Higher Debt Ratios Research Articles

Balancing Innovation and Profitability: Technological Diversification in Iran’s Insurance Industry

Abstract This study explores how technological diversification affects financial performance in Iran’s insurance industry. Using semi-structured interviews with six experts, including CEOs and faculty members, key indicators of technological diversification were identified, such as new underwriting software and digital advertising platforms. A 33-item questionnaire was developed based on these insights and distributed to top managers of Iranian insurance companies, with secondary financial data sourced from the Central Insurance of Iran. The study employes regression analysis and Partial Least Squares Structural Equation Modeling (PLS-SEM) to assess the impact of technological diversification on financial performance, controlling for firm size, debt ratio, and company age. Findings indicate a significant negative relationship between technological diversification and both Return on Equity (ROE) and Return on Assets (ROA), suggesting that the costs of adopting new technologies may outweigh their short-term financial benefits. Additionally, high debt ratios were found to adversely affect ROA, highlighting the financial risks of excessive borrowing.

How does informed trading affect credit bond spreads: Evidence from China's interbank bond market

China's interbank bond market is an institutional investor market, and transactions are more information-based. Whether and how informed trading can affect credit bond pricing is an urgent problem to be solved in the study of China's bond asset pricing. This paper uses credit bond issuance and trading data and stock high-frequency trading data from May 2014 to December 2020 to construct informed trading probability and bond liquidity indicators. Using regression analysis and adjustment and mediation effect test methods, this paper studies the impact of informed trading on China's interbank credit bond pricing and the channel role of liquidity. The results show that the probability of informed trading has a significant positive impact on credit bond spreads. Informed trading leads to an increase in credit bond spreads by amplifying bond illiquidity. The amplifying effect of informed trading on credit bond spreads is stronger for bonds with high illiquidity. The amplifying effect of informed trading on credit bond spreads will be stronger in private enterprises, enterprises with low information transparency, and high debt ratios. This study reveals the risk nature of informed trading in China's interbank bond market, which helps to deepen the understanding and management of the bond market.

Debt and the Excess Value of Diversified Firms: Evidence from Nigeria

The purpose of this study was to examine the relationship between debt and the value and excess value of diversified firms in Nigeria. This is against the background that there is no consensus on the factors that distinguish value-creating from value-destroying diversified firms. Data were collected from the annual reports of 62 diversified firms listed on the Nigerian Stock Exchange between 2008 and 2018. The multilevel generalized method of moments technique in the REndo package in the R Statistical Package was used to test the hypotheses. There is a significant positive relationship between debt and diversified firms’ value and excess value. The study and its findings are significant in several ways. First, no study has examined the relationship between debt and the value and excess value of diversified firms in the Nigerian context, and the few relevant studies have been in the context of developed countries. Second, it contributes to the literature on the valuation implications of firm diversification by providing some insight into the diversification discount often documented in the literature. These findings suggest that diversified firms’ failure to use the debt capacity that diversification creates is one reason some experience valuation discount. Third, the study employs the multilevel GMM analytical technique to control for endogeneity in the absence of valid instrumental variables. This technique has not been used in the diversification literature. The implication of the findings is that diversified firms should use the debt capacity that diversification provides to invest in positive net present value projects. The use of debt also adds a layer of corporate governance required in an environment of increased complexity and opacity associated with diversification. Increased investment in positive NPV projects and improved corporate governance through increased use of debt will enhance firm performance and value. The increased valuation of diversified firms due to debt increases the ability of diversified firms to play their developmental role in society. Investors would also benefit more from investing in diversified firms with higher debt ratios than those with lower debt ratios, all things being equal.

주요 수입원으로 부동산 의존 여부에 따른 서비스업의 재무비율과 재무성과 간의 영향관계에 관한 연구

[Purpose] This paper analyzes the impact of financial ratios on the financial performance of two different types of service industries, called Group 1 and Group 2. Group 1 consists of maritime transport, air transport, hotel and car rental industries, which depend on real estate as a major source of income, while Group 2 consists of travel agencies, trading companies and information service industries, which do not depend on real estate as a major source of income. [Methodology] This study primarily analyzed 12 representative financial ratios, divided into four categories：profitability ratios, stability ratios, growth ratios, and activity ratios. Secondary data based on the Value Search from 2015 to 2019, was analyzed, and a multiple regression model was employed using SPSS 26.0. [Findings] The analysis showed that for Group 1, focusing on increasing low asset turnover with a relatively low debt ratio is a good way to improve a company’s profitability；for Group 2, focusing on relatively high asset turnover with relatively high debt ratio can improve a company’s profitability. [Implications] The financial performance of service industry was impacted by different types of financial ratios according to real estate dependence as major source of income.

Analysis of Interest Rate Determinants: Evidence from Lending Club

Nowadays, high interest rates hit the whole lending market, a number of people consider online lending institutions to trade. This dynamic generates a viable alternative to traditional bank services, allowing borrowers to choose their optimal lending plan. This paper focuses on online lending services, investigating the factors influencing the interest rate offered by Lending club institutions. Using OLS and machine learning models, the author analyses the influence of different dimensions of factors (debt level, FICO score, lending purpose, and normalized debt-to-income ratio) on the average interest rate. The results emphasize the results emphasize that Personal characteristics count for lending rate evaluation. People who have lower credit scores and bear a high debt ratio would be offered a higher interest rate than those who have a good individual background. Contrary to the conclusions achieved in other studies, when loans are given for longer durations, they tend to have higher interest rates. This is mainly because lenders have to consider factors like the risk of inflation and the potential earnings they might miss out on during that extended period.

Geopolitical risk and credit rating: evidence from North Korea’s threats

ABSTRACT We examine how geopolitical risk from North Korea’s threats affects South Korean firms’ credit ratings. North Korea’s threats, measured by the number of missiles launched, are negatively related to firms’ credit ratings. Employing a sample of South Korean public firms over the period 2012–2021, we find that the credit ratings of South Korean companies decrease with the number of missiles launched. Cross-sectional analyses indicate that the negative effect of North Korean risk differs depending on the firm characteristics. Specifically, firms with higher debt ratios are more significantly affected by North Korea’s threats. In addition, firms whose financial statements are audited by Big 4 auditors are associated with higher credit ratings than those by non-Big 4 auditors. Our findings contribute to the literature on geopolitical risk by identifying the effects of geopolitical risk on credit ratings.

The Causes and Countermeasures of High Debt Ratio in Real Estate Enterprises

The Causes and Countermeasures of High Debt Ratio in Real Estate Enterprises

Financial Risk, Debt, and Efficiency in Indonesia’s Construction Industry: A Comparative Study of SOEs and Private Companies

This study aims to evaluate the financial risk, debt, and efficiency of state-owned enterprises (SOEs) in Indonesia’s construction industry and compare these aspects with those of private companies through financial ratio analysis and efficiency analysis approaches. Four SOEs from the construction sector were evaluated and compared to five private companies with financial data ranging from 2015 to 2022. Financial ratio analysis was applied to assess debt and financial risk, while efficiency analysis utilized data envelopment analysis (DEA) and paired t-tests to validate differences between the two groups of companies. This study reveals that the financial ratio performance of state-owned companies is relatively poor, with low profitability, critical liquidity, and a high debt ratio. Debt, as a source of capital in financing construction projects, causes companies to face a greater debt risk. This study also validates that SOEs have lower efficiency compared to private companies. In response to current challenges, SOEs should prioritize enhancing liquidity through faster receivable collections, debt restructuring, capital infusions, and divestment, reducing non-essential investments, focusing on asset recycling, and improving project efficiency.

The Impact of Covid-19 on Earnings Management: Empirical Evidence from Vietnam

Earnings management (EM) is the practice of adjusting profits or earnings on financial statements at the discretion of the management. This study undertook a regression analysis of the earnings management model, with data from 300 non-financial listed companies on the Vietnamese stock exchange during the period 2016 to 2021 to determine whether the COVID-19 pandemic has had an impact on earnings management. To estimate earnings management, compared with the original model, we add the leverage variable (LV) was used as earnings management proxy in this research. The results show that the COVID-19 pandemic positively and significantly impact the earnings management of non-financial listed companies. Moreover, it was found that managers are more involved in real earnings management than accrual earnings management, implying that financially distressed firms need to reassure investors to raise more capital during the pandemic. However, there is no evidence of a trade-off between these two techniques during the pandemic compared to before the pandemic. Additionally, this study provides evidence that the model by Roychowdhury, following Cohen et al., and the performance-matched model by Jones, following Kothari et al. are more suitable for detecting EM behavior when factoring in the financial leverage (LV) variable for firms with a high debt ratio in developing countries. JEL Classification: H8, M42

항만연관산업 경쟁력 강화 방안에 관한 연구

Purpose: By analyzing the efficiency, growth, stability, and profitability of domestic portrelated industry through financial data, this study identifies problems and suggests strategies for development plans to improve competitiveness. Research design, data, and methodology: In order to derive the efficiency of each domestic port-related industry, an analysis was conducted based on corporate data from Korea Evaluation Data. The efficiency, growth potential, stability, and profitability of the top 50 companies (based on sales) in port-related industries from 2017 to 2021 were analyzed. For the efficiency analysis, total assets, liabilities, and capital were selected as input variables, and sales, operating profit, and net profit were selected as output variables. Growth, stability, and profitability were analyzed based on total asset growth, debt ratio, and operating profit ratio compared to the previous year. Results: The results of the efficiency analysis showed that port service was the highest. In the growth analysis, four port-related industries (excluding port service) showed negative growth in 2020 due to the aftermath of COVID-19. The results of the stability analysis showed that ship fuel supplies had the highest debt ratio and the lowest stability. Profitability analysis showed that ship repair was the most profitable with the highest operating profit ratio. Conclusions: Domestic port-related industries also need to change in line with the global trends of shipping and ports, such as digitalization, eco-friendliness, and automation. Due to the nature of the small port-related industry, strategic support policies from the government and local governments are needed.

Investing in European Public Goods While Maintaining Fiscal Discipline at Home

Abstract Putting the high public debt ratios on a downward path after the surge during the pandemic and allocating sufficient resources to deliver on the green and digital transition will be among the priorities confronting the EU institutions emerging from the June 2024 European elections. After a long and painful debate, EU institutions have agreed upon a new fiscal rulebook that aims to incentivise the reallocation of national public spending to the green and digital transition. However, the additional public investment is unlikely to suffice to comply with the goals of net zero that the EU has set for itself. In particular, investments of a transnational nature will remain undersupplied. This article proposes setting up a successor to NextGenerationEU – a new EU fund until 2030 for financing European public goods (EPGs) to address the double transition. Access to the facility would be conditional on adherence to the EU fiscal rules. By tying up the implementation of the new fiscal framework, the debate on the future of NextGenerationEU and the next multiannual EU budget post-2027, the credibility and internal consistency of these various instruments will be greatly enhanced.

The effect of ESG activities on financial performance: The moderating effect of debt ratio

This study examined the effect of environmental, social, and governance (ESG) management on corporate performance. We collected sample data on KOSPI-listed companies in 2021 using ESG ratings released by the Korea Corporate Governance Service. The system of ratings was segmented into three distinct categories for the purpose of analysis, namely the environment, society, and governance. An empirical investigation was conducted to determine how ESG ratings and separate ratings (E, S, and G ratings) affect financial performance. We also examined the moderating impact of the debt ratio on the association between ESG ratings and financial performance to enhance the explanatory strength of this relationship. The results indicated that ESG ratings and E and S ratings are positively related to financial performance, and the debt ratio has a negative moderating effect on the link between ESG ratings related to environmental aspects and financial performance. The findings indicate that firms need ESG management to improve financial performance. ESG ratings can be utilized to show the effects of environment-focused management, sustainability, and CSR initiatives on financial performance. Additionally, the moderation effect of the debt ratio in this study clearly demonstrates the connection between ESG rating and financial performance. Our analysis also demonstrates that organizations with high debt ratios and a lack of resources to pursue ESG are unable to devote a significant amount of time and resources to ESG management.

Tax policy cyclicality and financial development

This paper adds to the existing literature by examining the macroeconomic, political and institutional determinants of tax policy cyclicality conditional on financial development. We find that an increase in trade and financial openness leads to pro-cyclical VAT and counter-cyclical CIT rate response in high financially developed economies, while an increase in financial openness is associated with counter-cyclical VAT and PIT responses when the levels of financial development are low. A high public debt ratio leads to a counter-cyclical VAT rate response in economies with low financial development. Political power and fiscal institutions are factors that affect the tax policy cyclicality only in less financially developed economies.

기업분할 유형 선택에 관한 연구

This study analyzed the factors for selecting the type of corporate divestiture for companies listed on the KOSDAQ market in Korea. The factors that led to the selection of the types of corporate spin-offs, physical divisions, were based on the hypotheses of financial motivation and corporate focusing motivation. After selecting variables related to these two, univariate difference test and binomial logistic regression analysis were performed on the 145 companies that promoted corporate divestitures between 2011 and 2020. First, according to the univariate difference test, the debt ratio(DebtR), operating cash to asset ratio (OCFA), and operating cash flow to sales (OCFS), which are variables for verifying financial motivation, all show significant results, indicating a physical division. It was confirmed that it could be a motivation to promote. However, there was no difference between the two divestiture types in the Herfindahl index (Herfin) and the operating index (OPERD), which are variables for verifying the focusing motivation. Looking at the financial motivation variables in the logistic regression analysis, the debt ratio (DebtR), the operating cash to assets ratio (OCFA) and the operating cash flow to sales ratio (OCFS) showed significant results. eanwhile, among the focusing motivation variables, the Herfindahl index (Herfin) did not show significant results, and only the number of business division (OPERD) showed significant results. Looking at the univariate difference test and logistic regression analysis together, companies that promoted physical spin-off had smaller asset size but higher debt ratio (DebtR) than companies that promoted spin-offs. In addition, the operating cash to assets ratio (OCFA) and operating cash flow to sales (OCFS) ratio were also lower than those of companies that pursued spin-offs. Therefore, companies that have pursued physical division are likely to division for financial motivation reasons rather than corporate focusing motivation.

Impact of Capital Structure on the Operating Performance of Listed Companies in the Pharmaceutical Industry

The objective of this paper is to explore the correlation between the capital structure and op-erating performance of selected leading pharmaceutical companies listed on the stock ex-change during the COVID-19 pandemic. To investigate how diverse capital structures influ-ence corporate performance, this study collects, calculates, and compares pertinent financial data, including leverage ratios, performance indicators, and cash flow, for these firms over three years. The findings show that companies with lower debt ratios are more likely to achieve stable earnings and cash flows, as well as to achieve higher performance indicators to some extent, compared to companies with higher debt ratios. Thus, capital structure has an impact on a company's operating performance. At the same time, a reasonable capital structure optimization can enhance a company's operating performance and mitigate opera-tional risks. It is recommended that listed companies in the pharmaceutical industry should focus on optimizing their capital structure to reduce financial risks and financing costs and to improve cash flow levels in order to achieve stable improvements in operating perfor-mance while ensuring sound operations and management. Investors should also focus on the capital structure of companies when making investment decisions and select those compa-nies with a sound capital structure for investment. These findings and recommendations provide suggestions and directions for the pharmaceutical industry to optimize its capital structure and improve its operating performance.

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.

How demand uncertainty influences electricity network prices under revenue-cap regulation: The case of Sweden

The amount of electricity end-users demand from the distribution grid is going to be more uncertain in the future. In this paper, we empirically investigate how variation in demand (which we refer to as demand uncertainty) influence the pricing behavior of distribution system operators (DSOs) that are subject to an ex-ante revenue cap and a penalty scheme that is activated when the cap is violated. Using data from 162 Swedish electricity DSOs observed over 13 years, our econometric investigations shows that demand uncertainty leads to lower electricity distribution prices under the current ex-ante revenue cap regime, but not under the previous ex-post rate-of-return regime. We also find that DSOs react more strongly to uncertainty when they have a relatively higher debt ratio. While lower network prices may sound like a good outcome for customers, it also leads to reduced revenue and a slowdown in investments. Thus, when society benefits from distribution network expansions and the DSOs are regulated by ex-ante revenue caps, the regulator should consider regulating the debt ratio.

Private Equity as an Effective Tool for Capital Raising: Legal Risks and Countermeasures

Investors have contributed millions of dollars to private equity funds. These funds are now an indelible part of the world of trading. Private equity has gained popularity over the past ten years, which has sparked a number of discussions about it. Some people argue that private equity contributes a lot to the improvement of corporate governance and increase of the wealth. However, some hold the view that although private equity have some advantages, it has serious problems considering the misaligned interests between managers and investors and high debt ratios. By analyzing different opinions and gathering data about the performance of private equity, this article highlights the evaluation of private equity and LBO, including their unique advantages in mergers and acquisitions, and the potential risks they might bring to the corporation and investors of private equity funds. Also, the article advises some methods to cover the shortages including legislation, investor cooperation and information intermediaries for better use of private equity.

Dynamiek van naoorlogse private schuldgroei in Nederland

The level of private debt in the Netherlands is exceptional in both historical and comparative terms. High debt ratios inhibit economic growth, induce financial fragility and lead to deeper and more tenacious recessions. Facilitated by fiat money creation, private debt in the modern economy mainly consists of bank credit. Internationally shared causes of the rise in bank money are the decline in cash payments, tax deductions and a narrowed focus in monetary policy. In the Dutch case, liberalized mortgages, the side effects of the funded pension system and the strong concentration of the banking system add to these. It is the confluence of these factors that has made Dutch debt growth since the 1970s exceptional. Some of these, notably the deduction of interest on mortgages and financial deregulation, have dominated the debate on this subject and hence are part of public perception. However, this does not apply to other mechanisms mentioned, such as the role of bank money and that of bank concentration. As a result, policy analysis of the debt problem thus far has been selective. The lessons of Dutch financial development are of importance to the realization of the European banking union and to monetary policy and taxation in the euro area. Our analysis demonstrates the usefulness of applied history.