financial risks. How to effectively prevent hidden debt risk has always been a hot issue in public-private partnership (PPP) financing management research. In recent years, machine learning has become more and more popular in the study of enterprise credit evaluation. However, most scholars only focus on the output of the model, and do not explain in detail the extent to which variables affect the model and the decision-making process of the model. In this paper, we aim to apply a better credit rating method to the key factors and analysis of LGFV’s default risk, and analyze the decision-making process of the model in a visual form. Firstly, this paper analyzes the financial data of LGFVs. Secondly, the XGBoost-logistic combination algorithm is introduced to integrate the typical characteristics of PPP projects and construct the credit evaluation model of LGFVs. Finally, we verify the feasibility of the model by K-fold cross validation and performance evaluation. The results show that: (1) net worth, total assets, operating income, and return on equity are the most critical factors affecting the credit risk of LGFVs, asset-liability ratio and tax revenue are also potentially important factors; (2) the XGBoost-logistic model can identify the key factors affecting the credit risk of LGFVs, and has better classification performance and predictive ability. (3) The influence of each characteristic variable on model decision can be quantified by the SHAP value, and the classification decision visualization of the model improves the interpretability of the model.

The dark side of innovation in financial centres: legal designs and territorialities of law

ABSTRACT Innovation studies rarely incorporate finance in their analysis, although productive innovation and economic development require efficient allocation of financial resources. Complex financial vehicles other than banks increasingly fund global economic activity. These innovative, yet ‘dark’ financial entities service the shielding of private – not public – wealth, and challenge the positive notion of financial innovation as they help cement socio-spatial inequalities. We illustrate how legal structuring benefits (from) the commercialization of state sovereignty and the finetuned work of finance-cum-law that have long shaped the business model of leading financial centres; a legacy difficult to disengage from in times of financial sustainability imperatives.

Consumers and Guaranteed Asset Protection (GAP Protection) on Vehicle Financing Contracts: A First Look

Guaranteed Asset Protection (GAP) shields purchasers from financial risks of losses exceeding insured collateral values if vehicles become total losses. Yet surprisingly little is known about the sales of this product or consumers’ attitudes toward it. In this study, we report the results of a representative national survey conducted by the Survey Research Center (SRC) of the University of Michigan. The SRC interviewed 1,206 individuals in the fall of 2020. This survey shows that consumers purchased GAP in about 39 percent of financed vehicle transactions. Consumers purchase GAP more often when there is a heightened financial risk: larger credit amounts, longer loan maturities, and lower income levels. More than 90 percent of GAP purchasers report that buying GAP is a good idea and that they would buy it again. Only about 1 percent of surveyed purchasers indicate dissatisfaction with their choice. A multivariate model of GAP purchase suggests that consumers’ financial situation and terms of the transaction are more important than risk aversion by itself.

Recomputation of Public Capital Based on PIM and the Effect on China Regional Economic Growth

This paper first reestimates the public capital stock of each China province from 1994 to 2019 by improving the computing method of the components of the perpetual inventory method (PIM). Then, it brings the public investment and public capital into the extended Cobb-Douglas production function and explores the mechanism of public investment affecting economic growth from the regional perspective. Furthermore, through the analysis of the Local Government Financing Vehicles (LGFVs) as the major investor of local public investment during the last two decades, This paper confirms the importance of complementary factors such as institutional innovation and effective management of the public infrastructure in making public investment an “effective catalyst for growth” (Kessides, 1993).

A Study of Selected Flexi Cap Mutual Funds

This paper represents an overview on the performance evaluation of the flexi cap mutual funds. A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors in order to invest in securities like stock, bonds, money market instruments and other assets. Flexi cap funds are open ended dynamic equity schemes that invest across large cap, mid cap and also small cap stocks. These funds allow the investors to diversify their portfolios across market capitalizations in order to reduce risk and volatility. Thus, the fund manager is responsible to analyze the potential of various businesses irrespective of their size and allocation of funds to different sectors and other businesses. This paper also attempts to analyze the best flexi cap mutual funds for the Generation Z. The objective of this research paper is to evaluate the performance of the Parag Parikh flexi cap fund, UTI flexi cap fund and PGIM India flexi fund over the time period of last four years i.e. 2018-19 to 2021-22.

Analisis Strategi Pemasaran Pembiayaan Kendaraan Dalam Meningkatkan Jumlah Nasabah Pada PT. Bank Syariah Indonesia KCP Stabat

This research aims to find out the marketing strategy of vehicle financing in increasing the number of customers at PT. Bank Syariah Indonesia KCP Stabat. The research method used is a qualitative research method that is descriptive with an empirical approach. The results of the study explained that the mechanisms and procedures for vehicle financing in PT. Bank Syariah Indonesia KCP Stabat begins with the submission of proposals / files, investigation of files, approval of financing and signing of financing contracts, after that the Bank makes a purchase order (PO) to the dealer / showroom that contains specifications according to the customer's wishes and prepares all documents needed for the disbursement of financing by the Bank and installment payments in accordance with the agreement. Marketing strategy implemented by PT. Bank Syariah Indonesia KCP Stabat in increasing motor vehicle financing refers to the marketing mix, namely products, prices, distribution / place, and promotion. The results of the SWOT analysis are the strengths of its implementation in accordance with sharia, light down payment, low margins, long installment periods and free of penalty fees, in addition to a strategic location. Weakness is the lack of knowledge of the community. Opportunities are the high interest of the public to buy a vehicle and the increasingly fanatical Muslims with their religion. Threats are the proliferation of financial institutions such as leasing that do focus on purchasing vehicles and the public is more interested in applying for purchases to leasing.

Mechanism and Implementation of Murabahah Agreement on Motorcycle Financing for ASN Bank Sumut Syariah KCPS Hm Yamin

This study was made to explain the mechanism and implementation of the murabahah contract in motorcycle financing for the state civil apparatus (ASN) which is run by a syriah Sumatran bank. In the implementation process, Bank Sumut Syariah will provide terms and conditions that must be met by customers who wish to apply for motorcycle financing for this ASN. The customer must also follow the procedures set by Bank Sumut Syriah. Motorcycle financing procedures for ASN at Bank Sumut Syariah KCPS HM Yamin. In this motor vehicle financing, the Bank of North Sumatra Syariah acts as a financing institution, not as a pure seller who provides goods needed by customers. Bank Sumut Syariah will only buy products in accordance with the terms of the murabahah contract made to financing customers. Bank Sumut Syriah has complied with the provisions and farwa of the Sharia Supervisory Board NO.04/DSN-MUI/IV/2000 regarding murabahah financing in implementing murabah financing.

The 2018 new asset management regulation and LGFV bonds in China

While the local government debts and local government financing vehicle (LGFV) bonds underwent reconstruction, in 2018 the new asset management regulation introduced some tighter measures to restrain shadow banking business and to mitigate the moral hazard issue that led to an ongoing boom of the LGFV market. This paper examines the impacts of the 2018 new asset management regulation on the credit spread of newly issued LGFV bonds and explores how the new asset management regulation affects the implicit guarantee of local governments in the LGFV market that has piled up systemic risks. We find that the release of the new asset management regulation has raised the credit spread of LGFV bonds at issuance. More importantly, the credit spread becomes increasingly sensitive to the local governments’ financial capacity and credibility right after the introduction of the new asset management regulation. Therefore, investors are compensated by more risk premiums for holding LGFV bonds issued by the local governments with a weaker balance sheet. Consequently, the implicit guarantee problem in the LGFV bond market has worsened.

Does government debt impede firm innovation? Evidence from the rise of LGFVs in China

Does government debt impede firm innovation? We address this question by examining the effects of the debt accumulated by local government financing vehicles (LGFVs) across Chinese prefectures between 2006 and 2012 on industrial firms’ R&D spending and patents. We find that government debt reduces firms’ R&D expenditures and lowers firms’ number of new patents. One plausible explanation is that government debt raises firms’ capital costs, which limits innovation activities. Consistently, we find that the innovations of firms that are more likely to be financially constrained – small firms and firms with low cash flow – are more affected by the expansion of government debt. Our results imply that although government deficit spending may stimulate the economy in the short run, it could have negative repercussions for economic productivity in the longer run.

Cash Waqf Model for Social Enterprise to Achieve Sustainable Development Goals in Indonesia

Social enterprises are expected to bring significant positive impact on Indonesia's economy and may help to meet the Sustainable Development Goals (SDGs). Social enterprises empower minorities by providing more opportunities for a sustainable means of livelihood, especially for low-income and disadvantaged groups. However, despite its potential, financial issues remain a significant barrier for the viability of social enterprises in Indonesia. Cash waqf is one of the Islamic social finance vehicles that can be used to invest and manage funds to address a variety of social issues related to the SDGs. Hence, this study aims to propose cash waqf model for social enterprise in achieving the SDGs in Indonesia and to assesses the potentials and opportunities of developing the proposed model in Indonesia. This study employs a qualitative research approach, with primary data gathered from interviews of relevant stakeholders. This study finds that, the cash waqf can solve a multitude of financial issues faced by many social enterprises in Indonesia by enlarging their pool of financing support. The possibilities and opportunities of developing the cash waqf model for social enterprise include alternative funding for social enterprise, alternative waqf for waqif, an increase in nazhir, and more effective contribution to the SDGs.

National climate funds: a new dataset on national financing vehicles for climate change

ABSTRACT The Paris Agreement’s nationally driven structure puts the spotlight on financing strategies at the national level. The role of national funding vehicles in mobilizing climate finance, however, has not received extensive attention. This paper remedies this gap by introducing a novel dataset of national climate funds established in developing countries. The database creates an inventory of national financing vehicles and tracks their major attributes, including scope, legal form, and the host, among others. We show that 39 countries have established national climate funds. These funds seek to access and mobilize finance from various sources, domestic and international. Most of these funds have broad mandates to tackle climate change, while a smaller share has a more targeted, sectoral focus. Funding sources vary from taxes to international aid. The funds offer a limited range of financial instruments, primarily awarding grants. The funds also differ in how integrated they are with overarching climate plans and strategies. We also find that most developing countries use existing budget lines to target finance towards climate change objectives. Only five countries track public expenditure on the basis of dedicated budget codes. This paper contributes to the literature by providing an empirical basis to pursue questions regarding the role and effectiveness of national climate funds. For policymakers, the limited range of instruments at the disposal of many of these national climate funds also suggests a need to ensure that the national climate funds have the design features they need to support the implementation of national policy goals. Key policy insights Systematic data on public climate finance are scarce. Most governments do not use climate change codes to track their expenditures related to climate change. Policymakers should adopt practices that will help instil transparency in public expenditure on climate change. Policymakers have to revisit the design features of national climate funds such as legal form and areas of operation as the wider operating context changes. Funds accredited with multilateral climate funds are underutilized by fund contributors. The Green Climate Fund’s direct access modality offers one major avenue to foster synergies between national climate funds and multilateral climate funds. Policymakers have the opportunity to harvest lessons from existing funds and calibrate climate policies accordingly, especially as countries contemplate setting revenue-generating carbon prices.

Consumers’ Perception of The Cost of Credit Default in The Vehicle Finance Industry in South Africa

The risk that a borrower may not fulfil his/her borrowing obligation presents credit owner (lender) a default risk management opportunity to maximize the risk-adjusted rate of return and to maintain minimum exposure to default associated cost. This paper investigated respondents’ perception of the cost of credit default and examines requirements for default risk management (DRM) in the vehicle finance industry in South Africa. It is noted that with an increased level of consumer indebtedness, unstable economy, high unemployment, opportunistic risks like health pandemics, vehicle financing faces a higher probability of default from borrowers. This descriptive investigation utilised quantitative approach using a survey method to collect data from 381 purposive randomly selected respondents who are vehicle finance customers in South Africa, Cape Town specifically. Data collection took place in the Western Cape over a nine-month period, utilising personal interview, and emails to administer questionnaires to vehicle finances’ customers as data collection instruments. Responses received were codified and quantitative data were analysed using the Statistical Packages for Social Sciences (SPSS version 25) The paper found mixed and variable respondents’ perception of the cost of credit default. In conclusion, it is perceived that South Africa debt would become more costly with credit default. It can be recommended that a default risk management intervention be applied to manage credit default risk within the context of the unified credit assessment policy in South Africa.

The financial value of the within-government political network: Evidence from Chinese municipal corporate bonds

This paper examines the effect of the political network of Chinese municipal leaders on the pricing of municipal corporate bonds. Using municipal leaders’ working experience to measure the political network, we find that this network reduces the bond issuance yield spreads by improving the credit ratings of the issuer, the local government financing vehicle. The relationship between political networks and issuance yield spreads is strengthened in areas where financial markets and legal systems are less developed.

Exploring China’s Impacts on Development Thinking and Policies

In this article, we explore the impacts, actual and potential, of China’s development experiences upon development thinking and policies elsewhere. New Structural Economics, a theoretical innovation by Professor Justin Yifu Lin drawing on a longer tradition of pragmatic ‘learning by doing’ development strategies, provides a framework in which three agendas stand out: structural transformation as a policy priority; the return of industrial policy; and the use of Special Economic Zones. We integrate related drivers of growth in China: rapid urbanisation pulling in massive rural migration in an economic transformation process; the financing of provincial and city governments by improvised local government financing vehicles based on rising urban land values; and competition and accountability processes in China’s subnational governance system. While China’s experiences cannot be directly replicated elsewhere, we argue that lessons on why and how to achieve structural transformation are relevant for other developing countries, especially in fast urbanising and integrating Africa.

Globalization and the Reach of Multinationals Implications for Portfolio Exposures, Capital Flows, and Home Bias

The growing use of low-tax jurisdictions as locations for firm headquarters, proliferation of offshore financing vehicles, and growing size, number, and geographic diversity of multinational firms have clouded the view of capital flows and investor exposures from standard sources such as the IMF Balance of Payments and the Coordinated Portfolio Investment Survey. We use detailed, security-level information on U.S. cross-border portfolio investment to uncover the extent of distortions in the official U.S. statistics. We find that nearly a third of U.S. cross border portfolio investment is allocated to a country different from its primary economic exposure by standard reporting conventions. About one-fourth of the stock of global cross-border portfolio investment is similarly distorted, with exposures to emerging markets likely understated by about a third. Estimates of the international exposures of U.S. investors are even larger when we distribute exposure according to the geographic distributions of firm-level sales. Our results have implications for conclusions we draw about the factors influencing capital flows, in particular those to emerging markets.

Crowding in or crowding out? How local government debt influences corporate innovation for China.

The pressure upon local governments to redeem their debt could affect government fiscal ability. It could consequently affect their fiscal policies on corporations, which might distort corporate innovation. Based on the data of Chinese Shanghai and Shenzhen A-share listed companies and the local government implicit short-term debt financed by local government financing vehicles (LGFVs) in 31 provinces, this paper shows that local government debt (LGD) negatively affects corporate R&D investment in China, thereby suggesting a strong crowding-out effect. The crowding-out effect is more pronounced when the firm is a non-state-owned enterprise (NSOE), the firm's size is small, the firm's age is young, or the firm is in the lower market competition. This paper provide evidence by interacting the terms that local government actions, such as consumption of fiscal resources, strengthening tax collection efforts, or consumption of credit resources, might partially account for the crowding-out effect. This study illustrates the innovation costs of local government debt.

Securitisation special purpose entities, bank sponsors and derivatives

This paper documents the use of derivatives by securitisation special purpose entities (SPEs), also known as financial vehicle corporations (FVCs), domiciled in Ireland using transaction-level data established by the European Market Infrastructure Regulation. We show that these entities primarily engaged in interest rate derivatives over the period of 2015–2017. We find that larger entities that already engage in international capital markets are more likely to have derivative exposures. We also show that entities sponsored by banks and non-bank financial institutions are relatively more likely to engage in derivative markets. The characteristics of these bank sponsors are important in determining SPEs’ engagement in derivative markets. SPEs’ heavy reliance on debt finance coupled with their strong interconnectedness with bank sponsors underscores the importance of continuous monitoring and macroprudential surveillance of their derivative activities.

Evolusi Pembiayaan Mudharabah Sebagai Instrumen Halal National Fund

At present, in a competitive Islamic financial system, mudarabah (profit sharing) is seen as an alternative mechanism in Indonesia. Since it was introduced mudarabah (profit sharing) has gone through various evolutions to meet the rapidly growing needs of Islamic finance. However, in the current Islamic financial system, mudarabah (profit sharing) is less desirable by the public. This is due to the asymmetric information that is continuously presented in mudarabah (profit sharing) contracts and creates adverse selection problems. Therefore, mudarabah (profit sharing) has rejected its importance as a financing vehicle. Therefore, the purpose of this paper is to analyze the thinking and evolution of mudarabah financing in Islamic banking from the perspective of classical and contemporary Islamic studies and evaluate the risk prevention of mudarabah financing in Indonesia also the development of halal national funds using this instrument. The writing method used is a literature study that looks for theoretical references that are relevant to the topic raised through the method of collecting library data by reading through journals. Mudarabah is one of the important methods of Islamic financing that is widely used in various fields of Islamic finance and has a strategical position on halal national fund development.

The motives for shipping asset securitisation: sale-leaseback transactions in the shipping industry

ABSTRACT This study investigates shipping firms’ motives for using sale-leaseback (SLBs) transactions. Given the bleak conditions in the shipping industry that have persisted since its collapse in 2008, numerous firms have sought ways to relieve short-term financial distress and secure long-term sustainable growth. This study analyses financial ratios of 123 shipping companies in Korea, 25 of which elected to use SLBs in 2019, in terms of growth, profitability, liquidity and leverage for the period of 2016–2018. Consistent with previous findings, the results show that applying for SLBs is associated with a lack of liquidity. By exploring SLBs as a new financing vehicle for shipping companies, the vast majority of which have been under financial distress and constraints in recent years, this study enriches the existing literature on shipping finance. Besides, this study’s findings on shipping companies’ motives for using SLBs can provide helpful suggestions for designing and implementing government policies for restructuring national shipping industry.