Interest-bearing Debt Research Articles

Achievement of privatization objectives of Japanese expressway companies

In 2005, Japan’s four road-related public corporations were privatized into expressway companies to achieve three main objectives: steady repayment of interest-bearing debt, early and inexpensive construction of expressways, and provision of various services. Currently, all shares of the three Nippon Expressway Companies are owned by the Japanese government; however, the government plans to consider listing its shares in the future. To promote discussion on further privatization of expressway companies, examining the status of the original objectives and the factors that have contributed to their achievement or non-achievement is imperative. By analyzing the Japan Expressway Holding and Debt Repayment Agency agreement documents and investor relations information, this study clarifies the achievement status of the aforementioned objectives and identifies factors that have contributed to their attainment. The findings indicate that while the objective of repaying interest-bearing debt has been achieved, there is still ambiguity regarding the early and inexpensive construction of the expressway objective. Furthermore, the objective of providing various services has not been achieved. The results indicate that identifying the factors related to the achievement or non-achievement of the objectives can help further privatize these companies more efficiently.

Financial Sukuk: Concept, Legal Principles, and Types

Sukuk, often referred to as Islamic bonds, represent a unique and innovative financial instrument within the realm of Islamic finance. Originating from the principles of Shariah law, Sukuk offer a distinct alternative to conventional bonds by adhering to Islamic principles that prohibit the payment or receipt of interest (Riba). Instead of interest-bearing debt, Sukuk are structured as investment certificates, granting investors a share in the ownership of tangible assets or services. This adherence to Shariah principles ensures that Sukuk are compatible with Islamic ethical and legal standards, attracting a diverse range of investors seeking financial instruments aligned with their religious beliefs. As Sukuk continue to gain prominence in global financial markets, they contribute to the development of more inclusive and diverse investment options, catering to both Islamic and non-Islamic investors alike. This research paper presents a thorough literature review of Sukuk in the Islamic economy and showcases their definition, typologies and other aspects. Sukuk, often referred to as Islamic bonds, play a significant role in the Islamic economy. These financial instruments comply with Islamic law (Shariah) principles, which prohibit the payment or receipt of interest (Riba) and promote risk-sharing and asset backing. Sukuk provide an alternative means for raising capital that aligns with Islamic finance principles. The study herein is of significance for researcher as well as postgraduate researchers in the areas of Islamic banking, economy studies and accounting.

Analisis Tingkat Literasi Keuangan Syariah Petani Padi Di Desa Sei Penggantungan Kabupaten Labuhanbatu

Sei Penggantung Village, Labuhanbatu Regency, is an underdeveloped village starting to develop. Having the majority of the population working as rice farmers makes farmers during the farming period always need capital, but often in farming activities, farmers are always constrained by money. Farmers always borrow from conventional financial services in the village when there is a shortage of capital. This does not solve the problem but creates a new trial, namely interest-bearing debt, so a new financing system is needed that avoids interest. Islamic financial institutions can be an option for farmers as a source of capital. The aim is to assess knowledge of Islamic finance among farmers. The study was conducted from October 2022 to January 2023. It used four indicators to measure Islamic financial literacy: Islamic savings and loans, basic knowledge of Islamic finance, Islamic investment, and Islamic insurance. A survey method was used to collect data, and a sample of 30 individuals was selected through purposive sampling. Data collection was carried out by interviewing using a questionnaire, and previously the questionnaire items were validated and tested for reliability. Descriptive statistics were used for analysis. The results showed that the level of Islamic financial literacy among rice farmers in Sei Penggantungan Village was low, with an index value of 59.66%. According to the classification of Chen and Volpe (1998), it is included in the low category (<60%). The main factor causing low Islamic financial literacy among farmers is the limited access of rural communities to financial education related to Islamic financial services. This includes understanding the features, benefits, risks, rights, and obligations associated with the service. This drives the lack of public interest in using Islamic financial services causing farmers to continue to rely on moneylenders to find sources of capital.

Research on Whether Enterprise Financialization Can Improve Enterprise Investment Efficiency

This paper examines the relationship between corporate financialization and the efficiency of corporate investment and explores the mechanisms, taking non-financial listed companies in the Chinese A-share market as a sample. The study finds that corporate financialization has a significant positive impact on the efficiency of corporate investment. The results of the mechanism analysis show that corporate financialization can improve the efficiency of corporate investment by reducing the ability of earning cashflow, alleviating corporate interest-bearing debt and enhancing financial risk. The results of the heterogeneity analysis show that the positive effect of financialization on investment efficiency is more pronounced among manufacturing firms and firms located in non-high administrative class cities. This study has implications for the use of financialization tools by firms to serve physical investment and thus optimize their investment efficiency.

Financial structure, cycle, and instability

The subprime loan mortgage crisis has revived scholarly interest in Minsky’s financial instability hypothesis. The related mathematical models present two types of Minskian financial structures. We construct macrodynamic models that consider both structures and discuss financial instability and cycles. We also demonstrate that one of the financial cycles occurs when a real factor stabilizes the economy. The burden of interest-bearing debt is an important determinant of the cycle. We posit that the escalating financial fragility in this cycle is a more appropriate interpretation of the Minskian financial structure that refers to hedging, speculative and Ponzi behaviors. We further demonstrate that another financial structure destabilizes the economy. If the instability occurs at the point of fragility, then the economy may deteriorate into financial crisis. Fragility then becomes instability.

CEO Characteristics, Firm Policy, and Firm Performance

This research aims to investigate the effect of CEO characteristics (female gender, education, and age) on the financing policy (interest-bearing debt to total assets), investing policy (capital expenditure), and firm performance (return on assets) when it is controlled by firm size and firm age. Our research uses the data of the manufacturing companies listed on the Indonesia Stock Exchange (IDX) in the period 2010 - 2017. The results of our research show that female CEOs have a significant negative effect on financing policy. This has a significant positive effect on firm performance, but no significant effect on investing policy. We also found that CEO education negatively and significantly affects financing policy, but positively and significantly affects investing policy and performance. Meanwhile, CEO age has a significant negative influence on financing policy but no significant influence on investing policy and performance. Our research results support behavioral finance theory by providing empirical evidence that CEO behavioral aspects are correlated with the female gender, education, and age in terms of significantly affecting firm policies and performance. The implication of this research is that investors should know the CEO characteristics of the companies in which they invest their money because the CEO characteristics can be used as references to predict performance and CEO policy decision-making.

CONTRIBUTION OF ALTERNATIVE THEORIES OF MONEY TO THE CREATION OF A MODEL OF THE MONETARY SYSTEM IN RUSSIA (LATE XIX — EARLY XX CENTURY)

The economic and political instability of the present time in the world, being a reflection of the complex process of transition to new post-industrial technologies, increases instability in the sphere of monetary relations. The article aims to investigate the conceptual differences that contributed to the formation of alternative approaches in the theory of money at the turn of the XIX–XX centuries during the discussion of the prospects for the transition to credit circulation in extreme economic conditions. Attention is drawn to the fact that the problem of choosing a model of the monetary system, metallic or monetary, becomes the most urgent during the transformation of the economy.
 
 The article provides a comparative analysis of the key provisions of the nominalist, quantitative, credit and conjunctural theories of money, their conceptual differences in understanding the nature, functions of banknotes and their role in price formation. The features of the conjunctural theory of money that distinguish it from the provisions of alternative concepts, market and state mechanisms for regulating money turnover are clarified. Algorithms for the formation of the general level of money prices in the conjunctural theory of money by M.I. Tugan-Baranovsky are considered. It is shown that the concept of nominalism, which expresses the interests of the state, justifies the need to use paper banknotes as the most effective financial resource of the government in emergency economic situations and the demonetization of gold.
 
 The proposals of the leaders of the modern theory of money concerning the forced issue of "sovereign currency", weakening the national currencies of other countries, are analyzed. It is shown that the incorrect interpretation of the categories of government bonds and national currency by the leaders of the modern theory of money in comparison with the classical provisions narrows the field of scientific analysis, leads to a confusion of the concepts of state interest-bearing and interest-free domestic debt, and destabilization of the monetary and economic system as a whole.
 
 The contribution of alternative concepts of money to the creation of a theoretical model and structure of the Russian state monetary system of the early twentieth century is shown. It is concluded that during periods of acute shortage of budgetary resources, there is a revival of the arguments of the nominalist theory of money in new economic conditions.

Beautiful cycles: A theory and a model implying a curious role for interest

Where do economic cycles come from? This paper contemplates an utmost minimalistic model and an underlying theory that rest on two assumptions that let them emerge endogenously: (1) the presence of interest-bearing debt, and (2) a degree of downward nominal wage rigidity. Despite its parsimony, the model generates well-behaved, self-evolving limit cycles and replicates six essential empirical facts: (1) booms are long, while recessions short-lived; (2) leverage is procyclical; (3) firm profit and wage shares are countercyclical and procyclical, respectively; (4) Phillips curves are downward-sloping and convex, and Okun’s law is replicated; (5) default cascades arise at the turning points to recessions; (6) lending spreads are countercyclical. One can refer to the model as being of a dynamic stochastic general disequilibrium (DSGD) kind.

Beautiful Cycles: A Theory and a Model Implying a Curious Role for Interest

Where do economic cycles come from? This paper contemplates an utmost minimalistic model and underlying theory that rest on two assumptions for letting them emerge endogenously: (1) the presence of interest-bearing debt; and (2) a degree of downward nominal wage rigidity. Despite its parsimony, the model generates well-behaved, self-evolving limit cycles and replicates six essential empirical facts: (1) booms are long- while recessions short-lived; (2) leverage is procyclical; (3) firm profit and wage shares in GDP are counter- and procyclical, respectively; (4) Phillips curves are downward-sloping and convex, and Okun’s law relation is replicated; (5) default cascades arise endogenously at the turning points to recessions; (6) lending spreads are countercyclical. One can refer to the model as being of a Dynamic Stochastic General Disequilibrium (DSGD) kind.

Beautiful Cycles: A Theory and a Model Implying a Curious Role for Interest

Where do economic cycles come from? This paper contemplates an utmost minimalistic model and underlying theory that rest on two assumptions for letting them emerge endogenously: (1) the presence of interest-bearing debt; and (2) a degree of downward nominal wage rigidity. Despite its parsimony, the model generates well-behaved, self-evolving limit cycles and replicates six essential empirical facts: (1) booms are long- while recessions short-lived; (2) leverage is procyclical; (3) firm profit and wage shares in GDP are counter- and procyclical, respectively; (4) Phillips curves are downward-sloping and convex, and Okun’s law relation is replicated; (5) default cascades arise endogenously at the turning points to recessions; (6) lending spreads are countercyclical. One can refer to the model as being of a Dynamic Stochastic General Disequilibrium (DSGD) kind.

Debt and inequality: Comparing the “means of specification” in the early cities of Mesopotamia and the Indus civilization

To transform debts into permanent inequalities, David Graeber (2011:14) argues that creditors must possess the “means to specify” what they are owed. Therefore, changes in the technologies used to specify can transform social relations, warranting a deeper investigation of what are effectively the “means of specification.” Seals and sealings from the early cities of South Asia and the Near East are a touchstone for comparing changes in the means of specification. I examine seals and sealings from Mesopotamia, where a managerial ruling class held power, and the Indus civilization, where urbanism thrived under relatively egalitarian conditions. Seals and sealings did not inevitably fuel inequality. In Mesopotamia, it was only after millennia of control by exclusionary and often violent political institutions that the ruling class used the means of specification to establish interest-bearing debt, a form of “extractive reciprocity” that transferred value to creditors in an ongoing social relation. In the Indus, where there was no such ruling class, seals remained readily accessible and widely distributed, sustaining “balanced reciprocity” (Sahlins, 1972:194) in intensifying urban settings. While changes in the means of specification can create permanent inequalities, they can also help delay the completion of transactions until equitable conditions prevail.

If you don't owe, you don't own: debt, discipline and growth in rural Colombia

This paper explores the connections between indebtedness, discipline and economic growth in the context of rural Colombia. It investigates the expansion of interest-bearing debt and the transformations that this has elicited on the lives of peasants in the country's most important hub of cocoa production: El Carmen de Chucurí. Within a framework combining agrarian studies, political economy and economic anthropology, the study is based on ethnographic data which allowed a nuanced understanding of the phenomena at play. In order to comply with timely debt repayment, peasants have been forced to adopt “maximizing strategies” based on a specific (capitalist) form of economic rationality, and to extend their work routines at the expense of their health. Theoretically, I argue that these transformations of their mindsets and bodies, respectively, can be understood as part of the overarching disciplining effects of debt. In particular, the changes brought about by debt have materialized in a renewed push towards increasing cocoa's productivity and profitability. By focusing on the consequences of indebtedness on the debtors' lives, this paper challenges the conventional idea that economic growth is only the outcome of a “natural desire” for improvement. Instead, rising productivity of cocoa can also be read as the result of a compulsion for growth in order to repay loans. This has important implications for analysing the rise and evolution of capitalism. In advancing some of its key imperatives (i.e. accumulation and profit maximization), debt repayment can be seen as a major channel for the reproduction of capitalism in the countryside.

The Impact of Population Aging on Local Government Debt

International evidence of Japan and European countries indicates that government debt burden could be aggravated by population aging in the long run. During recent years, population aging in China has been accelerating, with the debt burden of local government increasing simultaneously. Therefore, it is high time that the impact of population aging on local government debt should be taken seriously. However, until now there is still rare research upon whether China’s local government debt burden has been intensified by population aging.In view of this, firstly, this paper estimates the debt burden of each province from the perspective of interest-bearing debt of local government financing platforms. It covers both the explicit debt and the implicit debt, so the results are more accurate. Secondly, this paper analyzes the impact of population aging on local government debt using panel data of 30 regions in China（excluding Tibet）from 2010 to 2017. The empirical results show that the population aging has already worsen the debt burden of local governments to a considerable extent. What’s more, the panel intermediary effect analysis reveals that population aging could exert pressure on local government debt mainly from two aspects. On the one hand, fiscal expenditure on pensions would be more and fiscal revenue would be less, which will expand the numerator of debt-to-GDP ratio and push up the local government debt burden. On the other hand, economic growth slows down as population aging goes severer, which will whittle down the denominator of debt-to-GDP ratio and push up the local government debt burden.According to the prediction of the World Population Prospects（2019 Version）, the population aging rate of China will reach 16.9% by 2030, and reach 26.1% by 2050. Given that the risk posed by population aging to local government debt has been too serious to be ignored, this paper puts forward the following policies based on the mechanism analysis. Firstly, improve the pension system and reduce the burden of fiscal pension expenditures by increasing the size of personal pensions and increasing the return on investment of pension funds. Secondly, as local governments’ fiscal revenue will decline during the population aging process, it is difficult for them to accomplish the affairs arranged by the central government. It is necessary to further strengthen the central government’s authority and expenditure responsibility, so as to reduce the fiscal pressure of local governments. Thirdly, it is necessary to accelerate the innovation progress taking high-tech industries such as artificial intelligence as a starting point, so as to build up GDP and to dilute the debt burden, which can also achieve the purpose of reducing the risk of local government debt.

Determinants of credit card spending and debt of Chinese consumers

PurposeThe rapid growth of credit card use in China poses the potential for card overuse and the accumulation of increased debt. The purpose of this paper is to report on an investigation into the determinants of overall credit card spending and card-financed debt by Chinese consumers.Design/methodology/approachThis study focusses on two dependent variables: credit card monthly spending and card debt. The spending measure is based on consumer outlay for the month preceding the survey. Card debt is the consumers’ outstanding credit card debt when the survey was conducted. Three groups of independent measures are used: socio-demographic characteristics, card features and consumer attitude towards money. Both card spending and card debt are estimated with OLS methods. Data was obtained from the 2013 China Household Finance Survey of 1,920 households in 29 provinces and 262 counties across China that used credit cards over the survey period.FindingsThe empirical findings suggest consumers’ attitude towards money is more important in explaining card spending and debt variation than socio-demographic characteristics and card features. The credit limit set for a card, obligations to other loans and the method of paying for ordinary shopping exhibit positive effects on both card spending and card debt, while age exhibits a negative effect. Further, card spending is positively correlated with card debts, but the factors that determine card spending do not necessarily affect card debt and vice versa. Minimum card debt payments, cash advances, card tenure and interest-bearing debt have no effect on card spending but have positive effects on card debt. In addition, gender and income have opposite effects on card spending and debt.Practical implicationsThe relationships we have documented suggest several actions the Chinese Government could consider dealing with credit card debt risk. Controlling the aggressive promotional campaigns that card issuers use to attract consumers and aggressive credit policies should be a focus of attention. The Chinese Government might, for example, impose minimum age and income requirements for granting credit cards and prohibit issuance of new cards to applicants who are already in debt with other types of credit. In addition, more stringent criteria to curb increases in card limits and tighter control over cash advances made on cards should be applied. Minimum payment amounts can also be increased in order to reduce credit card debt risk.Originality/valueDespite ample documentation of consumers’ credit card behaviour, the literature is deficient in at least two areas of enquiry. First, most previous research has investigated either credit card spending behaviour or card debt, but not both. Second, with few exceptions, most research has investigated a range of specific factors that affect credit card use. In contrast, this study investigates card spending as well as card debt behaviour using a wide variety of consumer dimensions particularly relevant to credit card use and resulting debt. In addition, this study focusses on Chinese consumers, who traditionally prefer to save first and delay spending. The impact of the rapid growth of credit card use on this traditional Chinese orientation towards spending is dynamic. Documenting the influence of the individual factors examined in this study is likely to be of value to both policy makers and institutions that offer and manage credit in this changing environment.

The Societal Benefits of Money and Interest Bearing Debt

A long standing issue in monetary theory is whether money and interest bearing debt may both play a beneficial role in facilitating transactions. This paper identifies in the misallocation of liquidity a key element to provide an answer. In a search model of money, we show that there exists an equilibrium which resembles a liquidity trap, in which debt and money are used interchangeably to trade goods and debt carries no interest, and a Pareto superior equilibrium in which money is used to trade goods and interest bearing debt to reshuffle misallocated liquidity. Monetary policy has no effect in the liquidity trap, and a liquidity effect in the Pareto superior equilibrium.

CEO Education, Financial Decision and Firm Performance

Many previous studies have shown that the number of CEOs holds MBA is still low and less dominating. We analyze the effect of CEOs with MBA degree on funding decision, investment decision and firm performance. Using 38 manufacturing companies that listed on Indonesia stock exchange during 2010-2017 analyzed with multiple linear regression. We find that CEOs with MBA degree significantly have lower interest-bearing debt, higher capital expenditure and higher return on asset than companies with non-MBA CEOs. These research results provide information to shareholders and management of manufacturing companies to consider and provide equal opportunities to hire MM-MBA CEOs.

Viability of Sharia Financing Instruments

Current regulatory and tax frameworks of most countries in the world are inclined towards interest-bearing debt instruments. The regulatory framework designed for conventional financing may also comply with Sharia financing instruments, as both are on a par and capturing world financial markets steadily and successfully. If policymakers are inclined to achieve a certain degree of stability, a shift has to be made to provide a level playing field for equity modes of financing.

REKONSTRUKSI OBLIGASI: INVESTASI DALAM PERSPEKTIF SYARIAH

Investment is highly recommended in Islam. The Al-Quran and Al-Hadith of Prophet Muhammad PBUH and companions support the existence of investment in the use of productive capital resources. The investment must be in accordance with the rules of Islam. Norms in investing according to sharia are free from elements of usury, uncertainty (gharar), gambling (maysir), haram, and syubhat. Bond is one form of investment, but the practice of conventional bonds is usury which is clearly forbidden by the verses of the Qur'an and hadith Saheeh and consensus (ijma ') of the scholars both salaf and khalaf. The reconstruction of bonds to conform to sharia principles needs to take into account some of the underlying prohibitions with bonds. Basically the fundamental difference between sharia bonds and conventional bonds lies in the determination of interest rates of magnitude determined at the beginning of the transaction. Syariah bonds are not a fixed interest-bearing debt as contained in conventional bonds, but rather are fund-raisers based on the principle of profit-sharing. The transaction is not a debt of accounts receivable but an inclusion. Sharia bonds (sukuk) as a form of financing and investment allow some form of structure that can be offered to avoid usury. Sharia bonds can be profit sharing based on mudharabah / muqaradhah / qiradh or musyarakah. While margin / fee based on murabaha or salam or istishna '.

Earnings quality and cost of debt: evidence from Portuguese private companies

Purpose The purpose of this paper is to test the relationship between earnings quality and the cost of debt for private companies in a “code-law” country (Ball et al., 2000). The analysis controls for company size, debt level and audited information. Design/methodology/approach The paper uses the ordinary least squares regression technique to test the relationship between earnings quality and the cost of debt. Findings The collected empirical evidence shows a negative relationship between earnings quality and the cost of debt and controls for company size and debt level. Such a relationship is stronger when the company information is audited. Research limitations/implications Similar to other studies, this paper has two main limitations. There was no access to specific data on the interest rates charged on bank loans, implying that the cost of debt is measured by the ratio of the interest expense to interest-bearing debt. The research only uses earnings quality measures based on abnormal accruals. Practical implications The collected evidence suggests that earnings quality have economic consequences for private companies by affecting their cost of debt, similar to those observed in previous studies for listed companies. This evidence can be seen as an incentive for private companies to increase their financial information quality. For debt providers, namely, financial institutions, the findings can be of interest to help them price properly the loans they make available to private companies. In general, the findings of this research can be of interest for company managers and financial institutions in countries with an institutional environment similar to that of Portugal. Originality/value The relation between earnings quality and the cost of debt has been so far studied for listed companies in “common law” countries. This paper provides new and complementary evidence about such relation for private companies and “code-law” country.

Ecological monetary economics: A post-Keynesian critique

The monetary analysis of some ecological economists currently appears to be mostly articulated around the following core: a stationary economy (and a fortiori a degrowth economy) is incompatible with a system in which money is created as interest-bearing debt. To question the relevance of the debt-money/positive interest rate/output growth nexus, this paper adopts a critical stance towards the currently emerging ecological monetary economics from the standpoint of another strand of heterodox economics – the post-Keynesian approach. In its current state, ecological monetary economics is at odds with post-Keynesian economics in its analysis of the money–growth relationship. This will be shown using the theory of endogenous money and a simple Cambridgian–Kaleckian model where debt-money and a positive interest rate are compatible with a full stationary economy.