High Debt Research Articles

Threats and the Public Constraint on Military Spending

AbstractThe public places an important constraint on funding security in Europe, and austerity risks making the constraint tighter. Several recent studies show that curtailing military spending is a popular way to reduce debt in Europe. Yet it remains unclear if military spending aversion persists when threats are salient. We fielded an original survey experiment in Italy weeks before the Russian invasion of Ukraine to examine how information about security threats influences military spending preferences and fiscal trade-offs. We found that information about threats increases support for military spending. To validate the survey experiment, we recontacted and remeasured our respondent's preferences three weeks after Russia's invasion and find evidence consistent with our initial experiment. Our findings suggest that, while public opposition to military spending remains high in Italy, external threats dampen the public's opposition to military spending, even under high debt burdens.

The limits of limitless debt

While low real interest rates and issuing public debt in fiat money safeguard against rising sovereign debt-to-GDP ratios, evidence shows that high debt often precedes default, and credit spreads may not signal imminent risk.We offer a simple way to model the trade-offs using local martingales. On the one hand, it acknowledges that large debt overhangs tend to raise default risks. On the other hand, it allows sovereigns to roll over debt regardless of long-term fiscal solvency. The combination allows credit spreads to stay very low for decades, eventually spiral out of control and trigger a default. Hence, neither the reassurance of low spreads nor the alarm from growing overhang should automatically prevail.To illustrate the trade-offs, we review the ebb and flow of US sovereign debt burdens since World War II. Between record peacetime debt-to-GDP ratios and weakened fiscal discipline, an exemplary double-or-triple-A credit rating for the US no longer seems justified. Moreover, the current outlook is poor, with debt growing much faster than GDP and scant prospects of contraction.

Corporate Financial Risk from the Perspective of Financing Structure: Evidence from Sunac China

With the rapid development of the real estate economy, the importance of financial risk analysis for the survival and development of enterprises has become increasingly apparent. In addition, it has also attracted many concerns from the academic and industry circles. On this bais, this study initially compiles the sources and sums of money used over the previous five years to develop China's real estate, and extensively searches and organizes China's real estate policies. Taking Sunac China as an example, by analyzing Sunac China's financial statements to judge its financing characteristics and structure, according to research, China's biggest issues with real estate financing are that China's real estate enterprises generally have high debt ratios, single financing models and imperfect systems. Moreover, suggestions are put forward on improving real estate finance legislation and optimizing enterprise management capabilities. It is hoped that these results can provide reference opinions for promoting the diversified development of real estate financing models.

Unveiling the Role of Investment Tangibility on Financial Leverage: Insights from African-Listed Firms

The asset structure of a firm plays a pivotal role in determining its leverage. A higher proportion of physical assets is often associated with high debt ratios. This study explores the impact of investment tangibility on financial leverage, examining both tangible and intangible investments. Using a dynamic panel data model estimated through the two-step system generalized method of moments (GMM), we analyse a dataset encompassing 815 non-financial listed firms from 22 African stock markets. The results show that African firms have higher inclinations to invest in physical assets. We found a statistically significant negative relationship between leverage and tangible and intangible investments. The findings indicate that African firms tend to maintain lower leverages regardless of whether they invest in tangible or intangible assets. The observed relationship aligns with the hypothesis that high-growth firms, in their expansion efforts, strategically tend to opt for low debt to mitigate the agency costs associated with debt and to help prevent underinvestment. This outcome underscores the interconnected nature of financing and investment decisions. This research contributes to the literature on financial leverage and investment by dissecting investments into tangible and non-tangible components and highlighting their distinct impacts on leverage. Moreover, it provides empirical evidence for previously unexplored African firms, shedding light on the reasons behind the relatively low leverage levels observed in African firms.

Government debt and fiscal multipliers in the era of population aging

Abstract Over the past decade, the most salient changes in macroeconomic conditions in developed economies have included rising government debt and population aging, which are strongly correlated with each other. This paper investigates fiscal multipliers by disentangling the effects of population aging from those of government debt. Our analysis, which uses heterogeneous panel data from 24 OECD economies, shows that while fiscal policy is ineffective for economies with high-debt levels, it is effective for economies with low-debt levels. Furthermore, the estimation results reveal that fiscal policy is ineffective for aged economies, regardless of the level of government debt. However, for nonaged economies, while fiscal policy leads to negative effects on output in times of high debt, its positive effects are more pronounced in times of low debt. Our results suggest that, for the effective implementation of fiscal stimulus policies, policy-based stimulation of employment in the labor market is essential.

Interactive effects of financial leverage with asset-light strategies: The agency theory perspective

Existing research has overlooked the interaction of debt in the financial assessment of asset-light strategies. This research assesses how financial leverage (high or low long-term debt) interacts with management contracts as well as franchising to exert an impact on the value of hotel companies. Panel data of 195 observations in 2007–2019 were analysed with ordinary least square, robust regression, stepwise regression and quantile regression. The research findings clarify the impacts of asset-light strategies by differentiating the previously discovered U-shaped impact into a U-shape for management contracts and an inverted U-shape for franchising. Furthermore, when financial leverage is introduced, the above relationships hold at a low leverage level; but are weakened at a high level. Lastly, these U-shapes are asymmetrical, being more responsive to asset-light strategies than when there is no leverage interaction. This research hence clarifies agency costs and their relevance to asset-light strategies with varying financial leverage.

Public debt shocks and macroeconomic stabilization in Nigeria: A new Keynesian approach

The study examined the impact of public debt shocks on Nigeria’s macroeconomic stability. This study aimed to evaluate the role of increasing public debt on macroeconomic variables in Nigeria using a New Keynesian approach to evaluate the effect of both external and domestic debt on macroeconomic stability and the impact of debt service on revenue on Nigerian macroeconomic stability. The dynamic stochastic general equilibrium model was adopted as an analytical tool using the Bayesian approach in a Matlab R2021a in a Dynare 4.6.4 environment to determine the influence of public debt shock on macroeconomic stability in Nigeria. It was discovered that a positive relationship exists between output (economic growth) and foreign debt in Nigeria within the period under review. It was also found that debt service to revenue ratio, interest rate, and domestic debt have a negative relationship with output (economic growth). As a result, an increase in external debt will positively impact output (economic growth). In contrast, an increase in the debt service to revenue ratio, interest rate, and domestic debt will have a negative transmission effect on Nigeria’s macroeconomic stability. High debt service would impede growth by reducing public resources and productive investment that would otherwise be used to encourage growth. According to this result, external debt is the best option for capital projects rather than domestic debt, which is likely to affect the business environment negatively. This study is practically relevant to government, investors, scholars, and policymakers, especially those around fiscal policy, to guide them in advising the government on where to borrow for its capital projects when needed

PENGARUH CORPORATE GOVERNANCE TERHADAP CORPORATE FINANCIAL FRAUD PADA PERUSAHAAN MANUFAKTUR YANG TERDAFTAR DI BEI

This study aims to determine the effect of board size, financial expertise, board independence, rationalization, female board, firm size, leverage ratio (LEV) and asset ratio (ROA) on corporate financial reporting in manufacturing companies listed on the Stock Exchange in 2016 - 2020 The sampling technique used is purposive sampling with a final sample of 80 companies. The analysis used in this research is descriptive statistics and panel regression. The results of this study indicate that the size of the board, financial expertise, board independence, rationalization, and do not have a significant effect on the size of the company's finances. While the financial board has a significant influence on fraud, which means a high number of company ownership can reduce the possibility of an incident, then the leverage ratio (LEV) indicates a high debt so there is a high probability of fraud in the company, assets (ROA) has a high positive significant influence ROA can become pressure for the company so that it is likely to take company actions.

COMPARATIVE ANALYSIS OF STOCK RETURNS OF ZOMBIE FIRMS AND BIST 30 FIRMS WITH STATISTICAL METHODS

The concept of ‘zombie’ companies was first proposed by Kane in 1987. The three common features of these companies are listed as follows; high debt level, low profit rate and productive companies reduce their productivity. Zombie firms are defined as companies with persistently low profitability, high leverage, or negative equity capital. However, instead of defining a business as a zombie with single company data, it would be more accurate to look at bank and company level data that also show the lending relationships between credit institutions and corporate debtors. (Álvarez et al., 2023). 
 In our study, companies having negative equity capital for at least three consecutive years were considered zombies, whereas these companies were selected from the ISO 1000 industrial enterprises. Particular attention was paid to ensure these companies continued to be traded on BIST. Additionally, BIST 30 companies were analyzed and stock returns and statistical evaluations were also analyzed.

The Effect of Debt to Equity Ratio on Earnings Management With Good Corporate Governance As The Moderating Variable

This study aims to empirically prove the effect of Debt to Equity Ratio on Earnings Management with the moderating variable of Good Corporte Governance represented by the composition of the board commisioners and the board commissioner meeting frequencies. This study employs a quantitative approach utilizing secondary data of the financial report and annual reports as the main data source. The population in this study include financial companies listed on the Indonesian Stock Exchange (IDX) between 2019 and 2021, from which the 77 samples were selected through purposive sampling, the data are analyzed by multiple regression processed by SPSS software. The results of this study exhibit that high Debt to Equity Ratio is likely to result in high earnings management. Good Corporate Governance represented by Composition of Board Commissioners does not dwindle the effect of Debt to Equity Ratio on Earnings Management while Good Corporate Governance represented by Board Commissioner meeting frequencies reduce the effect of Debt to Equity Ratio on Earnings management.

The Market Reaction to Repurchase Announcements

This paper investigates the drivers of the market’s reaction to share repurchase announcements in the UK and the related abnormality in stock performance. It uniquely captures the impact of globalisation in tandem with a variety of firm-level and macro-level determinants. We undertake multivariate OLS regression to test the determinants of the market’s reaction and find a negative influence when repurchases are tax-friendlier than dividends if there is high debt exposure and economic globalisation is rising, with a positive influence when the company has a history of distributing above average dividends. To quantify the short-term price abnormality, we employ event study analysis, and the findings compute positive (insignificant) stock price abnormality for nonfinancial (financial) firms. For long-term stock price abnormality, we compare against the FTSE 100 by computing annual geometric stock performances. The findings indicate a negative (insignificant) stock price abnormality for nonfinancial (financial) firms. The results can aid corporate management in improving repurchase timing, aid in the decision making of financial practitioners when trading or investing in repurchasing firms, and assist policymakers in mapping more efficient fiscal and cross-market trade frameworks.

Unraveling the impact of bank loan spread on corporate innovation: Evidence from China

This research explores the innovation dilemmas inherent in large listed companies and state-owned enterprises that are often marred by suboptimal innovation outputs due to a deficiency of intrinsic motivation. It aims to unravel the intricate role of loan spreads as the cardinal influencers of innovation within such entities. Dissecting the nuances of loan spreads the disparity between corporate bank loan rates and the benchmark rate set by the People’s Bank of China reveals that alterations in loan spreads directly influence firms’ inclinations to launch high-risk, high-reward innovative ventures by manipulating investment trajectories through cash flow modifications. The empirical findings corroborate that ascending loan spreads have a stifling effect on innovation, particularly for firms with high debt or financial leverage.

Sustainability of Fiscal and Monetary Policies under Fixed Exchange Rate Regime in Jordan

This study aims to analyze the sustainability of fiscal and monetary policies and the relationship between them under a fixed exchange regime that is characterized by high budget deficit and public debt in the past four decades. This study is critical for countries adopting a fixed exchange regime to achieve national priorities. Annual data from 1980 to 2020 were employed using Markov Switching Modelling to assess the sustainability of fiscal and monetary policies by identifying the main dimensions of fiscal and monetary policy that affect their sustainability. The findings show that fiscal policy is dominated by unsustainability, as the number of years of unsustainability was estimated to be more than four times the number of years in which it witnessed sustainability. Regarding monetary policy, sustainability was dominant, as it was found that the number of years of sustainability is about 1.3 times the number of years of unsustainability. Under a fixed exchange rate, there is no evidence confirming that there is sufficient coordination between fiscal and monetary policies. The study suggests that policymakers should follow complementary and balanced fiscal and monetary policies to achieve sustained economic growth.

An application of artificial neural networks in corporate social responsibility decision making

SummaryNeural networks in deep learning are changing the way we interact with the world. This paper focuses on building a logit artificial neural network (ANN) and through it finds out the factors affecting the decision to join corporate social responsibility (CSR) of firms. This study contributes to suggesting new directions for research in the artificial intelligence (AI) era on the relationship between corporate governance and CSR. The dataset of 817 Taiwanese electronic firms is analyzed for the period 2014–2020. The empirical results show that when the power of the board of directors, supervisors, and CEOs are higher, firms do not choose to participate in CSR. The independent board has not yet promoted its corporate oversight of CSR participation. The decision not to participate in CSR of the firms is made when they are more equipped with the background of accounting, finance, and law. Only firms with higher debt, asset value, and profitability are willing to join CSR. These research results suggest some important points for future policy reforms towards sustainability.

The “practical mode of teaching” and the state of English studies in the United States

AbstractIn the United States, student eagerness to pursue concentrated study in English literature as well as in other humanities fields has plummeted after the financial crisis of 2008. Envisioned strong career demand and high wages upon graduation are major drivers of program choices, and such demand is articulated through wealthy industries that can also offer funding to universities. That said, it becomes self‐fulfilling to contribute to the cliché of the humanities perpetually being in crisis, which occurs when humanities specialists begin valuing their own fields by the measures celebrated by other programs. Is it possible to take the current situation and leverage our strengths toward constructive innovations in English studies that remain true to our own values? To address this question, we first summarize three key ways in which the situation in the United States is distinct from, yet connected to, that of most other countries: extensive decentralization of education policy and funding; high student debt; and opposition to education in Diversity, Equity, and Inclusion and the humanities in general. After reflecting on the opportunities for greater global connection posed by the pandemic‐driven shift to online learning, we discuss some of our own efforts to build a sense of local and international responsibility in our students. The skills, knowledge, and openness to other cultures and identities that we nurture through the literature we teach and the socially invested pedagogy we practice allow us to incorporate ethics and empathy into the design of international economics and to help ensure that a sense of local and global responsibility is part of its operation.

THE HIGHER VALUATION OF INVESTMENT RISK AND MORE EXPENSIVE CAPITAL IN POLAND AS A THREAT TO THE DEVELOPMENT OF POLISH ENTERPRISES

For years, the cost of capital in Poland has been among the highest in the EU. While in 2005–2015, interest rates on long-term loans for enterprises in Czechia and Estonia were at levels similar to Germany, in Poland, rates were always higher – in 2009–2013, even twice as high. Throughout the 18-year analysis period, enterprises in Poland paid 35% more interest than those in Czechia, and 41% more than in Estonia. Over the entire period, Polish enterprises paid PLN 57 bn more interest than if rates had been the same as in Czechia, PLN 74 bn more than in Estonia, and PLN 118 bn more than in Germany. This has resulted in higher debt among Polish enterprises, along with lower levels of innovation, creditworthiness, competitiveness, salaries, tax base, and investment profitability, and thus slower development and weaker future development prospects for the Polish economy.

RETURN ON ASSETS, DEBT TO EQUITY RATIO, TAX AVOIDANCE TERHADAP NILAI PERUSAHAAN

The purpose of this study is to provide empirical evidence about the factors that affect firm value in Indonesia. Those factors are return on assets, debt to equity ratio, current ratio, dividend payout ratio, tax avoidance, and firm size. This study uses a population of non-finance companies that are listed in Indonesia Stock Exchange in the year 2019-2021. The selection sample in this study research was based on purposive sampling technique with a total 237 data samples used. This study uses a multiple regression model. The results of this study indicate that the return on assets has a positive effect on firm value, the greater return on assets can indicate that management is doing a good job thereby increasing firm value. The results of the debt to equity ratio have a positive effect on firm value, a high debt to equity ratio reflects that the company has a long-term investment strategy so that investors will invest in the company so that it will increase the firm value. The results of tax avoidance have a positive effect on firm value, tax avoidance can indicate a manager's personal motivation to manipulate company profits and provide false information to investors so that less tax avoidance can increase firm value. Meanwhile, the current ratio, dividend payout ratio, and firm size have no effect on firm value.

Stock-flow adjustments, public debt management and interest costs

Data on government debt and deficits are not mutually consistent because they are obtained from cash and accrual accounting, respectively. Such aggregates are reconciled through accounting items known as stock-flow adjustments. In spite of the evidence from several studies that they are dependent on macroeconomic indicators, empirical analyses of debt sustainability disregard stock-flow adjustments. We study thirty-two economies over the period 1999–2019, finding that stock-flow adjustments are a hidden component of interest costs, largely produced by governments’ debt management activities. An alternative, stock-flow consistent variable measuring interest costs is larger, more volatile and sensitive to macroeconomic indicators than standard interest costs, featuring dynamics strongly influenced by US interest rates. This broader measure of interest costs rises with debt levels in high-debt countries, while standard interest costs do not. Hence, when ignoring the non-linear responses captured by stock-flow adjustments we underestimate the acceleration in debt costs caused by higher debt.

Do geographic distances proxy a high probability of foreign divestment? Evidence from Japanese multinational firms

AbstractWe aim to provide an unambiguous explanation for the positive influence of the geographic distance between a firm's home and host country on divestment decisions of Japanese multinational firms’ outbound merger and acquisition (M&A). Our analysis of 868 acquisitions made by 496 firms in 45 countries and regions from 2005 to 2015 highlights the importance of drawing a clear distinction among various foreign divestment motives before inferring the impact of geographic distances rashly, especially whether it is failure‐driven or global business strategy‐driven. We further find that its impact hinges on parent firm‐ and deal‐level attributes, that is, geographic distance is less salient for large firms, young firms, and foreign operations under a complete control mode; however, the opposite was the case for firms with a high debt burden.

The Determinant Factors of Capital Structure in Cyclical Sector: Empirical Study from Indonesia

This study aims to test seven internal factors determining capital structure using trade-off theory in the consumer cyclical sector in Indonesia. The research sample used a purposive sampling of 15 companies with 225 observations. Generalized Method of Moment analysis method for panel data. The research found that significant firm growth and size were proven. Tangible assets, non-debt tax shield, growth opportunity, and significant earning volume were not proven, and profitability was not significant. Investors can make the right decisions regarding ownership of company shares to sell or buy. In addition, potential investors can invest their funds by considering the company's high debt costs, which results in financial distress costs. The findings provide an overview for company managers in making decisions to achieve an optimal capital structure.