High Debt Levels Research Articles

Financial Resiliency of the Top Three Listed Companies in the Philippine Stock Exchange

The adverse effects of the ongoing pandemic caused big corporations to incur financial losses, which resulted in shrinkage of sales, increasing costs, and retrenchment. The entities' financial resilience was questioned, challenged, and business operations were paralyzed during the pandemic. Based on their market capitalization, this paper examined the top three listed companies in the Philippine Stock Exchange’s selected financial ratios if there were significant differences before and during the pandemic. Quantitative research using secondary data was used to quantify the mean and paired t-test based on the selected financial ratios. The results revealed that the current ratio, quick ratio, debt ratio, debt to equity, asset to equity, net profit margin, and return on assets had no significant effect on financial performance before and during the pandemic. Eventually, the return on equity showed a significant effect in the study. Therefore, presenting the findings, the study concluded that these companies were inefficient in generating profits and had a significantly high level of debt during the Covid-19 pandemic. Furthermore, a discussion about the benefits for the policymakers, potential and existing investors, and future researchers was also provided.

A fiscal capacity with endogenous access in a monetary union

We study the stabilization properties and welfare implications of a fiscal capacity in a New Keynesian model for a monetary union. A novel feature of the model is that access to the fiscal capacity is conditional on a country’s public debt accumulation being sufficiently low. Likewise, the national fiscal effort to stabilize debt is more ambitious at higher debt levels. We show that the fiscal capacity reduces union-wide macroeconomic variability and raises union-wide welfare by reducing the incidence of regimes with large (pro-cyclical) fiscal consolidations. Welfare gains are higher under greater trade openness and price stickiness. • The macroeconomic stabilization properties and welfare implications of a central fiscal capacity in a monetary union is studied using a two-country New Keynesian model. • Access to the fiscal capacity is endogenously determined by member states’ public finances: only if the change in the debt-to-GDP ratio is sufficiently low is access granted. • Debt stabilization efforts by the government also depend on public finances: if the debt-toGDP ratio exceeds a certain threshold, debt stabilization efforts are intensified. • The fiscal capacity can enhance welfare for both member states of the monetary union. By relaxing the government budget constraint, the fiscal capacity prevents a sharp pro-cyclical fiscal tightening during recessions that would otherwise worsen economic conditions. • Greater trade openness and price stickiness increase the welfare gains from the fiscal capacity.

A Green Fiscal Pact for the EU: increasing climate investments while consolidating budgets

ABSTRACT To ensure sufficiently rapid decarbonization to meet the Paris Agreement goals, investments in green infrastructure will have to increase by an estimated 2% of world GDP annually, according to the International Energy Agency. A significant part of that investment will need to be funded with public resources – raising major tensions between consolidation needs after the high deficits during the pandemic and the need to increase investments. We consider this trade-off in the European Union, which has set itself one of the most ambitious climate targets in the world. The additional public investment required to meet the European Union’s climate goals is around 0.6% of GDP annually during this decade, which might increase if the green transition is accelerated due to Russia’s invasion of Ukraine. Budget consolidation can be done at a moderate pace in line with EU fiscal rules if those rules are interpreted flexibly, but past consolidation episodes resulted in major public investment cuts. A ‘green golden rule’ –excluding net green investment from the fiscal indicators used to measure fiscal rule compliance– is proposed as the most promising option to address this tension and would provide a positive incentive to undertake such investments. However, the uncertain growth impact of green public spending and the risks to growth from climate change create difficult trade-offs in fiscally weaker countries. Better regulatory policy and a higher price on emissions should in parallel incentivise private green investment and reduce public costs. These ingredients should be combined to form a ‘Green Fiscal Pact’. Key policy insights Public investments tend to be cut in fiscal consolidation episodes by vote-maximising politicians and thus need to be treated differently in fiscal rules. Increasing green public investments will be difficult in the upcoming consolidation period. A ‘green golden rule’ –excluding net green public investment from the fiscal rule indicators– is proposed as the best option to incentivise public climate investment. Policymakers need to underpin such a rule by clearly defining what constitutes emission-reducing climate investments and monitoring compliance. Fossil fuel subsidies should also be eliminated, and private climate investment should be incentivised through appropriate taxation and regulation. Climate change may tighten budget constraints in countries with already high debt levels because of its negative growth effects, so these countries should delay the introduction of the green golden rule.

Predicting financial crises: debt versus debt service ratios

ABSTRACT The academic literature and the popular press emphasize high levels of household debt as a threat to financial stability. Using Canadian data, we show that the household debt service ratio is a better predictor of financial distress than measures focused on debt ratios. We construct a new financial vulnerability barometer for the Canadian economy in which the debt service ratio improves its ability to predict periods of financial vulnerability. We also show that new borrowing, while increasing economic growth in the short run, leads to an increase in debt servicing which contributes to slumps in activity and to financial instability. Finally, we show that the debt service ratio also has significant out-of-sample predictive power for growth and financial crises.

Can ESG certification help company get out of over-indebtedness? Evidence from China

Using Chinese listed companies from 2007 to 2019 as a sample, we employ a fixed-effect panel model to provide empirical evidence between ESG and company over-indebtedness. The results show that, benefiting from ESG certification, both firms' leverage scale and incidence of over-indebtedness are inhibited. After controlling for potential endogeneity and measurement bias, this finding remains robust. Heterogeneity analysis shows that the positive effect of ESG on company over-indebtedness is affected by both micro and macro factors, showing more significant impact for companies with higher debt levels, non-innovative companies, non-highly polluting companies, and companies in eastern regions. Moreover, mechanism analysis suggests that the driving force behind this phenomenon is that ESG certification effectively relaxes financing constraints and enhances stock liquidity. Moreover, we discuss the economic implications of the positive effect of ESG on company over-indebtedness and find that the resulting moderating effect promotes companies' cross-regional investment and improves investment efficiency. This paper has important practical implications for revealing the value of ESG certification and provides useful insights into ways of getting out of over-indebtedness for companies in emerging market countries.

Debt Crisis and National Bankruptcy: Evidence from Sri Lanka

On May 19th this year, the central bank governor of Sri Lanka confirmed that the country could not repay its national debt due on April 18th in time (Jayasinghe & Pal, 2022). For the first time, Sri Lanka had defaulted on its sovereign debt since independence from Britain in 1948. It also announced its inability to continue paying for fuel (Jayasinghe & Pal, 2022). On July 6th, Sri Lanka declared national bankruptcy (Athas et al., 2022). This paper examined what led to Sri Lankan debt crisis and subsequent national bankruptcy and how the country could save itself from its situation. It analyzed secondary data from various published sources like news articles, journal articles, websites, and books. The study found that the country had high levels of external debt that outrun revenue. It also depends highly on imports to supply goods into the market. Its debt crisis was also influenced by economic shocks like the Russian-Ukraine war and the Covid-19 pandemic, which impaled production. Furthermore, the country's economic regulations were poor, making it unable to establish effective taxation, debt, and foreign reserve management systems. The company could improve its economic conditions by getting economic assistance from other countries and the IMF in the short term. Moreover, it also needs to restructure its foreign reserves and borrowings management systems.

Sustainability of the regional financial system: a case study of the Northwestern Federal District.

Background: This article provides an assessment of the sustainability of Russian regions' financial systems. The study is based on the methods of generalization and synthesis, correlation-regression analysis, and multivariate classification. Since the structure of the regional financial system is complex, several works are devoted to studying its sustainability issues. The relevance of the study topic is confirmed by the lack of a systematic approach to assessing the integral index of sustainability and the possibility of using various tools in determining the complex indicator. Methods: This methodology with application of mathematical statistics methods makes it possible to assess the financial system sustainability in four sectors, to include the leading indicators in the assessment, and to identify regions with extreme values of debt burden indicators. The method was tested for the regions of the Northwestern Federal District (NWFD) for the period 2010 - 2019 to classify the regions according to three levels of debt sustainability. Data collection from the 1 st January to 30 th April 2022 included statistical data from government open internet sources, sectors studied relate to government, and municipal budgets in the NWFD. Authors analyzed regional debt sustainability indicators and identified themes in the field of sustainability studies for the NWFD. Results: An increased level of financial system sustainability was observed among the NWFD regions in the corporative and personal finance sectors, indicating a significant contribution of businesses and households to maintaining the balance and sustainability of the financial system in Russia as a whole. The results of the study also identified that the NWFD regions belong to three clusters: cluster 1 - high debt sustainability; cluster 2 - medium debt sustainability; and cluster 3 - low debt sustainability. Conclusions: The study results allowed the identification of regions with a constantly high level of debt, financial, and corporative sustainability.

Debt and economic growth in Asian developing countries

External debt levels have increased dramatically over the past decades. Many Asian developing countries are trapped in unprecedented levels of indebtedness while utilizing a high level of external debt for fiscal activities. This study empirically investigates the impact of such debt levels by estimating the appropriate threshold of external debt to GDP on economic growth for a sample of 16 Asian countries during the years 1980 to 2016. The outcomes indicate that external debt negatively and significantly impacts growth in most of these countries. Debt to GDP threshold construction revealed ten countries with a threshold below 30%, three countries in the range between 30%–60%, two countries in the range between 60%–90%, with only Thailand exceeding a 90% threshold. The fiscal discipline of targeting an appropriate debt to GDP ratio can serve as a guide to optimizing sustainable economic growth for countries in the Asian region. That is, appropriate ratios would allow flexibility in the use of fiscal instruments to counter any future incoming economic shocks.

TRANSFORMATION OF GLOBAL CAPITAL MARKETS UNDER THE INFLUENCE OF MILITARY AGGRESSION AGAINST UKRAINE

The Russian Federation, which started the war against Ukraine, since February 24, 2022, has destabilized the supply of many goods and resources, and has also significantly affected financial and investment activities in the world. The scale of the conflict between Ukraine and the Russian Federation has gone beyond local wars and is becoming a new civilizational challenge. In this regard, the global economy and international capital markets are being significantly transformed, the risks of trade, economic and financial and investment cooperation in the world are under significant threat. At the same time, global capital markets entered 2022 at peak values, but the achievement of 2021 was completely leveled. The global investment environment has largely destabilized, the budgetary and business losses in the world from the war have become enormous. Global capital markets, especially the securities market, reacted very sensitively to the war in Ukraine, dropping significantly. Thus, the leading US and world index S&P 500 has fallen by 17% since the beginning of the year; The world's leading technology index, the NASDAQ Composite, is down 28% year-to-date. The European EURO STOXX 50 indices are also down 15% since the beginning of the year. At the same time, the general trends are downward, pointing to their further decline. The world's most popular and most capitalized crypto assets have also significantly lost their value, declining significantly over the last 3-4 months of 2022, reinforcing their reputation as too volatile and speculative asset. Ukrainian large companies in the international capital markets under the influence of hostilities also significantly lost their value and liquidity. Their capitalization on international stock exchanges has significantly decreased since the beginning of the war (approximately 2-1.7 times). Trends in the leading global capital markets suggest that the war in Ukraine has significantly reduced the activity of international investors in the capital markets and "appetite for risk assets." Most investors try to invest in safer assets under such conditions. The supply of many resources and goods on the world markets does not correspond to the level of demand due to the military actions on the territory of Ukraine, which in turn deforms the investment and financial global markets. Excess liquidity is transferred to goods and companies that produce corresponding scarce resources. In the future, this significantly increases the price level, intensifying inflationary processes in the world. Oil-import dependent countries are expected to face widening budget and trade deficits, as well as rising inflationary pressures. Deteriorating external financing conditions could accelerate capital outflows and exacerbate growth constraints in countries with high levels of debt and significant financing needs. Existing challenges could lead the world and global capital markets to a global debt crisis. For Ukraine, which is in a state of war, when investments have been suspended and economic processes have been reduced, significant international assistance is needed, especially financial and economic (financial technical assistance, grants, preferential loans, cancellation of public debts, etc.). In order to overcome the consequences of war and global destabilization, in our opinion, it is necessary to form an updated international system (program) of relations and fair financial and investment support, especially for Ukraine, which suffered the most from aggression, as well as for the poorest countries of the world that are experiencing significant socio-economic the problems of this war.

Sustainability of the regional financial system: a case study of the Northwestern Federal District.

Background: This article provides an assessment of the sustainability of Russian regions' financial systems. The study is based on the methods of generalization and synthesis, correlation-regression analysis, and multivariate classification. Since the structure of the regional financial system is complex, several works are devoted to studying its sustainability issues. The relevance of the study topic is confirmed by the lack of a systematic approach to assessing the integral index of sustainability and the possibility of using various tools in determining the complex indicator. Methods: This methodology with application of mathematical statistics methods makes it possible to assess the financial system sustainability in four sectors, to include the leading indicators in the assessment, and to identify regions with extreme values of debt burden indicators. The method was tested for the regions of the Northwestern Federal District (NWFD) for the period 2010 - 2019 to classify the regions according to three levels of debt sustainability. Data collection from the 1 st January to 30 th April 2022 included statistical data from government open internet sources, sectors studied relate to government, and municipal budgets in the NWFD. Authors analyzed regional debt sustainability indicators and identified themes in the field of sustainability studies for the NWFD. Results: An increased level of financial system sustainability was observed among the NWFD regions in the corporative and personal finance sectors, indicating a significant contribution of businesses and households to maintaining the balance and sustainability of the financial system in Russia as a whole. The results of the study also identified that the NWFD regions belong to three clusters: cluster 1 - high debt sustainability; cluster 2 - medium debt sustainability; and cluster 3 - low debt sustainability. Conclusions: The study results allowed the identification of regions with a constantly high level of debt, financial, and corporative sustainability.

The democratic (dis)advantage: The conditional impact of democracy on credit risk and sovereign default

AbstractMany have argued that democracies are able to make credible commitments to repay their debts and consequently enjoy higher sovereign credit ratings. In contrast to this expectation, I argue that the advantage of democracies in credit ratings is conditional on the countries' level of financial vulnerability and adjustment needs. Because democracies have more diffuse decision‐making and are more accountable to the public, they encounter greater difficulty than autocracies in passing unpopular economic adjustment measures. Thus, I argue that democracies with high debt levels and low foreign reserve assets experience worse credit outcomes, whereas democracies with low vulnerability experience more positive outcomes. In a sample of up to 96 developing countries, I show that democracies have worse credit ratings and CDS Spreads and are more likely to default than their autocratic counterparts when foreign reserves are low relative to external debt. Notably, I also show that large debt burdens increase credit risk mainly in more democratic countries. I further test the causal pathway of the democratic advantage by constructing democracy scores of “market‐friendly” and “adjustment‐difficulty” democracy, finding that democracy worsens debt outcomes due to adjustment difficulty. These findings help to revise and clarify the causal logic surrounding the democratic advantage hypothesis.

Predicting future performance and dividend policy by asset revaluation and leverage

This study aims to examine the effect of asset revaluation on the company's future performance and dividend policy through leverage as a mediating variable. Financial statements play an important role as a source of information for stakeholders in predicting the company's future performance. Stakeholder interest in dividends is limited by biased information about the company's future performance through leverage levels and asset revaluation results that can be handled through financial statements in decision making for dividend distribution. Therefore, this study supports agency theory and dividend policy theory. The sample of this research is 205 financial statements of companies listed on the Indonesia Stock Exchange for the period 2012-2019. The analytical method used is Path Analysis. The results show that an increase in asset revaluation reduces the company's level of leverage and future company performance, and an increase in the benefits of asset revaluation increases the company's dividend policy. The increase in leverage has a positive contribution to the company's performance in the future but does not have a significant effect on dividend policy due to the high level of company debt. Meanwhile, leverage does not mediate an increase in asset revaluation on future company performance and dividend policy. This study contributes to the improvement of the model to predict the company's future performance by implementing business strategies on asset revaluation and leverage.

Evergreening

We develop a simple model of relationship lending where lenders have incentives for evergreening loans by offering better terms to less productive and more indebted firms. We detect such lending behavior using loan-level supervisory data for the United States. Low-capitalized banks systematically distort firms’ risk assessments to window-dress their balance sheets. To avoid further reductions in their capital ratios, such banks extend relatively more credit to underreported borrowers. We incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening affects aggregate outcomes, resulting in lower interest rates, higher levels of debt, and lower productivity.

Local government audit and municipal debt risk: Evidence from audit reform in China

The high level of local government debt surged during the past years and became a serious policy concern in China. This paper provides evidence supporting the positive effect of local government audits on municipal debt risk. Using the 2015 audit reform in China as a shock to the independence of local government auditors, we find that audits significantly decrease local government over-debts. The effect is more pronounced when local officials face stronger promotion motivation and severer soft budget constraints. Further, the role of local government audits in mitigating municipal debt risk depends on the legal environment and provincial government bureaucracies.

Evidence on the Existence of Inter-industry Differences in Capital Structure of Leading Indian Companies

The objective of this paper is to provide additional evidence on the inter industry differences in the Capital Structure of leading Indian companies in terms of market capitalization. Comparisons in the capital structure of 15 industrial groups namely Pharmaceutical, Non-Metallic Mineral Products, Power, Electric Equipment, Automotive, Chemical, Construction, Information Technology, Food-Beverages-Tobacco-Alcohol, Consumer Goods, Textile, Service, Metal, Retail/Wholesale and Others identified from 333 companies are made using three gearing ratios i.e. Total Debt to Net Worth ratio (TDNW), Long Term Debt to Net Worth ratio (LTDNW), Short Term Debt to Net Worth ratio (STDNW). One way ANOVA and Post hoc tests are employed for statistical analysis. Construction and Textile industries have a higher level of debt in their capital structure. However, Information Technology and Service industries are identified as least levered ones. Overall, the finding indicates IT and Service industry to be significantly different from other industry groups in case of all the debt ratios.

Analyzing the Impact of Financial Resilience on the Lives of Individuals and Household Post Covid-19 in Indian Economy

Purpose: Economic crisis is a global phenomenon. When the crisis hits, many people are affected. This paper is an attempt to analyze the impact of financial resilience on the lives of individuals and households. In this study we analyze what are common financial shocks that individuals can face and how they tend to cope with this and our recommendations.
 Methodology: Literature review and comparative study of consumption and consumer credit across diverse market.
 Main Findings: The intensity of the economic crisis may vary from one person to another, depending on the individual financial resilience. Some households are less resilient to financial shocks than others. This may be because they have low levels of savings, have limited access to affordable credit, already hold high levels of debt or lack the skills required to manage household budgets.
 Implications: Financial resilience is difficult to estimate because it is a dynamic concept – the ability to recover quickly from an income or expenditure shock. Savings are in anticipation to the challenges face which might hinder the achievement of financial goals, hence there is a scope for new saving/investment products which are more comprehensive in nature.
 Novelty: We over a period have witnessed that there is a social support to the society during economic crisis but what is required is organization resilience rather than developing personal capabilities. The resilience should go beyond financial vulnerabilities and encompass mental stability, emotional wellbeing, education attainment etc.

The Financial Correlates of Midlife Obesity

This study explored the associations between midlife obesity and an array of common financial stressors related to wealth loss, debt, and bankruptcy. The analysis was conducted in 2022 with data from the National Longitudinal Survey of Youth 1979. The final sample included 36,122 observations on 8,059 respondents as they aged from ages 31‒39 years in 1996 to ages 51‒59 in 2016. Associations between obesity and financial stressors were estimated with logistic regression models adjusting for a comprehensive set of relevant control variables. The analysis found significant relationships between obesity and multiple types of financial stressors, including property debt, unsecured debt, and bankruptcy. Property debt and unsecured debt increased the odds of obesity by 29% and 20%, respectively, and bankruptcy increased the odds of obesity by 43%. Average Marginal Effects (AMEs) in combination with model fit statistics confirmed that these stressors-unsecured debt, property debt, and bankruptcy-were important financial correlates of midlife obesity among the National Longitudinal Survey of Youth 1979 cohort. The financial correlates of obesity included multiple financial stressors, but the magnitude of associations varied substantially across types of financial stressors. Results suggest that future interventions aimed at reducing obesity disparities should target populations with high levels of debt and bankruptcy.

Stimuler l'optimisme et renforcer les capacités des femmes entrepreneures: leçons apprises de la COVID-19

While government, institutional and community efforts were in full swing to stimulate women’s entrepreneurship, COVID-19 hit the global economy hard. This article focuses on the determinants that stimulate the entrepreneurial optimism among women entrepreneurs and strengthen the capacity of Quebec’s SMEs to survive. Explanatory frameworks from chaos and dynamic capacities theories are mobilized to study how entrepreneurial skills and financial needs shape women’s entrepreneurial optimism, which in turn determines the resilience of SMEs in times of crisis. The study is based on a survey of 1,080 female entrepreneurs conducted in April 2020. The results highlight the need for business skill building, innovation skill development and new digital skills to boost entrepreneurial optimism and increase the chances of surviving the crisis. On the other hand, despite targeted government assistance, difficulties in accessing financing remain and high debt levels are major obstacles to overcoming the crisis.

Racial and socioeconomic inequity in the financial stress of medical school.

Background: The authors analyzed the distribution of medical student debt and identified demographic features that placed students at high risk for increased debt and financial stress. Methods: From April to May 2019, a cross-sectional, anonymous, web-based survey was administered to first-year (M1) to fourth-year (M4) medical students at the University of Michigan to assess financial literacy, debt burden, financial stress, and demographic factors. A total of 216 of 680 (32%) students completed the survey. Respondents voluntarily answered 15 multiple-choice questions on personal finance and 30 questions on their demographics, current financial situation, and debt burden. To quantify debt burden, students estimated anticipated education-related debt in one of four categories: no debt, $1-99,999; $100,000-$199,999; and $200,000 or more. A chi-square test was used to identify associations between categorical variables and logistic regression was used to identify risk factors for debt and worry. Results: Fifty-four respondents (25%) reported $0 in education related debt, while 44 (16%) had $200,000 or more. Race (p=0.006), first-generation college student status (p=0.004), first-generation medical student status (p<0.001), household income (p<0.001), and parental education (p=0.008) were associated with higher levels of debt. Students who were underrepresented in medicine (URiM) had higher odds of higher debt compared to Arab and Asian students (p=0.02). URiM students (p=0.02), first-generation college students (p=0.009), and parental education (p=0.01) were associated with increased financial stress. Additionally, female students had higher odds of increased financial stress (OR=1.85, p=0.045) on logistic regression. Conclusions: URiM and socioeconomically disadvantaged students feel the burden of the high cost of medical school disproportionately more, suggesting that our current systems are not adequately supporting these students. Reducing this burden may serve to further promote diversity in medicine.

Associations between career choice and educational debt for fourth-year students of US veterinary schools and colleges, 2001-2021.

To determine whether career choice and starting salary of new DVM graduates in the US were associated with their educational debt accrued during veterinary school. Up to 48,527 fourth-year students at US veterinary schools who responded to the AVMA Senior Survey in 2001 through 2021 and accepted a full-time position or advanced education opportunity. To determine whether career choice was associated with educational debt, multiple linear regression was performed, controlling for graduation year, gender, age, marital status, having children, tuition level, and school location. The correlation between educational debt and starting salary was also determined. On average, mean educational debt increased by $6,110 each successive year. A mean of 60.5% of respondents accepted positions in private practice (public practice, 3.3%; advanced education, 36.2%). Respondents choosing public practice had a mean of $24,913 less debt than those choosing advanced education, controlling for other factors. Respondents choosing public practice also had less debt than those choosing private practice, but debt did not differ significantly between private practice and advanced education. The correlation between educational debt and starting salary was significant but low (r = 0.177). Findings suggested that the amount of debt incurred during veterinary school was associated with new veterinarians' career paths. Notably, graduates with higher debt levels appeared to seek higher paying jobs or clinical training that might lead to higher paying jobs, leaving public practice-a field in which critical needs have been identified-underrepresented despite the availability of loan forgiveness programs and other incentives.