High Debt Levels Research Articles

How Audit Quality Affects Bank Performance and Stability with Moderating Role of Ownership Structure

This study examines the impact of audit quality on bank performance and stability, considering ownership structure. Analyzing BR/CS economies and Pakistan from 2010 to 2020, it finds that audit quality positively affects bank performance and stability. Foreign ownership moderates this relationship, while public ownership does not. These findings inform policymakers and regulators in promoting high-quality auditing practices and improving bank stability and performance. Audit quality is a crucial factor in maintaining the financial success and stability of banks, contributing to improved performance and transparency. Foreign ownership has a significant and positive moderating effect on the relationship between audit quality and bank performance and stability. The findings have implications for policymakers and regulators in implementing policies that promote high-quality auditing practices and enhance the stability and performance of banks in BR/CS economies and Pakistan. The current research focuses on the moderating role of ownership structure in the relationship between bank profitability, audit quality, and performance in BR/CS countries and Pakistan, which is a novel approach. The global financial crisis of 2007-2008 highlighted the importance of audit committees in overseeing financial institutions and enforcing regulations and standards. Emerging economies like BR/CS face unique challenges due to weaker regulatory structures, less mature financial systems, and higher levels of debt. Long-term stability of banks is crucial for the overall economic system and the incidence of financial fraud and bankruptcies affects investor confidence and economic growth.

Analyzing the Relationship Between Public Debt and Poverty Reduction in Developing Countries: An Empirical Study

Purpose: The goal of this current research is to investigate the link between public debt and poverty reduction in developing countries. The study aims to examine the influence of public debt on poverty reduction while considering other contributing factors such as economic growth, population, inflation, human development index, and institutional quality. Theoretical framework: The theoretical framework of this research on the impact of public debt on poverty reduction in developing countries is grounded in two key theories: Debt Overhang Theory and Fiscal Space and Poverty Reduction theories. The first theory posits that high levels of public debt can lead to negative consequences for economic growth and poverty reduction. The second theory emphasizes the importance of fiscal space in poverty reduction efforts. Fiscal space refers to the financial resources available for a government to fund public goods and services without jeopardizing debt sustainability. Method/design/approach: In this research, a panel data approach is utilized to investigate the correlation between public debt and poverty reduction in developing countries. The panel dataset encompasses a 21-year period, from 2000 to 2021, and includes data from 20 developing countries. Results and conclusion: The study shows that public debt has a significant and positive correlation with poverty, indicating that high levels of public debt can lead to an increase in poverty in developing countries. Research implications: Because high levels of public debt can lead to an increase in poverty in developing countries, countries need to exercise caution when taking on debt and prioritize debt sustainability to avoid negative effects on poverty levels. In contrast, economic growth and human development have a significant and negative correlation with poverty, suggesting that these factors can contribute to poverty reduction in developing countries. Originality/value: The analysis highlights the complex relationship between public debt and poverty reduction in developing countries. Although the results are mixed, they emphasize the need for policymakers to adopt a comprehensive approach to poverty reduction that addresses not only reducing public debt but also promoting economic growth, enhancing institutional quality, and addressing other poverty-contributing factors.

Fiscal Space and Policy Response to Financial Crises: Market Access and Deficit Concerns

Existing literature suggests that fiscal space matters for the policy response to financial crises. High public debt levels limit countries capacity to pursue macroeconomic and financial stabilization policies and resume growth after severe crisis downturns. We examine the involved channels through which fiscal space matters for the dynamics of fiscal policy after a financial distress, namely sovereign market access and policymakers’ views, in a panel of 30 OECD countries for the period 1980–2017. We introduce a non-linear measure of fiscal space, which further considers simultaneously both the debt-to-GDP ratio capturing long-term features of countries’ policy-making processes and budgetary balances that capture recent policy decisions and persistent fiscal deficits. We document a substantially strengthened role for sovereign market access constraints in driving the policy response to distress once fiscal space non-linearity is introduced in the model, which highlights the non-linearity involved in market participants’ concerns about fiscal space. Moreover, the vulnerability of market access concerning fiscal space is affected by either the debt-to-GDP ratio or fiscal balances dominating the assessment of fiscal space. The role of fiscal health and the policymakers’ views channel is more pronounced once flows of budget deficits are at the epicenter of the assessment of fiscal space, suggesting a “deficit concerns” channel.

Taxing the Rich to Finance Redistribution: Evidence from a Permanent Tax Increase in Singapore

Based on a representative sample of consumer financial transaction data, this paper studies the consumption and savings response to a 2015 permanent increase in the marginal income tax of the high-income taxpayers. Using difference-in-differences regressions, controlling for individual and time fixed effects, we show robust results that the affected consumers experienced little change in their spending. The pattern is prevalent across consumer demographics and is found even among consumers who are sophisticated, have high levels of debt, or register little income changes. Furthermore, the tax increase financed fiscal redistribution leads to a long-lasting increase in the consumption of the lower-income population. This paper was accepted by Lukas Schmid, finance. Funding: The authors gratefully acknowledge financial support from Social Science Research Thematic Grant in Singapore [Future-Proofing Singapore: An Economic Approach MOE2019-SSRTG-024]. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.4823 .

Proposed Interest Deduction Limitations and Applying the Arm’s Length Standard to the Quantum of Intra-Group Debt

Following the work of the OECD and G20, the Australian government is seeking to realign its thin capitalization and interest deductibility rules in accordance with the recommendations arising from BEPS Action 4, including shifting the focus from assets-based testing to profits-based testing for most entities. This is likely to be supplemented with a requirement to evaluate the arm’s length nature of the quantum of an Australian taxpayer’s intra-group borrowings and a unique integrity measure which seeks to deny debt deductions associated with borrowings that are connected with certain related-party asset acquisitions and payments. These measures represent a continued tightening by countries on tax deductions associated with high levels of debt.

Growth drivers in emerging capitalist economies: building blocks for a post-Keynesian analysis and an empirical exploration of the years before and after the Global Financial Crisis

This paper contributes to the growth models debate by expanding the concept of growth drivers to emerging capitalist economies (ECEs). Conceptually, the paper synthesizes growth drivers with a growth model operationalization based on GDP growth contributions and financial sector balances. Drawing on post-Keynesian and structuralist economics, as well as, empirical studies, seven growth drivers for ECEs are reviewed: income distribution, price and non-price competitiveness, commodity prices, private debt, foreign direct investment (FDI) and fiscal policy. Descriptive data for these drivers are presented for 19 regionally grouped ECEs between 2000 and 2019. On average, Asian ECEs exhibit higher growth rates, stable real exchange rates, high and increasing non-price competitiveness and high private debt levels. Latin American countries show comparatively lower growth rates, high but decreasing income inequality, unstable exchange rates and relatively expansionary fiscal policy after the Global Financial Crisis (GFC). Central and Eastern European countries generally display medium to high growth rates, lower income inequality, high non-price competitiveness, a substantial FDI stock and, after the GFC, real depreciations and contractionary fiscal policy. The assessment of cross-country growth drivers via bivariate coefficients reveals limited robust results, except for non-price competitiveness, which emerges as a significant driver. Additionally, we find indications that private debt and expansionary fiscal policy became more important for growth in ECEs after the GFC. This is in line with the emergence of domestic demand- and private debt-led growth models in ECEs following the GFC in the course of private deleveraging and austerity policies in developed capitalist economies.

A novel approach to estimating the debt capacity of European SMEs

Research background: The concept of debt capacity assumes that a maximum value of debt ratio exists that when exceeded triggers unfavourable consequences, such as drop in market value, default or a change in the business' creditworthiness. With the current state of the art there is a priori no theoretical assurance that such a specific value exists, or rather it is represented by an interval of values. Beyond that, our understanding of debt capacity is often limited to a theoretical approximation by firm-specific factors, while the context of macroeconomic factors, especially those critical for SMEs, is neglected. Purpose of the article: The aim of this paper is to present a novel approach to estimating SMEs' debt capacity. Further, the aim is to answer the question of what firm-level and macroeconomy conditions lead to exhausting the SMEs' debt capacity and under what conditions a specific value of maximum debt capacity could be estimated. Methods: To estimate the debt capacity, we suggest a use of an information entropy minimising heuristic and the Minimal Description Length Principle. In this approach, the observed feature space is categorised into several regions. In this case, such a region represents a set of firm- and macroeconomy-specific conditions forming the debt capacity of the SMEs. To the best of our knowledge, such an approach has not yet been used in debt capacity applications. Findings & value added: We found out that the debt ratio itself provides little explanation of exhausted debt capacity, suggesting that high debt levels are compensated for by other factors. By using the suggested approach, a set of more than 100 different regions was analysed. It was found that in case of five regions (sets of conditions) the debt capacity is exhausted, as the high level of debt has significant distress consequences.

Analisis Legalitas Pemberian Kredit Tanpa Agunan oleh Bank Berdasarkan Uu No 10 Tahun 1998 tentang Perubahan Atas Undang Undang No 7 Tahun 1992 Tentang Perbankan


 
 
 
 
 
 
 
 
 
 
 
 
 Unsecured Credit (KTA), is one of the products of financing institutions such as banks. KTA is a financing product that is quite widely carried out in addition to people's business loans and leasing. This product is considered quite commonly given by financing institutions such as banks to their debtor customers, by analyzing their track record of making agreement transactions according to the opportunity. So that KITA has until now become a fairly legal financing product even shaded by BI and OJK. However, the problem is that KTA also presents a considerable risk with a high level of bad debt. Many banks experience crucial problems, in carrying out this program, one of which is BNI. From the problems that have occurred, the purpose of writing this article is, analyzing the legality of criminal application or unsecured credit based on the provisions of the law on banking. The analysis process is carried out by literacy studies based on normative principles. The basis of this research shows that the legality of providing unsecured loans has not fulfilled sharia principles as stated in article 8 Paragraph 1 of the Law on banking, even though OJK and BI have legalized such activities. This is because unsecured credit is a high-risk financing activity.
 
 
 
 
 
 
 
 
 
 
 
 

The impact of the COVID-19 pandemic on social and environmental reporting and financial performance of airlines operating in the UK

Purpose The COVID-19 pandemic has had an unprecedented impact on almost all sectors, but the airline industry has been globally most affected. Although recent years have witnessed an increase in attention to corporate social responsibility (CSR) reporting, the disclosure within the airline sector has been historically limited. This paper aims to explore the impact of the COVID-19 pandemic on social and environmental reporting and financial performance of airlines operating in the UK. Design/methodology/approach The paper applies content, textual and financial analysis to 16 company-year observations covering two fiscal years, 2018 and 2020, of eight airlines operating in the UK. A coding structure is based on the Global Reporting Initiative guidelines. NVivo is used for textual comparative analysis. Findings The research reveals that social disclosures exceeded environmental disclosures in the period before and during COVID-19. However, the pandemic has shown a significant increase in environmental rather than social disclosures. The study evidences the dominating themes of social and environmental disclosure, showing changes between 2018 and 2020. The study finds the extent of negative impact of COVID-19 on airlines’ financial performance. A period of crisis prompts companies to release more information, with a positive correlation between higher debt levels and increased disclosure. Originality/value The findings complement the emerging empirical evidence on the impact of COVID-19 on CSR reporting and demonstrate how challenges posed by the COVID-19 crisis affect the disclosure practices in the airline industry.

A machine learning approach for time series forecasting with application to debt risk of the Montenegrin electricity industry

Level of customer electricity debts is a relevant information for the electricity production company, as it represents uncollected revenue for the provided service. Higher level of debts may affect the provider’s financial stability and the ability to invest and maintain their network. On the other hand, high levels of debt may indicate larger macroeconomic problems, such as the lower standard of the citizens or high unemployment. In this paper, a Machine Learning approach for electricity debt prediction was applied, using Support Vector Regression method and data from the Montenegrin electricity provider. The obtained results indicate an excellent model performance, proving that the chosen method is an outstanding choice for this task, compared to other machine learning methods. The forecast of electricity user debts using machine learning techniques adds a new research area to the existing research, as the previous literature mostly concentrated on the prediction of electric load, consumption, and demand. The risk of default may be larger in lower income nations, as is the case in this research, therefore risk prediction and mitigation are crucial for the power supplier in these countries. The results obtained in this research on the test set are 1.63% and 0.854, for Relative Error and R2, respectively, showing excellent predictive performance. Additionally, correlation coefficient is close to 1 in cross-validation and on unknown data. Thus, it can be confirmed that the debt prediction was efficient.

Policy packages and policy space: Lessons from COVID-19

This paper uses the onset of COVID-19 to examine how countries construct their policy packages in response to a severe negative shock. We use several new datasets to track the use of a large variety of policy tools: announced fiscal stimulus (both above- and below-the-line), monetary policy (through interest rates, asset purchases, liquidity support and swap lines), foreign currency intervention, adjustments to macroprudential regulations (including the countercyclical capital buffer) and changes in capital controls (on inflows and outflows). The results suggest that pre-existing policy space was usually more important than other country characteristics and the extent of “stress” (in economic, financial, and health measures) in determining how a country responded to COVID-19. The notable exception is for fiscal stimulus, for which existing policy space did not act as a significant constraint in advanced economies. This is a sharp contrast to results for earlier episodes—although advanced economies with higher debt levels may have been constrained in how they provided stimulus (with more below-the-line commitments). Moreover, the use of (and space available) for each policy tool usually did not affect a country's use of other policies. This suggests that countries are not coordinating their tools optimally in an integrated framework, especially when policy space is limited for certain tools.

AWARENESS OF CREDIT MANAGEMENT AMONG PUBLIC SERVANTS IN MALAYSIA THROUGH COUNSELING AND CREDIT MANAGEMENT AGENCY (AKPK)

Credit Credit management is a crucial aspect in ensuring financial sustainability within society, particularly among civil servants. Therefore, it is paramount that the general public in Malaysia have a comprehensive understanding and awareness of the Credit Management program through the Credit Counselling and Management Agency (AKPK) to prevent the community from being burdened with high levels of debt, which could potentially lead to bankruptcy. As such, this article aims to analyze the behavior of public servants in the state of Kedah, involving a total of 150 individuals, in order to identify their level of awareness of the credit management program under the AKPK.This study employs quantitative methods to examine demographic factors, as well as the relationship between consumer understanding, awareness, and perception of credit management programs through the Credit Counselling and Management Agency (AKPK) among public servants in Malaysia. The results of this study can be useful in improving the quality of the Credit Management program under AKPK and raising awareness among civil servants towards credit management in Malaysia.

How Did Local Debt Burden Impact Governors’ Financing Decisions in Meeting Development Goals?

Since the commencement of the New Budget Law in 2015, China provincial governments was given the legal rights to issue Local Government Bonds, which has played a significant role in revealing local indebtedness that was built up over the years. The rapid infrastructure developments have brought up respective debt levels in various levels of governments, and there exist strong concerns on whether provinces with poor development levels are on the edge of financial distress. In addition, it is also unclear on the relationship between local economic development and high debt levels. This research is an attempt to answer that question, and provide observations and analysis based on past local debt data. In summary, this research used provincial LGB data and fiscal income statistics to establish relationships with local debt burden, governors’ financing decisions, as well as the LGB issuance limit setting process. Compared to existing research, updated provincial level data will be used (2015-2021).

GEOECONOMIC FRAGMENTATION: LIKELIHOOD OF GLOBAL FINANCIAL RECESSION AND ANALYSIS OF BANKING RISKS IN UKRAINE

The article was prepared as part of the scientific research “Accounting and financial mechanism of innovative interaction of business entities in the context of the transformation of the knowledge economy and socio-behavioral restrictions.” The article provides a systematization of the concerns of leading economists and financiers regarding the probability of a global financial recession. Current high inflation, low growth rates, high debt and high levels of fragmentation have been proven to reduce the incentives for investment needed to restore growth and improve living standards for the world’s most vulnerable. Both weak demand and high borrowing costs will put pressure on global financial companies, which in turn will force multinationals to cut costs, from cutting operating costs to laying off workers, it said. The author’s vision of methodological configurations and models of innovative interaction of business entities in accordance with the conditions of global challenges is given. The types of trade restrictions and barriers to technology diffusion are characterized, as well as the nature of geo-economic fragmentation that can be felt through cross-industry restrictions, namely cross-border migration, reduced capital flows and a sharp decline in international cooperation, which will make the world even more prone to upheavals. It is emphasized that the export-oriented economies especially suffer from fragmentation. Lower-income consumers in advanced economies will lose access to cheaper imported goods. Small open market economies will suffer greatly due to their heavy reliance on open trade. Supply chain disruptions are projected to have no impact on business activity in 2023, and the cost-of-living crisis may also be nearing its peak, with most. It is proposed to carry out an effective policy in the field of providing the financial market with banking regulation instruments and attracting new investment resources with a guarantee for investors to return their own funds. Scenarios for adapting the accounting and financial mechanism of innovative interaction of business entities to global challenges have been developed.

Judicial system reform and trade credit financing: Evidence from a quasi‐natural experiment

AbstractThis paper examines the impact of judicial system reform on trade credit financing using a quasi‐natural experiment in China. We find that the judicial system reform promotes the trade credit financing. The reform effect is stronger for firms that are non‐state‐owned, advocating trust culture orientation, and with high relationship‐specific investment level, high debt level, and low cash holdings level. Moreover, our results show that the increase in business transaction volume and the improvement of internal control quality are important channels to increase the trade credit financing. The judicial system reform has notably improved the total factor productivity and firm value.

Household net saving positions and unconventional monetary policy transmission: Evidence from Japan

This paper investigates the heterogeneous effect of unconventional monetary policy (UMP) on household consumption across different household net saving positions. Using Japanese household survey data on household balance sheet positions, income, and expenditures, we enhance the role of the cash-flow channel in the UMP transmission. Households in a lower net saving position (with a higher level of debt) exhibit significantly positive expenditure responses to expansionary UMP shocks. In contrast, households in an upper net saving position (with a lower level of debt) respond little. We also find that households in lower net saving positions primarily drive the aggregate effects of UMP on household consumption.

Debt and real interest rates: Evidence from G20 countries

AbstractIn this article, we examine the relationship between the debt and the ex‐post real interest rate on the basis of a sample from the G20 with the panel analysis, the panel threshold model, and a panel VAR model, particularly during times of high debt levels. In contrast to the results from the previous literature, our estimates suggest the negative connections between debt levels and real rates of interest: high debt levels reduce the current and expected real rate of interest, and the low real interest rate would raise the current and forward‐looking debt levels. Further investigations using the panel threshold model identify and quantify threshold values of debt on the forward real interest rate. In addition, we find that the threshold values of debt levels for advanced countries are far higher than the relevant values for emerging countries, which confirms the theory of “debt intolerance.” Third, the estimated impulse response functions from the panel VAR simulation support the significantly negative associations between debt levels and real interest rates. Fourth, the system GMM regressions and dynamic panel threshold tests show that our above conclusions are robust.

Peer-to-Peer (P2P) Lending in Europe: Evaluating the Default Risk of Borrowers in the Context of Gender and Education

In recent years, the importance of social lending activities and their effects on consumers have been highlighted by the widespread use of peer-to-peer lending platforms and the global race in fintech. Our study focuses on factors that affect the likelihood that European borrowers on peer-to-peer lending platforms, which are currently based in Estonia, Finland, and Spain, will default on their loans. Starting with the publicly accessible Bondora database, we examine the different economic and social characteristics of the borrowers to analyze the factors that contributed to loan default between 2013 and 2021. We use a Logit model to calculate the ex-post probability of default for factors derived from Principal Component Analysis as well as the original variables supplied by the database. The results show how crucially important education is for borrowers in lowering the risk of default, along with loan characteristics like high debt levels, long loan terms, and high interest rates. In addition, gender plays an important role in determining loan default, with a particular focus on women's conditions within the family. Regarding financial inclusion and its social implications, our findings suggest different ways to improve financial literacy and promote peer-to-peer lending. Future research could develop on the findings by applying them to other lending platforms and countries.

Impact of Family Control and Influence on Financing Decisions of Family Firms: A Case of Pakistani Family Firms in the Prospective of Socioemotional Wealth

This study focuses on the financing choices of family firms under the umbrella of Socioemotional wealth. It investigates how a family firm makes its financing policy based on persuasion of a non-financial goal which is the need to maintain family control over the business. In the context of non-financial Pakistani listed firms in the Pakistan Stock Exchange, with data range starts from 2009 to 2020. Our results show that family firms with a high need to maintain their family control over the business have high debt levels. Similarly having family representation on the board shows a positive relationship with debt financing. We also conclude that having a family CEO is also linked with the use of extensive debt. Our findings are consistent with the view that Socioemotional wealth is an important determinant of making important financial decisions.

The Interaction between Policy Mix in Lebanon: Applications of the Nonlinear and Linear ARDL Models

This study investigates the interaction between fiscal and monetary policies in Lebanon over the period 2001 to 2019 by using Autoregressive Distributed Lag (ARDL) and the Nonlinear Autoregressive Distributed Lag (NARDL) model introduced by Pesaran et al. (2001) and Shin et al. (2014) respectively in order to examine simultaneously the short- and long-run symmetric and possible asymmetric interactions between fiscal and monetary tools in Lebanon. The fiscal and monetary rules employed in this study are inspired from Leeper (1991, 2016 and 2018). Based on NARDL and ARDL fiscal and monetary reaction functions, Lebanese fiscal authority acts independently indicating a fiscal dominance. This situation obliged the BDL to neglect its main goal of maintaining price stability in order to support fiscal deficit by creating seigniorage revenue to balance the government accounts which in turns has led to an acceleration of inflation rates even in case of monetary contraction. The fiscal responsiveness to changes in public debt is extremely weak in Lebanon, and even is negative, and this is due to the high levels of public debt (174.3% of GDP in 2019). The empirical results indicate also that while the linear approach provides evidences of the interaction between the fiscal and monetary policies, the nonlinear approach provides more important evidences to determine in which direction this cooperation or conflict occurs between policy mix. Moreover, this paper provides new evidences of the absence of fiscal and monetary discipline rules followed by the fiscal and monetary authorities, which indicates that the policymakers in Lebanon were managing the financial and monetary policies without any specific plan or program and without any future vision or even a framework that allows these policies to be evaluated.