Form Of Debt Research Articles

The role of corporate bonds in financing mining sector companies during an economic downturn

Streszczenie W artykule zawarte zostały problemy emisji obligacji w Polsce jako źródła finansowania działalności przedsiębiorstw górniczych. Poziom emisji nie jest imponujący ani w relacji do nakładów inwestycyjnych ani do PKB. Kraje wysoko rozwinięte znacznie szerzej korzystają z tej formy długu. Emisja obligacji wykazuje wiele zalet w relacji do pozyskania kapitału z emisji akcji czy z kredytów banków. Koszty pozyskania kapitału z emisji mogą być niższe niż z kredytów bankowych i emisji akcji. Jednak ciągle wiele barier utrudnia pozyskanie kapitału z tej formy długu. Największą barierą wydaje się być niedobór rodzimego kapitału na rynku długu w Polsce. Poszukując źródeł finansowania inwestycji rozwojowych spółki coraz częściej wykorzystują emisję obligacji korporacyjnych. W krajach wysoko rozwiniętych zakres korzystania z emisji obligacji jest znacznie szerszy niż w Polsce. Wskazują na to zamieszczone w artykule relacje emisji obligacji do PKB, do nakładów inwestycyjnych czy do kredytów. Szeroko z emisji obligacji korzystają duże firmy górnicze ze względu na elastyczność tej formy długu i relatywnie niższe koszty pozyskania kapitału niż z emisji akcji czy z kredytów. W Polsce z emisji obligacji skorzystał dotychczas Katowicki Holding Węglowy. Kolejne spółki węglowe (JSW, Kompania Węglowa) przy­gotowują programy emisji obligacji korporacyjnych, zamierzając pozyskane środki przeznaczyć na inwestycje. Jednak wiele barier utrudnia pozyskanie kapitału z tej formy długu. Największą barierą wydaje się być niedobór rodzimego kapitału na rynku długu w Polsce.

THE NEGLECTED VOICE OF ALFRED LICHTENSTEIN (1889–1914)

Lichtenstein is a largely neglected writer. He was a marginal figure in Berlin’s literary world before his death in September 1914, and neglect continued when, after 1945, Expressionism became a focus of interest. He has suffered particularly from repeated claims that his work derives from van Hoddis, especially the latter’s ‘Weltende’. However, Lichtenstein’s poetry, while owing a formal debt, is very different because of his presentation of new ways of seeing. He wrote in different styles, including parody; humour and self-irony are reflected through an invented persona. His wartime poems are marked by a spare realism. His prose works reveal a similar perspectivism to that in his poetry, which links him to the painting of the period.

Islamic Law, Investors' Rights and Corporate Finance

Laws have an important role in defining and protecting investors' rights and affecting the structure and growth of the financial sector. Investors provide funds to corporations in form of debt or equity when they get certain rights and powers that protect them from appropriation of funds by insiders and assure returns on their investments. From a corporate finance perspective, shareholders' and creditors' rights are implicit in, among others, corporate, securities and bankruptcy laws. This article examines the status of investors' rights in contemporary Islamic jurisprudence with respect to financing corporations. In doing so, the methodological approaches used to derive new rulings are also identified. As corporations are relatively new entities, detailed legal guidelines related to the protection of investors in this organisational context are not found in classical Islamic law. Although there are rulings related to corporations, securities and bankruptcy by contemporary jurisprudential bodies, contemporary Islamic laws appear to lack details of shareholders' and creditors' rights in the framework of corporate finance.

Contingent Capital with a Capital-Ratio Trigger

Contingent capital in the form of debt that converts to equity when a bank faces financial distress has been proposed as a mechanism to enhance financial stability and avoid costly government rescues. Specific proposals vary in their choice of conversion trigger and conversion mechanism. We analyze the case of contingent capital with a capital-ratio trigger and partial and ongoing conversion. The capital ratio we use is based on accounting or book values to approximate the regulatory ratios that determine capital requirements for banks. The conversion process is partial and ongoing in the sense that each time a bank's capital ratio reaches the minimum threshold, just enough debt is converted to equity to meet the capital requirement, so long as the contingent capital has not been depleted. We derive closed-form expressions for the market value of such securities when the firm's asset value is modeled as geometric Brownian motion, and from these we get formulas for the fair yield spread on the convertible debt. A key step in the analysis is an explicit expression for the fraction of equity held by the original shareholders and the fraction held by converted investors in the contingent capital. This paper was accepted by Gérard P. Cachon, stochastic models and simulation.

Formulation of public debt management strategies: An empirical study of possible drivers

A well-designed public debt management strategy can help countries reduce their borrowing cost, contain financial risks and develop their domestic markets. Using survey data on debt management strategies, this paper studies whether the probability that a country has a formal debt management strategy, publishes the strategy document, and uses quantitative benchmarks to formulate its debt management strategy is affected by democratic accountability, institutional quality, past debt crises/defaults, official development assistance, and participation in debt management programs. We find that countries located in Latin America and the Caribbean are less likely to have developed a debt management strategy and, if they have, are less likely to publish it. In contrast, countries located in the Middle East and North Africa are less likely to use quantitative benchmarks in the formulation of their debt management strategies. A country is more likely to have developed a debt management strategy if it has the experience of a past debt crisis, but not of repeated debt crises. Institutional quality and democratic accountability could significantly contribute to the emergence of more transparent and accountable debt management strategies in developing countries. IFIs’ technical assistance on public debt management could be enhanced by IFIs conducting their own, prior diagnostic reviews.

Does Security Choice Matter in Venture Capital? The Case of Venture Debt

The switch from equity to debt in venture capital-backed entrepreneurial firms is rare, but uniquely informative. Using a novel dataset of financing decisions, we find that entrepreneurial firms that raise debt financing suffer from an average 40% post-debt valuation drop and a 26% lower probability of successful exit (IPO/acquisition). Venture capitalists with equity stakes lend to lower quality entrepreneurial firms compared to outside lenders, and debt from both precedes deterioration in firm quality. Our results do not imply that debt causes negative outcomes. Rather, we argue that debt helps maintain incentive alignment after adverse shocks to firm quality. ∗Cox School of Business, Southern Methodist University and Tepper School of Business, Carnegie Mellon University. Corresponding author contact information: Michael Ewens (mewens@cmu.edu), Tepper School of Business, 5000 Forbes Ave. Pittsburgh, PA 15221, 412-423-8203. We thank Richard Green, Thomas Hellmann, Doron Levit, Nadya Malenko, Matthew Rhodes-Kropf, David Robinson, Luke Taylor, Rex Thompson, Michael Vetsuypens, Rebecca Zarutskie, and seminar participants at the 3rd Entrepreneurial Finance and Innovation Conference, Arizona State University, Darden Entrepreneurship Conference, Financial Intermediation Research Society Conference, MidAtlantic Research Conference, Harvard Business School, Southern Methodist University, and Tepper School of Business for their helpful comments. Chris E. Fishel and Paul Jaewoo Jung provided excellent research assistance. We are grateful to VentureSource and Correlation Ventures for access to the data. Empirical studies on the relationship between a firm’s prospects and its financing policy traditionally focus on publicly-traded firms. Due to data availability, the determinants of the security choices of young, private entrepreneurial firms are relatively unexplored. The financing environment of such firms is unique. Venture capital (VC)-backed entrepreneurial firms receive financing from inside investors who are informed about firm quality and help determine firm financing decisions. The environment contrasts with the setup of public firms that raise financing from arm’s length investors who face information asymmetry about firm prospects. In this paper, we seek to determine how these differences affect financing decisions and firm outcomes of VC-backed firms in particular and firms in general. Traditional explanations for debt financing do not easily apply in the VC setting. Since the investor is also an insider, the entrepreneur need not signal firm quality to the VC. Moreover, such firms rarely have taxable income, ruling out tax shield benefits as the motivation for debt issuance. Why then do VC-backed firms issue debt? Empirical research on capital structure suggests that leverage increase is positively related to firm value. In contrast, our analysis reveals that entrepreneurial firms that issue debt exhibit a reduction in firm value after obtaining debt and a lower probability of a successful exit (an initial public offering (IPO) or a private sale of the firm). We distinguish between two sources of debt: insiders, who are existing equity holders, and outsiders, who are new investors. Inside investors provide debt financing to lower quality firms than outside investors and debt from the former precedes significantly larger falls in valuation. If debt were causing the deterioration in firm prospects, then inside investors would not jeopardize their own firms more Brav (2009) studies private firm capital structure in the UK. Robb and Robinson (forthcoming) find that startups rely heavily on formal debt sources, such as bank financing. Venture capitalists possess in-depth knowledge of firm operations and industry expertise (see Lerner (1995) and Hellmann and Puri (2002)). See Masulis (1980) and Asquith and Mullins (1986), among others.

Research on External Financing Strategies Based on Technological Capability of Entrepreneurial Firms

We analyze how entrepreneurial firms match product innovation mode with optimal financing under the different states of technological ability and bootstraps by applying principal-agent theory. According to some assumptions that bank finance takes the form of debt whereas venture capital finance resembles private equity, a basic incentive model with two state and sub-state variables is established. The analysis shows that entrepreneur prefers to radical innovation on the circumstance of high technological ability while entrepreneur would prefer to carry out incremental innovation with medium technological capability. The optimal financing is up to cash flow distribution of product innovation pattern and firm’s bootstraps. Venture capital finance is optimal only when cash flow distribution is highly risky and positively skewed .Or vice versa, bank finance is optimistic.

Concept of Securitisation and its Role in Promoting Economy and Capital Markets

It is widely believed that securitisation offers tremendous opportunities, and significant benefits, in our country — to issuers and investors, and, from a broader social and Economic perspective, to the citizens and business organizations. Despite its potential, and notwithstanding recent growth, securitisation remains at a relatively early stage of development, and is still evolving as a mainstream capital markets financing mechanism. The understanding, usage and acceptance of Securitisation varies widely. A basic reason for this may be the relative novelty of securitisation. It has only recently been introduced in our country and does not enjoy the same level of familiarity and recognition as other, more traditional forms of debt and equity financing, among issuers, investors, governmental policymakers or the public. This paper examines the definition of securitisation and various terms used in the process of securitisation. The concept of securitisation is not static but dynamic. It constantly evolves and it is called as financial engineering. Its impact on overall economy, risks and benefits are examined. The paper on securitisation is concluded by its evaluation.

Response to Capitalism and Christianity, American Style, by William Connolly

This article explores the significance of resonance as a mode of social causality in response to William Connolly's book, Capitalism and Christianity, American Style. While applauding Connolly's identification of "affinities of spirituality" as effective in forming American politics, it suggests that the character structure of ressentiment that is encountered in right-wing Christianity and politics may be the result of instability. Examining the economic basis for growth and instability in the creation of dollars in the form of debt lacking an underlying guarantee, it suggests that this instability is felt throughout American society in everyday experiences of credit and debt.

Corporate operating characteristics and capital structure: causality testing in heterogeneous panel data

This article adopts a new technique, developed by Hurlin (2004 Hurlin, C. 2004. Un test simple de l’Hypothèse de non causalité dans un modèle de panel hétérogène (a simple test of the non causality assumption in a heterogeneous panel model). Revue Economique, 56: 3 [Google Scholar]), to test for Granger causality between capital structure and corporate operating characteristics including time-invariant, firm-specific effects in heterogeneous panel data from five US industries over the period 1980 to 2002. Previous studies addressed the issue of whether corporate operating characteristics cause changes in capital structure while our study focuses on the causal linkages between capital structure and corporate operating characteristics. For robustness, we validated the results using the Mixed Fixed Random (MFR) technique developed by Nair-Reichert and Weinhold (2001 Nair-Reichert, U and Weinhold, D. 2001. Causality tests for cross-country panels: a look at FDI and economic growth in less developed countries. Oxford Bulletin of Economics and Statistics, 63: 153–71. [Crossref], [Web of Science ®] , [Google Scholar]). The results indicate that causality test is more revealing than correlation-based analyses. It is clear that capital structure theories are co-existent in different industries. The study provides ample evidence that simultaneity between corporate operating characteristics and capital structure is prevalent with differential results in different industries and forms of debt.

Expert Recommendations and the Evolution of European Best Practices for the Treatment of Overindebtedness, 1984-2010

A series of European experts have weighed in over the past twenty years on the proper way forward for preventing and treating consumer overindebtedness. This paper applies these expert recommendations in an analysis of the multitude of laws establishing (and revising) formal debt adjustment systems in Europe, from the first, in Denmark in 1984, to the most recent, in Greece at the end of July 2010. It first traces and describes in detail the context and content of the various expert recommendations with respect to best practices in treating overindebtedness. Then, it identifies their shared core and tracks their correspondence with the evolving contours of European laws on debt adjustment and overindebtedness relief. The most common shared recommendations are broken into conceptual parts, with detailed examples of how national laws have taken action, advertently or inadvertently consistent with the experts' views, especially in cases where the original laws failed to heed potential dangers and were later reformed to address emerging problems. Areas where some national laws still lag behind the experts' suggestions are pointed out, as well, in order to hold their feet to the fire and challenge the makers of lagging legal policy to update their laws to the state of the art. Like many of the recommendations that it examines, this paper is designed to inform and guide future policy makers as overindebtedness law continues its rapid and dynamic evolution, both within Europe and beyond.

Financial Globalization and Banking Crises in Emerging Markets

Bank crises in emerging economies have been a feature of the recent global crisis, and their incidence has increased in the post-Bretton Woods era. This paper investigates the impact of financial globalization on the incidence of systemic bank crises in 20 emerging markets over the years 1976–2002 using measures of de facto and de jure financial openness. An increase in foreign debt liabilities contributes to an increase in the incidence of crises, but foreign direct investment and portfolio equity liabilities have the opposite effect. A more liberal de jure capital regime lowers the incidence of banking crises, while a regime of fixed exchange rates increases their frequency. The results of the econometric analysis is consistent with the experience of East European and central Asian emerging markets, which attracted a relatively large proportion of capital flows in the form of debt in recent years and have been particularly hard hit by the global financial crisis.

Banks' Great Bailout of 2008-2009

This paper examines government policies aimed at rescuing banks from the effects of the financial crisis of 2007-2009. To delimit the scope of the analysis, we concentrate on the fiscal side of interventions and ignore, by design, the monetary policy reaction to the crisis. The policy response to the subprime crisis started in earnest after Lehman’s failure in mid September 2008, accelerated after February 2009, and has become very large by September 2009. Governments have relied on a portfolio of intervention tools, but the biggest commitments and outlays have been in the form of debt and asset guarantees, while purchases of bad assets have been very limited. We employ event study methodology to estimate the benefits of government interventions on banks and their shareholders. Announcements directed at the banking system as a whole (general) and at specific banks (specific) were priced by the markets as cumulative abnormal rates of return over the selected window periods. General announcements tend to be associated with positive cumulative abnormal returns and specific announcements with negative ones. Our results are also sensitive to the information environment. Specific announcements tend to exert a positive impact on rates of return in the pre-crisis sub-period, when announcements are few and markets have relative confidence in the “normal” information flow. The opposite takes place in the turbulent crisis sub-period when announcements are frequent and markets mistrust the “normal” information flow. These results appear consistent with the observed reluctance of individual institutions to come forth with requests for public assistance.

Contingent Capital with a Capital-Ratio Trigger

Contingent capital in the form of debt that converts to equity when a bank faces financial distress has been proposed as a mechanism to enhance financial stability and avoid costly government rescues. Specific proposals vary in their choice of conversion trigger and conversion mechanism. We analyze the case of contingent capital with a capital-ratio trigger and partial and on-going conversion. The capital ratio we use is based on accounting or book values to approximate the regulatory ratios that determine capital requirements for banks. The conversion process is partial and on-going in the sense that each time a bank's capital ratio reaches the minimum threshold, just enough debt is converted to equity to meet the capital requirement, so long as the contingent capital has not been depleted. We derive closed-form expressions for the market value of such securities when the firm's assets are modeled as geometric Brownian motion, and these result in formulas for the fair yield spread on the convertible debt. A key step in the analysis is an explicit expression for the fraction of equity held by the original shareholders and the fraction held by converted investors in the contingent capital.

Rescuing Banks from the Effects of the Financial Crisis

This paper examines government policies aimed at rescuing banks from the effects of the great financial crisis of 2007-2009. To delimit the scope of the analysis, we concentrate on the fiscal side of interventions and ignore, by design, the monetary policy reaction to the crisis. The policy response to the subprime crisis started in earnest after Lehman’s failure in mid September 2008, accelerated after February 2009, and has become very large by September 2009. Governments have relied on a portfolio of intervention tools, but the biggest commitments and outlays have been in the form of debt and asset guarantees, while purchases of bad assets have been very limited. We employ event study methodology to estimate the benefits of government interventions on banks and their shareholders. Announcements directed at the banking system as a whole (general) and at specific banks (specific) were priced by the markets as cumulative abnormal rates of return over the selected window periods. General announcements tend to be associated with positive cumulative abnormal returns and specific announcements with negative ones. General announcements exert cross-area spillovers but are perceived by the home-country banks as subsidies boosting the competitive advantage of foreign banks. Specific announcements exert spillovers on other banks. Our results are also sensitive to the information environment. Specific announcements tend to exert a positive impact on rates of return in the pre-crisis sub-period, when announcements are few and markets have relative confidence in the “normal” information flow. The opposite takes place in the turbulent crisis sub-period when announcements are the order of the day and markets mistrust the “normal” information flow. These results appear consistent with the observed reluctance of individual institutions to come forth with requests for public assistance.

Criteria influencing debt financing of Indian PPP road projects: a case study

PurposePublic private partnerships (PPP) projects are characterised by highly leveraged capital structure. Lenders who provide the major portion of financing in the form of debt are more concerned with the downside risks and the measures to mitigate the risks. Lenders, thus, look into the risk factors and mitigating measures that could influence the projects debt servicing capability while making the credit decisions. The purpose of this paper is to identify the various aspects of PPP road projects that lenders look into while making the decisions to extend project finance loans to PPP road projects.Design/methodology/approachCase study research with four Indian lending institutions provides primary evidences from the interviews on the aspects considered during credit decision making. The primary evidences are collaborated with secondary evidences such as loan proposal and information memoranda of the PPP road projects undertaken by the case study organisations.FindingsThe study identifies the various aspects of PPP road projects, categorised into six major dimensions. The aspects and dimensions provide a theoretical framework to measure the risk profile of PPP road projects from debt‐financing perspective.Research limitations/implicationsAdditional cases can be undertaken to validate the findings and increase the usefulness of the framework to practitioners and enhance their general application.Practical implicationsThe framework can be useful while making debt financing decisions in assessing how desirable the project is from a debt‐financing perspective.Originality/valueThe work is novel providing insights into debt financing of PPP road projects in India and will be of interest to sponsors while structuring the financial package.

Financial Globalization and Banking Crises in Emerging Markets

Bank crises in emerging economies have been a feature of the recent global crisis, and their incidence has increased in the post-Bretton Woods era. This paper investigates the impact of financial globalization on the incidence of systemic bank crises in 20 emerging markets over the years 1976-2002 using measures of de facto and de jure financial openness. An increase in foreign debt liabilities contributes to an increase in the incidence of crises, but foreign direct investment and portfolio equity liabilities have the opposite effect. A more liberal de jure capital regime lowers the incidence of banking crises, while a regime of fixed exchange rates increases their frequency. The results of the econometric analysis is consistent with the experience of East European and central Asian emerging markets, which attracted a relatively large proportion of capital flows in the form of debt in recent years and have been particularly hard hit by the global financial crisis.

Cittadini-creditori: municipi e mercati finanziari in Spagna durante il primo trentennio del Ventesimo secolo

- Modernisation is a complex process that involves several aspects and different scientific disciplines. Social and institutional modernisation, particularly that of municipalities, which took place between the late 19th century and the early of 20ths, involved significant changes over wide areas. These areas range from political and institutional internal reorganisations, to the application of new mass services and infrastructural networksystems, as well as basic social and organizational changes. In the following pages we study the measures taken by a wide segment of Spanish municipalities as part of their internal modernization processes shortly after the critical events of the late 19th century. To do this, they made use of the emerging financial markets by raising additional funds, and more precisely, by regularly emitting public debt. In this article we will show how the use of formal market debt involved certain preconditions to be carried out by the emitting organisms, and the underlying advantages to be had. Financial leverage obtained by using market facilities became a powerful instrument for local change in Spain that where up to that time no change had been possible. But the financial crisis of the 1930s and the later Civil War set a downward course in the modernisation process and even in the use of financial markets by Spanish municipalities.

Making widespread use of municipal bonds in Scotland?

This article considers the possibilities for widespread use of municipal bonds to finance public sector infrastructure, with particular reference to Scotland. Provided the various control measures recommended in this article are in place, there can be few objections either in principle or practice and they would be a highly desirable secure form of debt, so helping ease the current credit crunch.

Debt and household finance: evidence from the Financial Diaries

The Financial Diaries data-set is a unique, new set of year-long daily income, expense and financial transactions for households from three different areas of South Africa. These data show that over-indebted households (those that spend 20 per cent or more of their gross monthly income on debt) do not fit one homogeneous profile. Formal debt tends to be responsible for over-indebtedness in the urban areas, while in the rural areas the cause tends to be informal debt. In the urban areas high indebtedness is more prevalent among medium-income and high-income households, whereas in the rural areas it occurs at all income levels. High indebtedness in grant-dependent rural households tends to be persistent, whereas in wage-dependent urban households it is often short-lived. These findings present a new financial picture of poor rural populations that is unlikely to be touched by recent policy measures to address over-indebtedness.