Long-term Credit Research Articles

Optimizing agent behavior over long time scales by transporting value

Humans prolifically engage in mental time travel. We dwell on past actions and experience satisfaction or regret. More than storytelling, these recollections change how we act in the future and endow us with a computationally important ability to link actions and consequences across spans of time, which helps address the problem of long-term credit assignment: the question of how to evaluate the utility of actions within a long-duration behavioral sequence. Existing approaches to credit assignment in AI cannot solve tasks with long delays between actions and consequences. Here, we introduce a paradigm where agents use recall of specific memories to credit past actions, allowing them to solve problems that are intractable for existing algorithms. This paradigm broadens the scope of problems that can be investigated in AI and offers a mechanistic account of behaviors that may inspire models in neuroscience, psychology, and behavioral economics.

Deposit Market Power, Funding Stability and Long-Term Credit

This paper shows that banks raising deposits in more concentrated markets have more funding stability, which enhances banks’ ability to extend longer-maturity loans. We show that banks raising deposits in concentrated markets exhibit less pro-cyclical financing costs and profits, which in turn reduces the funding risk of originating long-term illiquid loans. Consistently, banks with deposit HHI one standard deviation above average extend loans with about 20% longer maturity than those with deposit HHI one standard deviation below average. Deposit concentration also allows banks to charge lower maturity premiums. Access to banks raising funds in concentrated markets improves growth in industries traditionally reliant on long-term credit. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Did the Romans Have a Future?

AbstractIn analysing matters as diverse as state financing, strategic planning, public benefactions and long-term credit in private business transactions, the historian is faced with an underlying problem about the perceptions of time. One aspect of this problem is the manner in which pictures of a complex future are reflected in the behaviour of agents engaged in these activities. The manner in which actions were (or were not) taken by them suggests a peculiar configuration of future time in the Roman world. It is speculatively argued that perspectives on the future had analogies with the different ways in which a sense of depth was created by artists working on a two-dimensional space and with the contextual ways in which spatial perspective was employed.

Analysis of Giving Credit to Liquidity of the South Sulawesi Regional Development Bank Bantaeng District Branch

This study examines the relationship between granting with a liquid level in a bank that aims: (1) To determine the extent to which credit is given to the liquidity position of the South Sulawesi Regional Development Bank. (2) To get a clear picture of the relationship between the amount of funds available and the credit activities of the South Sulawesi Regional Development bank. (3) To find out the policies stipulated by the Regional Development Bank of South Sulawesi, especially the credit sector. The data collection method used in this study, is through Library Research, and Field Research. Based on the analysis of the results of the research and discussion, in this section it can be concluded: (1) the South Sulawesi Regional Development Bank which is the Regional Government of South Sulawesi Province in addition to functioning as a public bank as well as regional government holders whose source of funds comes from local governments and service office located in the province of South Sulawesi. (2) The development of credit funds channeled by the Regional Development Banks of South Sulawesi tends to increase from year to year, (3) From the supply of funds and credit channeled by the Regional Development Bank of South Sulawesi, it is known that the supply of these funds is not channeled as credit, either short-term credit and long-term credit.

Long-term finance and entrepreneurship

This paper investigates whether long-term finance affects firm entry worldwide. We construct a new database on short- and long-term credit provided by commercial banks to the private sector in 85 countries over the period 1995–2014. We then analyze whether differences in entrepreneurship are related to the provision of short- and long-term bank credit. Data on entrepreneurship are extracted from two frequently used databases: the Global Entrepreneurship Monitoring dataset and the Entrepreneurship Database, each of which captures different aspects of firm creation. The econometric results indicate that long-term credit does not stimulate firm entry. By contrast, we find that short-term credit is positively related to firm creation, from birth to registration. Controlling for potential endogeneity by implementing an instrumental variables approach does not affect our conclusions. Our findings suggest that better provision of short-term credit allows entrepreneurs to apply for formal loans instead of having to rely exclusively on informal loans or internal funds. The absence of impact of long-term loans can be explained by the difficulty entrepreneurs face in getting access to long-term credit.

Public Sector Credit and Economic Growth in Nigeria: An ARDL Approach

This study investigates the link between public sector credit and economic growth in Nigeria using the ARDL approach. The empirical analysis is based on annual time series data from 1985 through 2016. While credit to central government is used to proxy public sector credit, economic growth is measured by real GDP. Further, inflation, credit to private sector, and interest rate covering are used as control variables. The results suggest that long run relationship exit between public sector credit and economic growth, controlling for the influence of credit to private sector, interest rate and inflation. There is therefore, need for policy makers to pursue policies that would strengthen the capacity of the banking sector and the financial market to give long-term credit to the public sector so as to promote economic growth in the long run.

Corporate Social Responsibility and the Term Structure of CDS Spreads

This paper examines the role of corporate social performance in the CDS market, with a focus on the differential effect conditional on the lengths of time horizons. We find that strong social performance is negatively associated with the slope of CDS term structure, by reducing the long-term credit risk and increasing the short-term credit risk. After controlling for credit ratings in a “path analysis”, we find that the direct effect of social performance remains significant, suggesting that CDS market participants incorporate this information more efficiently than credit rating agencies. Furthermore, the effects of social performance are stronger for firms with speculative-grade ratings, smaller size, or less analyst coverage.

Microcredit and Microenterprises Performance in Malaysia

This study examined the effects of microcredit provided by Amanah Ikhtiar Malaysia (AIM) on the performance of microenterprises by the participants in Malaysia. This study adopted a cross-sectional design and the quantitative data were collected from a total of 387 borrowers of AIM. The findings revealed significantly positive correlations between microenterprises performances and economic loan, number of training programs, as well as hours of training programs. The multiple regression analysis further confirmed the positive and statistically significant effects of economic loan and number of training programs on the performance of microenterprises by the participants of AIM in Malaysia. However, the length of participation shows a negative effect on microenterprise performance. These findings highlighted the positive effect of microcredit on microenterprises performance such as access to credit, microenterprises' development training programs, and negative effects on the psychological aspect of the entrepreneurs by the microcredit availability and long-term credit. The government and development organisations in Malaysia should focus on designing fixable and diversified credit schemes with a watchful eye on the duration of the loan and training programs for the microenterprises in Malaysia.

Credit ratings and audit opinion: evidence from Tunisia

PurposeThe purpose of this paper is to examine whether credit ratings issued by Fitch predict auditor’s opinion for the Tunisian financial companies. It studies the association between Fitch’s credit rating and the audit opinion.Design/methodology/approachThe whole population was analyzed. It is composed of 35 banks, leasing companies and factoring companies in Tunisia. The hand-collected data over 11 years (2005–2015) were used and a multiple-ordered logistic regression was performed.FindingsThe findings show that firms with a high short-term grade, a high long-term grade or a positive outlook are more likely to receive an unqualified audit opinion. In addition, companies with a stable outlook are more likely to receive an explanatory paragraph, a qualification or a going-concern opinion.Originality/valueStudies examining the relationship between credit ratings and audit opinion are rare. This piece of research adds to knowledge about the relationship between different components of agency ratings and the auditor’s opinion in a developing country. Previous studies have investigated the case of developed countries and have been interested in the only impact of the long-term credit rating. This study analyzes three components of credit rating, namely long-term credit rating, short-term credit rating and rating outlook. In addition, it sheds light on the effect of various rating grades issued by rating agencies on the audit opinion. It gives a broader view of the relationship between credit ratings and audit opinion.

Non-GAAP Reporting and Debt Market Outcomes: Evidence from Regulation G

We exploit the introduction of Regulation G (RegG) by the U.S. Securities and Exchange Commission (SEC) in 2003 to study the association between non-GAAP earnings disclosure and debt market outcomes. Specifically, we focus on a subset of 199 S&P 500 firms to analyse the association between non-GAAP earnings disclosure and long-term issuer credit ratings as well as bond spreads before and after the regulatory intervention. We find that post-RegG, correlation between non-GAAP earnings disclosure and bond spreads changes from positive to negative but do not document any change in its correlation with respect to credit ratings. Our study provides first evidence that post-RegG, bond investors, but not rating agencies, seem to view non-GAAP earnings disclosure favourably as part of their credit risk assessment. In practical terms, our results document a specific benefit of RegG and may inform the SEC that its goal of more accurate security pricing extends to the bond markets, which is an under-researched area in the context of non-GAAP regulation.

Bank Concentration and Interest Rate Margin in WAEMU Zone

ABSTRACTThe objective of this paper is to analyse the impact of banking concentration on bank margin. We adapt the specification of [Corvoisier, S., & Gropp, R. (2002). Bank concentration and retail interest rates. Journal of Banking and Finance, 26, 2155–2189] to introduce the number of agencies in capital cities and provinces. We then show that in the short term, only the big four banks have a negative influence on net interest margins in the WAEMU zone. In the long term, the number of agencies in provinces and banking risks are positively linked to bank margin. The policy of opening agencies in provinces as well as credit risk contribute to increasing the cost of long-term credit in the WAEMU zone.

Deposit Market Power, Funding Stability and Long-Term Credit

This paper shows that banks raising deposits in more concentrated markets have more funding stability, which enhances banks’ ability to extend longer-maturity loans. We show that banks raising deposits in concentrated markets exhibit less pro-cyclical financing costs and profits, which in turn reduces the funding risk of originating long-term illiquid loans. Consistently, banks with deposit HHI one standard deviation above average extend loans with about 20% longer maturity than those with deposit HHI one standard deviation below average. Deposit concentration also allows banks to charge lower maturity premiums. Access to banks raising funds in concentrated markets improves growth in industries traditionally reliant on long-term credit.

Banks As Patient Lenders: Evidence from a Tax Reform

We provide new evidence on how deposit funding affects bank lending. For identification, we exploit a tax reform in Italy that induced households to substitute bank bonds with deposits. We find that banks with larger increases in deposits expand the supply of credit lines and long-term credit to low-risk firms. Additional evidence indicates that these results are consistent with theories emphasizing the demandable nature of the deposit contract rather than theories stressing the stability of deposit funding due to government guarantees. In this regard, we show that banks under stress face large runs on retail deposits, but not on retail bonds.

Agglomeration Economies among Animal and Crop Producers in Nigeria: A Panacea for Diversification and Sustainable Economic Growth in South Eastern Nigeria

This paper investigates agglomeration economies among Farmers in cluster areas of South Eastern Nigeria as a tool for economic emancipation with a special interest in diversification and growth. It also identified other vital roles agglomeration plays in developing economies like Nigeria. These are not only as tools for poverty alleviation and diversification of sources of livelihood among farmers but also tools for employment generation and sustainable economic growth. This paper was motivated by the quest to provide urgent policy recommendations for a sustainable approach to agricultural development in South Eastern Nigeria. The specific objectives of the study were to: (i) describe the socioeconomic characteristics of the respondents; (ii) ascertain the perception of the farmers on diversification and other benefits from agglomeration locations in the region, and (iii) ascertain the challenges militating against diversification and economic growth as benefits from agglomeration clusters. Descriptive survey research design and structured questionnaire were adopted for this study. Pearson's product moment correlation method and split half technique were adopted to determine the internal consistency of the instrument on 150 questionnaires retrieved and reliability coefficient of 0.91 was obtained. Objective (i) and (ii) were realized using descriptive statistics and charts while Objective (iii) was realized using weighted mean, standard deviation and rankings. Majority of the farmers were within the active age of 40-49 years. Basic education (69.3%) was also pronounced and most farmers operate either medium or large-scale farming. Farmers were of the views that they had benefited immensely from agglomeration economies especially in areas of transportation, diversification, access to information and innovation as well as access to credit. Fear of risks and uncertainties, dependency on rain-fed farming, and limited access to long-term credit ranked highest among the critical challenges limiting them from diversification and economic growth potentials in agglomeration.

CREDITING TO AGRICULTURAL COMMODITY PRODUCERS: ECONOMIC AND LEGAL PROBLEMS

In the article the economic and legal problems connected with small and medium-sized commodity producers’ credit have been analyzed. It has been proved that in Ukraine, unlike foreign countries, the mechanism of easing credits remains virtually the only financial instrument aimed at developing credit relations in the agrarian sector of the economy. It is noted that in the mentioned sphere the provisions of the Ukrainian Law «On State Support to Agriculture in Ukraine» are not fully implemented. In particular, the requirements concerning the size of the credit subsidy, the possibility of obtaining compensation for long-term credits and credits received in foreign currency aren’t performed. Taking into account the aforementioned, as well as reducing the amount of financing of the corresponding state program by 4.5 times, the authors have concluded that these legislative requirements are mainly declarative. Thus, ensuring in practice the access to the cheap credit resources for small and medium-sized agricultural producers shall become one of the important tasks of the state agricultural policy.

Agglomeration Economies among Animal and Crop Producers in Nigeria: A Panacea for Diversification and Sustainable Economic Growth in South Eastern Nigeria

This paper investigates agglomeration economies among Farmers in cluster areas of South Eastern Nigeria as a tool for economic emancipation with a special interest in diversification and growth. It also identified other vital roles agglomeration plays in developing economies like Nigeria. These are not only as tools for poverty alleviation and diversification of sources of livelihood among farmers but also tools for employment generation and sustainable economic growth. This paper was motivated by the quest to provide urgent policy recommendations for a sustainable approach to agricultural development in South Eastern Nigeria. The specific objectives of the study were to: (i) describe the socioeconomic characteristics of the respondents; (ii) ascertain the perception of the farmers on diversification and other benefits from agglomeration locations in the region, and (iii) ascertain the challenges militating against diversification and economic growth as benefits from agglomeration clusters. Descriptive survey research design and structured questionnaire were adopted for this study. Pearson's product moment correlation method and split half technique were adopted to determine the internal consistency of the instrument on 150 questionnaires retrieved and reliability coefficient of 0.91 was obtained. Objective (i) and (ii) were realized using descriptive statistics and charts while Objective (iii) was realized using weighted mean, standard deviation and rankings. Majority of the farmers were within the active age of 40-49 years. Basic education (69.3%) was also pronounced and most farmers operate either medium or large-scale farming. Farmers were of the views that they had benefited immensely from agglomeration economies especially in areas of transportation, diversification, access to information and innovation as well as access to credit. Fear of risks and uncertainties, dependency on rain-fed farming, and limited access to long-term credit ranked highest among the critical challenges limiting them from diversification and economic growth potentials in agglomeration.

O Papel do BNDES e o financiamento do desenvolvimento: considerações sobre a antecipação dos empréstimos do Tesouro Nacional e a criação da TLP

Resumo O artigo discute a decisão do governo Temer de devolver antecipadamente, de dezembro de 2016 a agosto de 2018, R$ 280 bilhões de empréstimos do Tesouro ao BNDES e de indexar o custo do crédito ofertado à curva de títulos públicos de 5 anos em IPCA, pela criação da TLP em substituição à TJLP. Para além dos aspectos legais, são avaliadas as implicações econômicas e alocativas de tais medidas. Defende-se que a visão tradicional, que circunscreve a missão de um banco de desenvolvimento (BD) à correção do desvio entre os retornos social e privado de projetos intensivos em externalidades, deve ser combinada a uma atuação de caráter estabilizador, via canal do crédito, de um BD atuando em escala sistemicamente relevante em contraponto as propensões pró-cíclicas e de curto prazo da finança privada. Em particular, deve-se considerar a contribuição do BNDES como mitigador da severidade extrema do racionamento de crédito de longo prazo no Brasil, associada aos juros historicamente altos, o que inibe o investimento privado e gera viés contra projetos capital intensivos e portadores de ganhos de escala relevantes. Assim, é preciso avaliar os custos, mas também os benefícios fiscais derivados de sua contribuição ao crescimento econômico e à estabilidade financeira. Também são propostas mudanças na regra de formação do custo do crédito, via TLP, visando preservar alguma flexibilidade para os formuladores de política responderem aos desafios presentes em cada conjuntura econômica.

Banks As Patient Lenders: Evidence from a Tax Reform

We provide new evidence on how deposit funding affects bank lending. For identification, we exploit a tax reform in Italy that induced households to substitute bank bonds with deposits. We find that banks with larger increases in deposits expand the supply of credit lines and long-term credit to low-risk firms. Additional evidence indicates that these results are consistent with theories emphasizing the demandable nature of the deposit contract rather than theories stressing the stability of deposit funding due to government guarantees. In this regard, we show that banks under stress face large runs on retail deposits, but not on retail bonds.

Credit Spreads, Debt Maturity and Assets Other than Those Included in Book Value

Arora et al. (2014) provide evidence that the lack of precision in measurement of financial (i.e., level 1, 2, or 3) assets on the balance sheet of financial institutions appears to have affected short-term credit spreads more than long-term credit spreads during the global financial crisis (2007 to 2009). We extend their analysis by investigating the association between all firm assets not recorded on the balance sheet (unrecorded assets) and perceived default risks. We provide evidence that unrecorded assets are negatively associated with long-term credit default swap spreads (i.e., lower perceived default risk in the long-term) and positively associated with short-term credit default swap spreads (i.e., higher perceived default risk in the short-term). We attribute our findings to asset measurement issues and show that a stronger information environment may mitigate these issues for short-term default risk. Our evidence suggests that the relation between unrecorded assets and perceived default risk is context specific.

The effects of sovereign credit rating spillovers on neighbouring countries’ financial markets

ABSTRACTThis study investigates the spillover effects of long-term foreign currency sovereign credit rating announcements on foreign currency-denominated bonds and stock markets in 19 African countries during the period of 1994–2014. Using a combination of Granger causality tests and impulse response function, the results show that there is marginal regional sovereign rating spillover impacts that are quickly absorbed into capital markets trading long-term securities. The analysis further shows marginal spillover effects that persist over longer time periods in sovereign ratings of other countries in the same region from a sovereign rating change in one country. These results imply that the regional bilateral linkages between countries serve as channels of capital and sovereign credit rating information flow. Thus, it is imperative for regional countries to pursue prudent developmental macroeconomic policies to avoid negative ratings that will have regional spillover effects.