Debt Levels Research Articles

IMPACT OF PRODUCTIVITY, CORRUPTION, AND GROWTH ON DEBT: EVIDENCE FROM PANEL DATA ANALYSIS

In a number of nations, the economic uncertainty that began several years ago has manifested its negative effects, and the COVID-19 crisis has exacerbated the situation. Many nations struggle to finance their social and economic public healthcare due to limited resources and fiscal space. In order to save their economies, this has pushed them towards high levels of debt. This study’s objective is to examine the effect of government debt on productivity, GDP growth, tax revenue, and corruption. Panel data analysis was used to identify the significant factors that affect government debt in 16 Western European countries based on their severe subprime crisis in 2008 and sovereign debt in 2009, which fall between the timeframes of this study. The findings revealed that government debt impacts productivity, GDP growth, and corruption. As a result, effective productivity control is critical when dealing with government debt. Efforts to develop world-class human capital, equipped with sophisticated skills or talent management, in order to increase a sector’s income and competitiveness should be aligned with efficient and effective public spending. Public projects must be thoroughly evaluated and monitored in terms of feasibility, economic and social returns. As a consequence, this study suggests that a profound and comprehensive reformation across various sectors in the country is required, particularly through productivity, growth, and corruption, in order to control a country’s debt.

The Relevance of Sectoral Clustering in Corporate Debt Policy: The Case Study of Slovak Enterprises

The processing and transformation of natural resources into completed and semi-finished products is the primary function of industry in each nation’s economy. There is no denying the significance of industry and sectoral classification of the economy, but the slow development and extension of one industry could have resulted in the advancement of other sectors that are now a part of contemporary communities. Since there are statistically significant differences between various industries, numerous authors are currently investigating the impact of the industry on the financial structure of firms, revealing the industry as a crucial determinant of corporate indebtedness. Thus, the main aim of this study is to determine the debt level of a sample of 4237 enterprises operating in the market in the period of 2018–2021 from various sectors using eight debt indicators, as well as to identify relationships between them, which may help to reveal sectors with homogeneous patterns of indebtedness (using the cluster analysis) and thus understand which sectors are the most stable and independent. The Kruskal–Wallis test is then used to determine if there are statistically significant differences between the calculated ratios related to the economic sector. Based on the results, it can be concluded that the choice of financial structure is significantly influenced by the industry. Financial performance and indebtedness indicators are quantitative statistics used to assess, monitor, and forecast company or sectoral financial health. They act as instruments for business insiders and outsiders to assess a company’s performance, particularly in comparison to competitors, and to pinpoint its strengths and weaknesses, making the outputs of this study important for all types of stakeholders.

One more piece of the family firm debt puzzle: the influence of socioemotional wealth dimensions

The literature on debt financing in family firms is still inconclusive. Initial studies have usually focused on the influence of family involvement on firm’s debt levels by using the explanations of traditional economic theories. More recent studies have begun to focus on the role of family goals in family firm debt levels, particularly drawing on socioemotional wealth (SEW), which has helped in the development of financial theories of family business. Nevertheless, existing arguments have usually not considered SEW as a multidimensional construct that covers diverse family goals. In addition, literature has usually drawn on arguments considering SEW as a stock, but have not considered the importance given to SEW (SEWi), which specifically acknowledges SEW as a goal. Our paper responds to recent calls to extend theoretical arguments on the effect of diverse dimensions of SEWi on family firm behavior and to focus on the role of SEWi on the family firms’ debt. Specifically, we test how the CEOs’ assessment of the importance that their family attaches to the continuity, prominence, and enrichment dimensions of SEWi influences the level of debt. To do so, we use a sample of 126 Spanish unlisted family businesses. Our results show that the continuity dimension of SEWi leads family businesses to increase their debt level being a key determinant of this financing decision.

A Comprehensive Approach to Bankruptcy Risk Evaluation in the Financial Industry

The study presents a comprehensive approach to examining the potential risk of bankruptcies in financial sector organizations. This investigation explores 20 financial sector entities and evaluates their fiscal history from 2000 to 2018. The developed model assesses the chance of these companies going bankrupt by analyzing indicators like liquidity, profitability, debt composition, and operational effectiveness. These metrics are contrasted to regulatory requirements and assessed as having low, moderate, or elevated risk repercussions, ultimately contributing to an overall threat rating. Additionally, the model has a unique algorithm that compensates for excessive debt levels, strengthening the reliability of the risk appraisal grade. This straightforward instrument illustrates the demand to incorporate a variety of financial health indicators. According to the findings, excessive amounts of debt have a detrimental influence on profitability, leading to decreased stock returns and a greater probability of bankruptcy. These findings have practical implications for investors and stakeholders, providing insightful information to help inform decision-making, especially during periods of economic unpredictability such as pandemics. Furthermore, they encourage the enhancement of financial market efficiency.

Economic Crisis of Bangladesh's RMG Sector Effect of Government Borrowing to Meet the Budget Deficit

The economic crisis in Bangladesh's real estate industry sector is a cause for concern as it is heavily affected by the government's borrowing to meet the budget deficit. The high level of debt has led to inflation and a decrease in consumer spending, which has harmed the real estate market. Developers are struggling to find buyers for their properties and are facing financial difficulties as a result. The government should consider implementing policies to address the budget deficit and reduce the burden on the real estate industry. This could include measures to increase revenue through tax reform and reducing government spending. Additionally, the government should also focus on providing incentives for investors to invest in the real estate market, such as tax breaks and subsidies. Overall, addressing the budget deficit and providing support to the real estate industry is crucial to ensuring the stability and growth of the economy. The majority of the government's revenue comes from taxes, VAT, and the domestic sale of bonds and certificates of deposit, making it one of the largest corporations in any nation's financial industry. There are three organizations through which governments may occasionally borrow money from other nations: the World Bank, the IMF, or LIBOR London Inter Bank. To close the budgetary gap, higher-rate borrowing will be necessary. Estimating income and expenses before making any purchases or placing anything on the market is the primary tenet of a budget.

Determinants of office rents: the role of physical and locational characteristics in Colombo

PurposeThis paper examines rent determinants and their relationship with commercial office property rents.Design/methodology/approachThe method adopted in this study differs from that of previous studies on this topic. Firstly, based on the survey of the viewpoints of experts, Relative Importance Index (RII) analysis was used to identify rent determinants and to rank and ensure their relevance and validity in the Sri Lankan context. Secondly, sampling of data related to 115 office properties collected from property tenants and landlords located within the central built-up area of Colombo City was conducted using a multi-methods approach to carry out an objective hedonic analysis of office rents.FindingsThis research utilizes RII and hedonic models to provide insights into determinants and relationships. Both analyses confirm that the three top drivers of commercial office rent are distance from the major town center, availability of parking space and the condition of the property. In addition to these three factors, hedonic models reveal that the age of the property and the availability of a conference hall also play a relevant role in explaining office rents. Given the disparities in the findings of the two methods, further examination was able to confirm that factors such as distance from the major town center, parking availability, age of the property, presence of a conference hall, building condition, floor size, business type and type of building are likely to influence commercial office rent. These findings reflect elements such as the quality, newness and better facilities of different office properties.Practical implicationsThis systematic study and analysis of office rent for the guidance of real estate investors can support sound investment decisions, potentially leading to more financially sound property development, reduced public debt levels and improved public-private financing. Further, the research findings offer valuable insights to real estate investors, developers and planners regarding location decisions for office development quality enhancements in future office developments.Originality/valueThis research provides fresh insights into the local scale office market, an area where limited evidence currently exists. Further, the methodology adopted provides evidence that hedonic analysis, supported by a multi-method approach, can mitigate the subjective judgments made by professionals.

Exploring the nexus between mineral policies, natural resource utilization, and green reforms for driving economic growth in China

The rapid economic growth fueled by resource-intensive industries has made China a global power, but only at high environmental costs. This study examined the complex relationship between China's mineral policies, appropriation of natural resources, green reform, and the ultimate impact on economic growth. Using data from the China Statistical Yearbook and Ministry of National Resources, running back to 1986 through 2022-all with a detailed regression analysis approach. It incorporates a Vector Error Correction Model (VECM) to examine the relationships between natural financing, GDP, and debt levels; it uses Wald test estimates to uncover accurate connections in Corporate Social Responsibility (CSR). These findings suggest that although mineral-intensive industries have reigned supreme in making China an economically powerful nation, green reforms need to be implemented to slow the degradation of our environment. What we need are changes aimed at continuing but sustainable growth. This is further evidence of the contribution of green initiatives to economic prosperity. Facing a world worried about climate change and resource scarcity, how China walks the tightrope between economic development goals and ecological sustainability is significant to China and international society. Policymakers, industries, and environmentalists can derive significant insights from this study by emphasizing the inextricable link between environmental stewardship and sustained economic growth.

What factors impact debt levels in the health sector? Evidence for a bank system-oriented country

ObjetivoO principal objetivo deste estudo é examinar os determinantes do nível de endividamento no setor de saúde em Portugal, levando em consideração os efeitos da pandemia de COVID-19. Ao mesmo tempo, tenta-se compreender se o efeito de uma crise pandêmica é semelhante ao de uma crise financeira.Design/metodologia/abordagemPara atingir esse objetivo, foram analisados dois subperíodos: um período global entre 2011 e 2020, que inclui a crise pandêmica, e o período entre 2011 e 2014, designado como o período de assistência financeira pela “Troika” em Portugal. Para uma amostra de 514 empresas pertencentes ao código NACE: 86100 – atividades do setor de saúde com hospitalização, foi aplicada a metodologia de dados em painel, especificamente o método generalizado de momentos (GMM)-sistema proposto por Arellano e Bover (1995) e Blundell e Bond (1998).ResultadosOs resultados do estudo estão de acordo com a teoria explicativa da ordem de preferência (“Pecking-order”), demonstrando que as empresas neste setor seguem uma hierarquia de financiamento, recorrendo preferencialmente a fundos gerados internamente e dívida externa. Além disso, os resultados revelam que a estrutura de capital das empresas mudou devido à pandemia de COVID-19. No que diz respeito ao período de assistência financeira, não há diferenças significativas na evidência quando se considera a proporção total de dívida. Os resultados sugerem impactos diferentes quando se trata de um período de mercado em baixa causado por uma crise de saúde ou um período de desaceleração econômica.Originalidade/valorAté onde sabemos, este é o primeiro estudo que analisa os níveis de dívida no contexto do setor de saúde em um país com um sistema financeiro baseado no setor bancário, utilizando índices de dívida de curto e longo prazo, levando em consideração as particularidades de dois momentos diferentes considerados como momentos de mercado em baixa que eventualmente podem ser úteis para comparação com outros momentos de mercado em baixa em outros ambientes macroeconômicos.

Family control, institutional investors, and financial distress: Evidence from China

AbstractThe effect of family control on corporate governance and risk‐taking behaviours remains disputed worldwide. We examine how family control affects the financial distress of firms listed on the Chinese stock market. Our empirical findings suggest that family firms, particularly those with descendant CEOs, face significantly higher financial distress risk. Higher debt levels and more diversified acquisitions of family firms can partially explain their higher financial risk. Further analysis indicates that institutional investors help reduce the financial distress risk of Chinese family firms. We contend that institutional investors play vital roles in enhancing the corporate governance of family firms in China. Taken together, our study urges attention to the financial distress risk of family firms in a transient economy.

Does gender matter in financing SMEs in green industry?

This study explores gender differentiation in access to credit which penalizes Italian female-led green SMEs compared to male-led ones. We carry out a panel analysis with 184,425 observations, of which 5855 refer to green firms, observing how the percentage of women among directors and managers (PWDM) affects access to bank credit and its costs. Our results demonstrate that green SMEs show different levels of financial debt compared to non-green ones depending on the PWDM. Our paper contributes to the literature in three ways. First, we investigate whether women-led green SMEs show different demands for financial credit in terms of amounts borrowed and mix between long/short-term bank credit; second, whether this potentially different credit demand is associated with coherent or incoherent effects on the cost of credit; and third, whether the credit demand of women-led green SMEs depends on the PWDM in the company.

Inefficiency Analysis of Tax Efforts in Special Category States of India: Evidence from a Stochastic Frontier Model

The current article examines the tax efforts of India’s main mountainous states that have been accorded special category status by the National Development Council. These states have been under persistent budgetary pressure and are partially reliant on central funds in the form of grants in ‘aid’ and other central transfers. The present article employs the Stochastic Frontier Analysis (SFA) model to assess ‘tax effort’ of special category states. The model results implied that ‘tax effort’ rises with increase in the share of secondary sector, revenue expenditure and road infrastructure. Further, the level of debt lowers ‘tax effort’, whereas the introduction of FRBM and Goods and Service Tax Regime (GST) has raised the inefficiency in own tax mobilization. On the basis of tax effort index, computed through John Drew (JLMS) methodology, this study also indicates that Assam, Uttarakhand, and Jammu and Kashmir are in a far better position in tax efforts score compared to the north eastern special category states. JEL Codes: H2, H21, H22, H71

Does managerial overconfidence affect capital structure rebalancing for entrepreneurial firms?

PurposeThe behavioural theory adds a new paradigm of analysis with the assumptions of the decision maker’s cognitive biases and their repercussions on financing decisions. The aim of the study is to analyse the repercussions of these biases on the adjustment speed of firm’s capital structure toward the optimal level.Design/methodology/approachBased on a partial adjustment model, the study uses the Dynamic Panel Fractional estimator to analyse panel data from 4,990 Portuguese entrepreneurial firms.FindingsThe results show that the cognitive overconfidence bias impacts the entrepreneurial firm’s capital structure. In fact, the firms run by overconfident managers adjust more slowly than their counterparts. Furthermore, the findings suggest that entrepreneurial firms make relatively fast adjustments toward the optimal debt level and follow a hierarchical financing order in the funding process.Practical implicationsThe results of this paper are not only interesting to the academia, but also contain practical implications for corporate, institutional and business policy and governance. First, the paper introduces a new measure of cognitive bias in optimistic managers, which is useful for current and future academic research. Also, in practical terms, the findings of the paper reveal that when a company is contemplating hiring a manager, it should consider whether they need an optimistic or non-optimistic manager based on the company's present life cycle or situation.Originality/valueThe current analysis extends the existing literature. The study suggests that financial classical and behavioural paradigms should not be separated, which can provide evidence to help narrow the gap between these two major perspectives.

Bank Lending to Businesses in a Pandemic

The relevance of the study is that the pandemic has affected the financial stability of many businesses. The purpose of the study is to consider the features of bank lending to businesses in a pandemic. Providing credit in the era of the coronavirus is associated with increased risk. However, this does not mean that it is impossible to obtain new funding. Banks still offer a variety of credit products, including mortgages and cash or credit card loans. Changes in the level of debt mask the distinction between new borrowings and repayments of existing amounts. Business loans are mostly short-term, and their rates can be adjusted relatively easily. Historical data shows that on average, 90% of new business loans have a variable or fixed rate with a maturity of less than one year. The huge surge in loans to new businesses is primarily conditioned upon this short-term financing. The speed and scale of the return of the gap to the pandemic is unprecedented. The practical significance lies in the analysis of problems and obstacles to bank lending to businesses in a pandemic, and ways to solve them.

Фактори впливу на структуру капіталу нефінансових корпорацій України

The purpose of this study is to determine the factors that explain the capital structure of Ukrainian non-financial corporations. The study was carried out on a sample of 8525 Ukrainian large and medium-sized enterprises on the time horizon of 2014-2019, covering one economic cycle. Banks and non-bank financial institutions are excluded from the sample of enterprises, since the structure of their assets differs from that of commercial companies. To determine the impact of fundamental factors, the capital structure of companies is represented separately by three indicators: i) the level of current debt, ii) the level of long-term debt, and iii) the level of debt in general in the structure of liabilities of enterprises. The list of indicators that explain the capital structure of Ukrainian companies includes fundamental indicators – profitability, company size, asset structure, current liquidity, growth; and macroeconomic variables: GDP growth and consumer price index. The results of the study confirm that the conception of sequential actions best explains the principle by which Ukrainian companies form the structure of liabilities. According to the results of the modeling, the company’s factors demonstrate statistical significance, but do not explain the variation in the level of debt in terms of types of economic activity. Only the factors of profitability, asset structure and type of economic activity are statistically significant for all types of models. The sign of the influence of factors that determine the capital structure of Ukrainian companies corresponds to the results of studies of both developed countries and transition economies. Also, the impact of factors on the level of indebtedness of enterprises differs significantly depending on the maturity of obligations. This study can be further developed by updating the calculations and data that include the period of recent crises. This will allow us to check whether companies have changed their approaches to choosing a capital structure during the wartime.

Negative effects of high public debt on health systems facing pandemic crisis: Lessons from COVID-19 in Europe to prepare for future emergencies

<p>The investigation goal here was to analyze how the level of public debt affects preparedness of health systems to face emergencies. In particular, this study examined the negative effects of high public debt on health systems of European countries in the presence of the COVID-19 pandemic crisis. Empirical evidence revealed that European countries with a lower level of government debt as a percentage of GDP both in 2009 and 2019 (the period before the arrival of the pandemic) had lower COVID-19 fatality rates compared to countries with higher levels of public debt. The explanation is that high levels of public debt in countries trigger budget constraints that limit their ability to allocate resources to healthcare systems (e.g., health expenditures and investments), weakening health system performance and causing systemic vulnerability and lower preparedness during emergencies, such as with the COVID-19 pandemic. Implications of health policies are suggested to improve strategies of crisis management.</p>

Government debt and economic impact: An analytical comparison of different countries

The increase in the level of government debt has led to economic instability in a number of developing as well as developed nations. According to a study by Hilton (2021), having an unsustainable amount of public debt can slow down the economic growth of the nation in the long run. Therefore, it has become increasingly important to understand the economic impact that government debts have on different countries. The countries used in this paper are Brazil, Malaysia, South Africa, Thailand, and Turkey. Firstly, the study analyses the trends of public debt across these five countries. From the analysis, it could be realised that the level of government debt increased across all the countries. Moreover, the study also used a vector error correction model (VECM) methodology along with an impulse response function (IRF) to account for the country-wise impact of public debt on economic growth. The results showed that there is a negative impact on the economic growth of Brazil, Malaysia, Thailand, Turkey, and South Africa. Furthermore, the study also accounts for the impact of fiscal policies on the debt management structure of the specified countries.

Financial Situation of Cities in the Lodz Voivodeship in the Era of the COVID-19 Pandemic – Trends of Change and Impact on Indebtedness

Purpose – The aim of this article is to identify and assess the change in the structure and direction of spending of the financial resources of the cities of Lodz Voivodeship in connection with the measures taken during the COVID-19 pandemic and their impact on the level of debt. Research method – The study uses data obtained from two sources: a questionnaire interview conducted in the target group of towns in Lodz voivodeship and the repository of the Local Data Bank CSO. Results – The research shows that the different cities have different profiles of the activities undertaken during the COVID-19 pandemic and how they were financed. The majority of cities financed these activities through targeted grants or from their own budget reserves, which implied no reduction in expenditure. A smaller number of cities financed these activities from other sources, which had the effect of reducing current and investment expenditure. Cities’ debt was increasing, but not as a direct result of the pandemic. Originality / value / implications / recommendations – On the basis of the data obtained, the authors distinguished three different profiles of actions taken to prevent the negative effects of the COVID-19 pandemic and ways of financing the resulting expenditure for cities in the Lodz Voivodeship. The need for further analysis in the context of new challenges: migration crisis, climate crisis, energy crisis was indicated.

Pengaruh Tingkat Hutang dan Inventory Intensity terhadap Manajemen Pajak

This research aims to investigate the impact of Debt Levels and Inventory Intensity on Tax Management Practices in Manufacturing Companies listed on the Indonesia Stock Exchange during the 2017-2021 period. A quantitative approach was used by collecting secondary data from the financial reports of 177 companies. The sample consisted of 54 manufacturing companies selected purposively, with a total of 230 data analyzed. Analysis was carried out using descriptive statistics, classical assumption tests, and panel data regression using Eviews version 12 software. The results showed that there was no significant influence between Debt Level (X1) and Inventory Intensity (X2) on Tax Management Practices (Y). These findings highlight the possibility of other factors having a more dominant role in tax management practices in the context of this research.

Análisis de la estructura del capital e intensidad de capital. El caso de las empresas colombianas

Standard financial theories assume that investment and financing decisions are intertwined. Investment decisions involve selecting assets that generate positive cash flows and maximize shareholder value, while financing decisions involve identifying the optimal mix of debt and equity financing to fund these investments. The main objective of this paper is to analyze the interdependence of assets and liabilities in a sample of Colombian manufacturing firms with varying degrees of roundaboutness (capital-intensive nature). This study employs canonical correlation analysis to determine the interaction between balance sheet components. Subsequently, a threshold regression model is employed to evaluate the influence of financial indicators on the financial performance of firms with heterogeneous capital intensity. The findings reveal that low-capital intensity firms match the maturity structure of assets and liabilities. In firms with low roundaboutness there is a significant relation between throughput, working capital turnover and the proportion of capital expenditure to operating cash flow with ROIC. However, this relationship becomes non-significant at high levels of indebtedness. Conversely, capital-intensive firms exhibit a mismatch between asset and liability maturities, relying on shareholders’ funds to finance longterm assets and inventories. In this group of companies, throughput is positively associated with ROIC regardless of the level of debt, whereas the relationship between working capital turnover and ROIC is not significant until a certain debt threshold is exceeded. The impact of the capital expenditure to operating cash flow ratio on ROIC varies depending on debt levels. Companies with high roundaboutness that exceeds a debt threshold experience a negative impact.

The Role of SMEs in the Economy: Analyzing the Financial Performance of Algerian SMEs

Small and medium-sized enterprises (SMEs) represent a major pillar of the Algerian economy, accounting for 99.9% of businesses and employing over 3.3 million people. Despite their importance, these enterprises face complex challenges that affect their financial performance, measured by indicators such as return on assets (ROA). The study explores this performance's internal and external determinants, focusing on factors such as liquidity, debt levels, company size, and macroeconomic variables like GDP growth and inflation. Using the panel data method, we analyzed a sample of 40 SMEs over a five-year period (2018 to 2022). The results show that excessive liquidity, while seemingly prudent, has a negative effect on SME performance, as it limits investment opportunities. Similarly, short-term and long-term debt are associated with reduced profitability, contradicting some economic theories that view debt as a sign of good management. The limited access to credit often forces Algerian SMEs to rely on short-term financing, increasing their financial risks. In contrast, economic growth positively affects SME performance by boosting demand for their products and services. However, inflation has a negative effect, eroding profit margins due to rising operating costs. Thus, improving a company's performance is possible if the entity can create the conditions necessary for its survival and deploy the resources and logistics needed to achieve the desired objectives while aligning strategies across various activities to effectively implement its management policies. These research findings provide valuable insights for business leaders and policymakers, emphasizing the need for tailored strategies to maximize the financial performance of SMEs by considering these various factors.