Higher Capital Requirements Research Articles

Effects of sectoral and aggregate uncertainty on corporate debt structure

PurposeThis paper investigates the differential and interactive effects of sectoral and aggregate uncertainty on the corporate debt structure of credit-constrained and credit-unconstrained firms in India.Design/methodology/approachThe panel fixed-effect model was used to examine the effect of sectoral and aggregate uncertainty on corporate debt structure using annual data of 2,405 firms from 1997 to 2020.FindingsAn increase in sectoral and aggregate uncertainty leads to a greater increase in total and short-term debt and a decrease in long-term debt for credit-constrained firms than in unconstrained ones. However, sectoral uncertainty affects firms’ debt maturity structure more than aggregate uncertainty. Credit-constrained firms use short-term debt to finance capital expenditure during periods of high sectoral uncertainty and working capital requirements during periods of high aggregate uncertainty. When both sectoral and aggregate uncertainty are high, credit-constrained firms decrease total and short-term debt usage more than credit-unconstrained firms do. Our results are robust to a variety of tests, such as different measures of uncertainty, the use of instrument variables and controlling for economic conditions and financial crises.Originality/valueThis study addresses the differential and interactive effects of sectoral and aggregate uncertainty on corporate debt structure.

Overcoming Challenges in Scented Geranium Cultivation, Processing, and Marketing: Study from Northern Karnataka, India

Medicinal and aromatic crops play a pivotal role in the socio-cultural, economic, spiritual and health dimensions of India's rural population and have become an integral part of our culture and rituals. Karnataka is a major repository of aromatic and medicinal treasures of the country. The demand for aromatic plants in India surpasses the available supply, prompting the widespread commercial cultivation of major aromatic crops in various regions. Among these, scented geranium emerges as a vital perennial aromatic, cultivated for its leaves imbued with a captivating rose fragrance. The aromatic oil of scented geranium is increasingly replacing traditional rose oil and identified as one of the top 20 essential oils traded globally. The present study aims to identify challenges in cultivation, processing and marketing aspects of scented geranium in Northern Karnataka. Considering the area and concentration of scented geranium in the state, Belagavi district is purposively selected for the study. Primary data was collected through personnel interview of randomly selected geranium growers. The major challenges faced by the farmers in the production, processing and marketing aspects of scented geranium were analysed and prioritized through Garett ranking technique. Analysis of the data revealed that in production, high cost of planting material, lack of high yielding varieties and high wage rates, high cost of inputs and sensitivity of crop to heavy rains were identified as top five constraints. Whereas, in processing, significant hurdles were high working capital requirement, high capital investment in installation distillation unit and insufficient knowledge on operation of distillation units, low oil recovery and lack of efficient processing equipment. In marketing aspects, high price fluctuation, lack of marketing information and lack of competition in the market, non-existence of local market and lack of adequate demand in nearby area were identified as major challenges in the study area. Educating farmers in nursery management and implementing mechanization techniques, particularly for harvesting, are crucial for enhancing productivity and profitability. Additionally, training on proper storage and transportation practices is essential to maintain the quality of volatile essential oils. This comprehensive strategy promotes sustainable and economically viable cultivation of scented geraniums in the region.

Constraints faced by Chawki rearing Centres in Tamil Nadu

Chawki rearing centers (CRCs) play a pivotal role in the sericulture industry by focusing on the cultivation and rearing of high-quality silkworms, known as chawki. This study investigates the primary constraints faced by CRCs across various operational aspects, including agricultural practices, labor management, technical support, and market dynamics. Key findings reveal significant challenges such as the absence of drought-resistant mulberry varieties, high capital requirements for wages, labor shortages, and inadequate technical guidance. Natural factors like climate change and pest outbreaks further exacerbate these issues, impacting silkworm health and productivity. Marketing constraints, such as price volatility and transportation costs, add to the operational complexities of CRCs. The study underscores the need for coordinated efforts among government agencies, research institutions, and industry stakeholders to address these challenges and enhance the sustainability of chawki rearing in the sericulture sector.

The role of the iron and steel sector in achieving net zero U.S. CO2 emissions by 2050

The U.S. steel sector is a hard-to-abate sector because of its heavy dependence on fossil fuels and its high capital requirements. In 2015, the sector was one of the major carbon emitters, contributing 10 % of the U.S. industrial CO2 emissions. The ability to decarbonize the U.S. iron and steel sector directly affects the ability of the U.S. to achieve economy-wide net zero CO2 by 2050. In this paper, we use the Global Change Analysis Model (GCAM) to analyze different U.S. steel sector decarbonization pathways under varying technology, policy, and demand futures. These pathways provide insights on how various low-carbon steelmaking technologies such as those using carbon capture and storage (CCS), hydrogen, or scrap could help reduce U.S. steel emissions by mid-century. In our primary decarbonization pathway, we find that nearly all of the conventional fossil-based steelmaking capacity is fully integrated with CCS by 2050. However, without CCS availability, almost all of the conventional fossil-based steelmaking is phased-out by 2050 and is replaced by hydrogen-based production. Scrap-based production continues to remain vital across both of these decarbonization pathways. Furthermore, we find that demand reduction could help reduce the required levels of CCS and hydrogen-based production in the decarbonization pathways. Implementation of advanced energy efficiency measures could help substantially reduce the sector's energy usage. Finally, we observe that addressing the embodied carbon transfer associated with steel imports will be crucial for fully decarbonizing the U.S. steel sector.

MedTech start-ups: A comprehensive scoping review of current research trends and future directions.

Medical start-ups (MedTech) significantly contribute to the development and commercialization of innovative healthcare solutions, driving advancements in technology, enhancing treatment effectiveness, and supporting public health. This study explores the main themes and concepts related to MedTech start-ups, examines the research methods used, and identifies major gaps in the literature. A scoping literature review was performed by searching the Scopus, PubMed, and Web of Science databases for publications from 2012 to 2023, focusing on MedTech start-ups in titles, abstracts, and keywords. References were analyzed using the Bibliometrix package in R, and a coupling network analysis was conducted, visualizing results on a Coupling Map to identify key research themes and gaps. The research identified 480 unique articles on MedTech start-ups. After removing duplicates and following a PRISMA-based assessment, 79 articles were included in the review. The studies predominantly focused on organizations, including start-ups and Venture Capital funds (46%). Most articles (60%) used qualitative methods, 25% employed mixed methods, and 15% used quantitative methods. Geographically, 63% of articles focused on a single country, primarily the USA (35%), followed by Iran, Sweden, Switzerland, China, and Japan (2-4% each). Coupling analysis identified five topic clusters: crowdfunding for medical research, innovation in medical technology, new product development, digital start-ups, and the venture capital industry. This review highlights the significant role of MedTech start-ups in advancing healthcare innovations despite challenges like regulatory hurdles and high capital requirements. The literature emphasizes the importance of collaboration among universities, industry, and government for successful commercialization. The geographic concentration in the USA indicates a need for more inclusive research. Crowdfunding and venture capital emerge as crucial funding sources, suggesting strategies to mitigate risks and enhance innovation success.

Modular and Phased Approach: Innovative Transition Approach in Developing the First Indonesia’s Green Energy Terminal

This paper explores the modular and phased approach to developing Indonesia’s first green energy terminal by EHS, a company with extensive experience in energy distribution and logistics. The study emphasizes the benefits of this strategy in managing high capital requirements and uncertain revenue streams. Through qualitative research employing Soft Systems Methodology (SSM), this study identifies the advantages of incremental development and stakeholder engagement in achieving sustainable and practical outcomes. The findings provide valuable insights for policymakers and practitioners in developing countries facing similar challenges in the energy transition.

Investigating the Impacts of Wastewaters on Lettuce (Lactuca sativa) Seed Germination and Growth

There is an opportunity for agriculture to utilize the many different waste streams in our world and capitalize on what would otherwise be viewed as waste products. Hydrothermal liquefaction (HTL) is an emerging technology for converting wet biomass to bio-crude oil, while aquaponics is a practice tracing back to indigenous communities around the world; both technologies have the potential to sustainably provide the necessary nutrients for crop growth. Food systems worldwide are actively transitioning to address the many challenges of climate change in a sustainable and efficient manner. Urban agriculture (UA) has the potential to generate localized crops in densely populated areas year-round, but has its challenges, involving high capital requirements, especially for vertical farming and controlled-environment agriculture, and being energy intensive due to artificial lighting and fossil fuel-based synthetic fertilizers. This study investigated the potential for aquaponic and HTL effluents to be used in hydroponic systems through a seed germination screening experiment. Buttercrunch lettuce (Lactuca sativa L.) seeds were placed in Ziploc plastic bags on paper towels saturated with the wastewater treatments for 10 days while their total length of growth was routinely measured from the tip of the root to the tip of the cotyledons. The Chicago High School for Agricultural Sciences (CHSAS) aquaponic effluent with a 5.8× times higher nitrate concentration and 4.25× higher ammonia concentration outperformed the Bevier aquaponic effluent and improved any other source water it was combined with. Results also showed that seed germination was not inhibited in the presence of 2–8% solutions of hydrothermal liquefaction aqueous phase (HTL-AP), which performed on par with standard hydroponic fertilizer; solutions of a higher percentage, though, may lead to inhibitory effects in plants, and those of a lower percentage may not provide enough nutrients in the proper forms to sustain plant growth. However, the nutrient analyses revealed that there is still much to investigate regarding the combination of wastewaters to provide a complete, well-rounded, and sustainable source for hydroponic crop production.

Risk management practice for foreign banks in the Chinese financial sector: a case study of HSBC China

This dissertation uses a single case study approach with a mix of qualitative and quantitative analysis of secondary data for research process. It aims to answer the research questions of how does risk management framework of foreign banks work in China’s regulatory and economic environment. Through an in-depth analysis of the risk management practice of HSBC Bank (China) in 5 years period, the author finds risk management policies and assessment procedures are always align with organization’s risk appetite and strategy. In addition, based about HSBC, the portfolio with higher capital requirement has lower return due to the extra cost. And there is no clear evidence that stricter supervisions will impact the efficiency of risk management.

Dynamic bank capital regulation in the presence of shadow banks

Regulated banks expand relative to shadow banks in recessions and when credit spreads are high, while regulated banks shrink relative to shadow banks in expansions and when credit spreads are low. Motivated by these facts, I build a quantitative general equilibrium model with endogenous risk taking to study how competitive interactions between regulated banks and shadow banks affect optimal dynamic capital requirements. Limited liability and deposit insurance can lead regulated banks to provide socially inefficient risky loans when the returns on safer loans decline. Competition for scarcer funding can further lower the net returns on safe loans, making it more attractive for regulated banks to exploit the shield of limited liability with risky loans. Higher capital requirements can reduce inefficient risk at the cost of lower liquidity provision and some migration of credit from regulated banks to shadow banks. Accounting for the interactions of regulated and shadow banks can change the magnitude and direction of the optimal response of capital requirements to shocks that drive the business cycle. Moreover, Basel-III style rules that differentiate between the type of bank loans are much better at mimicking the Ramsey optimal capital requirements than standard rules that aggregate loans. The performance of such dynamic rules can be further improved once they are combined with a small static capital buffer.

Investigating make-or-buy decisions and the impact of learning-by-doing in the semiconductor industry

ABSTRACT Learning-by-doing is an important concept in economics as it is one of the main driving forces of economic progress. However, corporate learning is a slow process, so outsourcing manufacturing can override the long-term benefits of accumulating productivity knowledge. Semiconductor industry is also strongly featured by the learning effect, however, due to high capital requirements of building fabs, there are companies that fully outsource, while others try to keep production in-house. The chosen business model now gets further importance due to bottlenecks and supply issues perceived in the industry since the COVID-19 outbreak. Accordingly, we model the make-or-buy decision problem of a firm that decides on the optimal mix of outsourcing and in-house production, considering productivity gain via learning-by-doing and the economic impact of resilience. By presenting numerical simulations, we aim to capture the pre-pandemic and the current state of the semiconductor industry. Our model highlights that tendencies of being fabless were reasonable in the past. Although recent industry conditions have made in-house production more beneficial, this optimal strategy may be fragile due to changes of relative production costs or the extent of economic impact of chip shortages, which may underline the relevance of government incentives aiming to revitalise semiconductor industry.

Optimal capital ratios for banks in the euro area

In this paper we estimate the optimal level of capital for banks in the euro area. This optimum is the result of a trade-off between the costs and benefits of more bank capital: although higher capital requirements likely lead to higher lending rates, they also reduce the likelihood of banking crises. Our baseline estimates show an optimal risk-weighted capital ratio of around 23%. By varying the assumptions underlying our analysis we obtain a range of optimal ratios from 16% to 31%. These estimates are higher than the current Basel III minimum requirements. We also estimate optimal rates for individual member states and find substantial differences between them. This is primarily due to variation across countries in the resilience of their economies. For this reason we find lower optimal bank capital ratios in countries with more stable economies. Our results show only a modest dependence on the ease with which banks in different member states are able to raise capital.

Global banking and the international transmission of shocks: A quantitative analysis

Regulatory reforms typically follow financial crises. We propose a model of global banking that can be used proactively to study alternative regulatory policies. The model mimics the US regulatory framework and highlights the organizational choices that banks face when entering a foreign market: branching versus subsidiarization. The model is able to replicate the response of the US banking sector to the European sovereign debt crisis. Counterfactual analysis suggests that pervasive subsidiarization, higher capital requirements, or an ad hoc monetary policy intervention would have avoided entirely the negative effects of the sovereign debt crisis on US lending. However, the same measures would have had limited effects in more severe scenarios.

Are there commonalities and differences between Basel III and Solvency II regulations

In the wake of two financial crises, the regulatory framework for the financial services industry has undergone significant change. The regulatory system for banks was revised in response to the financial crisis and, following adjustments based on Basel I/II, has been in force since 2013 with the Basel III version, although some regulatory points did not have to be implemented until later. For the insurance industry, the Solvency II regulatory framework came into force in the EU in 2016. The aim of the paper is to present a comparison between the regulatory frameworks and the specifications for the two sets of rules. In both frameworks, commonalities can be identified in the 3-pillar approach. The supervisory models are structured in the same way and stand side by side on an equal footing, i.e. they are intended to complement or mesh with each other. Internal procedures for calculating capital requirements may only be used after regular supervisory review and disclosure to the market. The regulatory focus is on a qualitative view. The risk profiles differ; in particular, credit and market risks must be taken into account in the case of financial institutions, while insurance companies focus on underwriting risk. Furthermore, in the case of banks as opposed to insurance companies, additional capital buffers are required due to the economic situation, for example, and leverage and liquidity ratios are also prescribed. There is no regulation for insurance companies in comparison. The Basel III regulations have higher capital requirements. Also the eligibility of the positions of the different capital levels have lower capital quality standards for insurance companies compared to banks. 

Leadership and its Impact on Supervision in the Hospitality Industry

The hospitality industry has a high human capital requirement that depends on leadership to provide supervision for the utmost customer satisfaction. Based on this, this research looks at the impact of leadership on supervision among hotels in Ghana. This research was a causal research design. It investigated the correlational effect of leadership on supervision in the hospitality industry in Ghana. Data obtained from Ghana Tourism Authority’s National Data 2020 on Tourism Human Resource put the employees of 3 to 5 stars hotels as the study population at 7,347. The researcher used a Raosoft sample size calculator to determine a sample size of 366 at a 95% confidence level. A convenience sample technique was used to collect the data. Self-constructed instruments with Cronbach alpha of Leadership .710 and Supervision .751 were used to measure reliability. In answering the relationship question correlation analysis was used to establish the relationship. The study showed a highly positive significant relationship between leadership and supervision. It is recommended that abusive supervision by the leader should be monitored highly and controlled to motivate the supervisee to impact the hotel's performance.

Evaluating ASEAN and EU Banking Sector Efficiency Using DEA (Data Envelopment Analysis)

Abstract. This study compares ASEAN and EU banking efficiency using Data Envelopment Analysis (DEA) and an intermediary approach. Three input variables (staff expense, fixed assets, total customer deposits) and two output variables (loans to customer and operating income other than interest) are analyzed using RStudio and R. EU and ASEAN banks had efficiency scores of 0.7 and 0.65, respectively, showing opportunity for improvement. Based on cost analyses, ASEAN banks are more efficient than their EU counterparts. Inefficiencies occur when output surpasses input or is much lower than another output variable. However, both regions may improve banking efficiency to do better. The 10-year trends exhibit oscillations, showing that regulatory issues affect banking efficiency. Stricter laws, higher capital requirements, and risk management changes may have hampered ASEAN credit. The dynamics and objectives of the EU and ASEAN economic blocs shape their financial systems. ASEAN is working toward regulatory convergence, while the EU has integrated and harmonized more. To maintain a stable and efficient financial industry, the region's banks must adapt to changing economic landscapes, technological advances, and mounting challenges. Keywords: ASEAN, bank performance, data envelopment analysis, efficiency, EU

Determinants of bank profitability: Evidence from the emerging economy

This study examines the determinants of bank profitability in Zimbabwe, a country that has faced severe economic challenges in the past decade. To address this issue, we use a panel data analysis of 11 commercial banks over the period 2011–2020 and apply the system generalised method of moments (GMM) estimator to control heterogeneity and endogeneity issues. We find that bank specific factors, such as non-interest income, liquidity, cost efficiency, capital adequacy, and bank stability, have a positive and significant impact on bank profitability, while the industry factor, bank concentration, has a negative and significant impact on bank profitability. We also find that macroeconomic factors, such as gross domestic product (GDP) and inflation, do not have a significant influence on bank profitability. This result is surprising given the high inflation and low growth rates experienced by Zimbabwe in recent years. Moreover, we find that regulatory capital weakens the positive effect of bank stability on bank profitability in Zimbabwe. This result suggests that higher capital requirements may reduce the risk-taking incentives or opportunities of banks, which may lower their profitability potential. Finally, we find no evidence of a moderating effect of fintech on bank performance. This result implies that fintech may not significantly impact the competitiveness and performance of banks in Zimbabwe in non interest income activities. Our study concludes that bank profitability in Zimbabwe is mainly determined by internal factors that are under the control of bank managers and regulators, rather than external factors that are beyond their influence. Based on these findings, we provide several policy implications and recommendations for enhancing bank profitability and fostering a sound and resilient banking sector in Zimbabwe.

A Porter's Five Forces Model Proposal for Additive Manufacturing Technology: A Case Study in Portuguese industry

Industry 4.0 constituted a trigger to a new phase in the Industrial Revolution, heavily focused on the interconnectivity of the systems, bringing disruptive technologies such as Additive Manufacturing (AM). On top of that, in the past few decades AM has been gaining visibility due to technological evolution and due to the need to increase differentiating factors to overtake competitors. Coupled with this, phenomenon such as increased firms’ competitivity and rivalry, increased customer demand and diversity and the shift from an industrial economy to a knowledge-based economy are leading to the emergence of new business models. However, despite of AM's business possibilities, in literature it is missing a model to analyse the impact of AM in business strategy. Accordingly, the present research focuses on understanding how AM impacts firms’ business strategy. To achieve that objective, is proposed an adaptation of Porter's Five Forces Model to aid in positioning firms’ strategy when using AM. The model was applied to 13 organisations operating with AM in Portugal. It was possible to conclude that all the participating firms, except one, fit in the incremental stream of development as regards to AM technology, where AM technologies appear as a complementing technology. Also, the participating firms seem to experience the low capability to capture specialized workforce for AM, high capital requirements to enter the market and low IPR regulation. AM brings an opportunity for higher bargaining power to arise due to 'prosumerism', yet it does not add value as a tool for the standard products industry. Moreover, suppliers strongly influence sectors' competition, which will presumably suffer from increased rivalry tensions.

The Tyranny of Time and Distance: Impediments for Remote Agritourism Operators Accessing Support in the Northern Territory, Australia

ABSTRACT This study investigated the perceived impediments that prevent remote agritourism operators in the Northern Territory (NT) Australia from expanding and accessing support from governmental and industry organisations. Five primary themes emerged from 11 in-depth interviews with remote agritourism operators across the NT. These included distance from urban centres, limited human resources, infrastructure gaps, high capital requirements, and difficulties navigating and accessing support organisations. In addition, all businesses acknowledged they required support, the vast distance from urban centres often prevented participation in relevant programs due to a lack of time (for both travel and participation), seasonality and the patchwork range of support resources. A key recommendation is for government and other support organisations, as well as policymakers to improve their engagement with the sector in order to develop appropriate supports.

Heterogenous impact of monetary policy on the Philippine rural banking system

This paper shows the differential impact of monetary policy on the lending behavior of rural banks, with the bank lending channel being operational in small rural banks. While big rural banks are able to protect their lending portfolio from contractionary monetary policy by the size of their balance sheet, small rural banks with less diversified funding portfolio cannot. Moreover, highly capitalized rural banks are more inclined to protect their capital than expand their lending portfolio, following monetary tightening and higher capital requirement. The insignificance of gross domestic product (GDP) growth may reflect weakness in effective loan demand and lack of diversification that could have also impinged on the earning capacity of rural banks, as supported by initial estimates on the drivers of rural bank profitability. The finding on heterogeneous effects of monetary policy on rural banks has a secondary implication of lending credence to the principle of proportionality embodied in the BSP’s bank regulatory framework.

A strategy road map for small and medium-sized banks from a Canadian perspective: Transformation from start-up to mid-size and beyond

One item on the regulatory agenda is the need to increase competition in the financial system. Financial technology is replacing bricks-and-mortar distribution channels, reducing the need for economies of scale that has been a barrier to entry and growth. Financial services are being unbundled and the large banks, being financial conglomerates, face losing their grip on the market, as space is opened up for the lower-cost specialised providers of financial services that offer superior customer service. This is an opportunity not only for neobanks but also for smaller traditional banks that can update their skills and adapt. In Canada, small and medium-size traditional banks are trying to seize the opportunity. They continue to deploy a lending-based business model while taking advantage of FinTech for operational efficiency and digital distribution channels. They are also working towards AIRB licences in order to become capital efficient and increase their addressable market. Nevertheless, they face formidable challenges including their intolerance to loss, more expensive funding, more expensive and higher capital requirements, and the big banks’ market power. This paper discusses the risk strategies these banks can employ in their journey from start-ups to mid-sized and beyond. We provide numerical examples using the ROE framework.