Market-based Financing Research Articles

How the global VET toolkit weakened local colleges in South Africa

ABSTRACT This paper explores the contrast between the policy vision for public technical and vocational education and training (TVET) colleges in South Africa, and governance and funding models that have shaped institutional forms and functioning over time. Policy aspires for TVET colleges to play a role in social inclusion and local economic development. The paper provides a historical tracing of shifting regulatory and funding models, a local manifestation of the global shift to market-based funding, pseudo-employer-led reforms and accreditation mechanisms introduced through new public management-style public sector reform. The result is complex policy levers with conflicting governance and institutional models, producing bifurcation and weakening institutions. Colleges have been renamed, restructured, given new governance models, and shaped by contradictory and shifting programme, curriculum and qualification policy. Today, they are public institutions required to contribute to public policy goals, but treated by funding mechanisms as providers competing for contracts with for-profit and private non-profit providers. Individualised capacity building and a governance system that has at its core the idea that vocational education should meet the short-term needs of employers have undermined institutional capacity and coherence, and ability to develop institutions that can actively engage with social and economic development and inclusion.

COVID-19 and redemptions from Irish-resident bond funds

This paper examines net redemptions from bond funds domiciled in Ireland at the onset of the COVID-19 pandemic. We analyse various empirical specifications to determine whether factors such as fund leverage, measures of liquidity, portfolio risk and portfolio concentration, among others, explain outflows from Irish-domiciled bond funds in March 2020. The findings indicate that funds with a larger share of short-term securities and riskier bond portfolios experienced higher redemptions. Our analysis also suggests that fund size and age are significant factors affecting outflows. When examining various sub-samples, we find evidence of more reactive behaviour among investors in actively managed funds compared to passively managed funds. We also find that retail bond funds demonstrate greater sensitivity to risk and leverage, while professional funds show evidence of lower risk aversion. These results provide insights that can help inform policymakers’ view of regulatory tools for market-based finance, a key priority internationally.

Innovating the bank-firm relationship: a spherical fuzzy approach to SME funding

PurposeInnovation in financing processes, enabled by the advent of new technologies, has supported the development of alternative finance funding tools. In this context, the study analyses the growing importance of alternative finance instruments (such as equity crowdfunding, peer-to-peer (P2P) lending, venture capital, and others) in addressing the small and medioum enterprises' (SMEs) financing needs beyond traditional bank and market-based funding channels. By providing more flexible terms and faster approval times, these instruments are gradually reshaping the traditional bank-firm relationship.Design/methodology/approachTo comprehensively understand this innovation shift in funding processes, the study employs a novel approach that merges three MCDA methods: Spherical Fuzzy Entropy, ARAS and TOPSIS. These methodologies allow for handling ambiguity and subjectivity in financial decision-making processes, examining the effects of multiple criteria, including interest rate, flexibility, accessibility, support, riskiness, and approval time, on the appeal of various financial alternatives.FindingsThe study’s results have significant theoretical and practical implications, supporting SMEs in carefully evaluate financing alternatives and enables banks to better identify the main “competitors” according to the “financial need” of the firm. Moreover, the rise of alternative finance, notably P2P lending, indicates a shift towards more efficient capital access, suggesting banks must innovate their funding channels to remain competitive, especially in offering flexible solutions for restructuring and high-risk scenarios.Practical implicationsThe study advises top management that SMEs prefer traditional loans for their reliability and accessibility, necessitating banks to enhance transparency, innovate, and adopt digital solutions to meet evolving financing needs and improve customer satisfaction.Originality/valueThe study introduces a novel integration of Spherical Fuzzy TOPSIS, Entropy, and ARAS methodologies to face the complexities of financial decision-making for SME financing, addressing ambiguity and multiple criteria like interest rates, flexibility, and riskiness. It emphasizes the importance of traditional loans, the rising significance of alternative financing such as P2P lending, and the necessity for banks to innovate, thereby enriching the literature on bank-firm relationships and SME funding strategies.

The Role of Capital Markets for Small and Medium-Sized Enterprise (SME) Finance

SMEs play a crucial role for inclusive development, but their growth is often hampered by lacking access to finance. This paper explores whether capital markets can be harnessed to foster SME finance. Given the negligible use of market-based financing by SMEs, it is analysed to what extent capital market development indirectly alleviates SMEs’ financing constraints by improving their access to loans. Thus, the study builds on the theoretical model by Song and Thakor (2010), which consolidated the view that markets and banks are complementary and co-evolve. Using a modification of the analysis framework by Rajan and Zingales (1998) for 68,712 firm-level observations from 50 mostly low- and middle-income countries for 2006-2019, it empirically investigates the central prediction of Song and Thakor (2010) that capital market development is associated with an increase in bank lending, in particular, towards smaller and riskier firms. I find a positive and significant effect; in support of Song and Thakor (2010), the effect runs through increased capital market usage by financial institutions and expanded loan availability. The findings underline that markets and banks co-evolve and that the most important contribution of capital markets to SME finance is their indirect effect on bank lending and loan availability.

Shape-shifters, chameleons and recognitional politics: The asset management industry and financial regulation

The asset management industry is becoming a systemic feature of global finance, yet has evaded regulators’ efforts to designate its largest firms as systemically important institutions. How has this been achieved? We use as our example BlackRock’s running commentary on the evolving plans of both prudential (banking) and securities (market) regulators in the period from 2008 to 2018. We show how asset managers engaged in successful recognitional politics, based on a decade-long struggle to influence how they were seen across the regulatory divide. James C. Scott’s most recent thoughts on legibility codes provide us with our conceptual language of shape-shifters and chameleons. Two distinct strategies were simultaneously in play. As a shape-shifter, BlackRock repeatedly changed form in its self-presentation to prudential regulators concerned with systemic risk, so they could not be certain what they were looking at. As a chameleon, it invited securities regulators to maintain their authority over the asset management industry, so it could increasingly blend into the supposedly safe category of market-based finance.

Live from Here: Comparing the Programming of Rural and Urban Public Radio Stations

ABSTRACT This paper is an examination of the vitality of U.S. public radio stations in rural areas. Previous empirical research suggests that the increased presence of commercial underwriting and listener donations (collectively referred to as “listener sensitive income”) has influenced National Public Radio and its local affiliate stations to behave in a way that more closely resembles commercial radio. This shift may have come at the expense of the initial intent and mission of public broadcasting which is to add diversity to the marketplace of ideas, serve underserved audiences, and most relevant to this study, provide a service that is reflective of local communities. This study analyzes data from a nationally representative sample (N = 178) of the 408 unique local NPR stations to determine if greater reliance on market-based funding sources is associated with a shift away from the mission of public radio in terms of its programming. The analysis suggested that rural public stations offer more overall diversity of programming, and specifically are more likely to offer minority-oriented programming, thus suggesting that rural stations have not become as commercialized as their urban counterparts.

Impact of market-based financing on Africa’s debt and development

Impact of market-based financing on Africa’s debt and development

Transferências de renda e dívida das famílias. O avanço da colateralização da política social em meio a crises de reestruturação

ABSTRACT The aim of this article is to address how household debt and contemporary credit markets seem to be the defining elements in the reshaping of social policy both in developing and developed countries. We start off by recalling how the implementation of income policies as the core of a new social protection paradigm has contributed to promote market-based finance. We take Brazil as a case study to illustrate how this new connection between state guaranteed income policies and credit markets has unfolded resulting in increasing household debt. We show evidence that the connection between household debt and state-provided monetary benefits is effective and significant.

Identifying minibonds issued level’s determinants to empower companies’ funding managerial strategies

PurposeThis paper aims to explore the determinants of the level of minibonds issued by companies. In doing so, it discusses the importance of minibonds in providing a market-based funding source. In the empirical analysis, special attention is paid to the study of the recovery from the COVID-19 crisis.Design/methodology/approachThe analysis is carried out through an econometric approach, on the basis of a high-quality empirical dataset related to the Italian small- and medium-sized enterprises (SMEs). The reference period covers the recent pandemic. From a theoretical point of view, a regression model is implemented, including a multicollinearity analysis and an outlier detection procedure.FindingsThe results of the study indicate that factors such as leverage, cash flow, firm collaterals and seniority can explain the amount of minibonds issued. These findings provide valuable insights into the drivers of minibond issuance and highlight the potential benefits of minibonds as a funding option for Italian SMEs.Practical implicationsImportantly, results highlight relevant managerial implications at two levels. On one side, we carry on a managerial discussion about the worthiness of accessing the minibonds market; on the other side, we give insights on the managerial implications related to the features of the companies issuing minibonds.Originality/valueThe paper investigates an innovative financial instrument that has been introduced recently and has not yet been studied in depth. To the best of our knowledge, this is the first contribution assessing the main drivers for minibonds issuance level, which is a timely and relevant managerial research topic. In addition, this study also takes into account the impact of the COVID-19 pandemic on minibond issuance, making the analysis appropriate for explaining the current economic context.

Carrots with(out) sticks: credit policy and the limits of green central banking

This article considers the role of central bank interventions in credit and financial markets in support of decarbonization. Drawing on the critical macrofinance literature, we argue that central banks are constrained in greening financial flows by their continued adherence to monetary dominance – prioritizing short-term price stability – and the structural demands of global market-based finance. This has led to a narrow focus on 'market-fixing' and 'de-risking' policy interventions, implicitly outsourcing the green transition to private finance whilst asserting that central banks cannot be seen as 'climate policymakers'. Moving beyond the constraints of this macrofinancial regime remains challenging, as we illustrate with the European Central Bank's (ECB) tilting of its corporate asset purchase program. We explore the lessons from the Post-World War II credit guidance regimes employed in many countries and consider how these could be updated to meet the challenges posed by market-based finance. Such a shift would require an evolution in the role of the central bank as a public agency, challenging current norms around independence and market neutrality.

European SMEs’ growth: the role of market-based finance and public financial support

European SMEs’ growth: the role of market-based finance and public financial support

The Tendency of the Non-Bank Financial Sector to Rise: A Materialist Account of the Growth of Market-Based Finance

This article introduces the distinction between money-as-money dealing capital (MMDC) and money-as-capital dealing capital (MCDC), laying the foundations for new developments in the field of Marxian political economy. First, it explains why banks, which manage the circulation of money-as-money, are able to issue instruments that perform monetary functions, and also why non-bank financial intermediaries, which manage the circulation of money-as-capital, tend to become increasingly important as the capitalist mode of production evolves. The distinction between MMDC and MCDC also allows for a more thorough understanding of the nature of Marx’s category of interest-bearing capital (IBC), explaining when and why a capital’s net income takes the form of profit and interest, unveiling the mechanisms that produce the (socially valid) illusion that every capital bears interest. JEL Classification: B14, B26, E11, E43, E44

Coloniality dressed in green: in its current form, climate finance risks becoming a new tool for colonial rule

As the impacts of the climate crisis are being increasingly felt, a critical part of the solution is said to be the issue of mobilising climate finance. Particularly for the Global South, climate finance is crucial for sustainable development; to simultaneously meet the challenges of the climate crisis while addressing issues around economic development, health, poverty and beyond. Yet at present, Southern progress is being held back by ongoing and evolving patterns of Northern neo-coloniality, including through finance and debt relationships. In a context where the mainstream approach to mobilising climate finance – centring private finance, derisked by the state – reflects the dominance of US-style market-based finance, climate finance in this form simply risks becoming a new mechanism by which Southern countries are exposed to new types of subordination and dependence. Instead, structural changes and policy space is required for the Global South to break away from Northern financial dependence. The Bridgetown Agenda and calls for a new Bretton Woods moment are important steps in this direction. However, in addition such countries need the ability to develop financial institutions and regulatory structures that can simultaneously direct credit towards priority areas, regulate capital flows, and develop infrastructure that is democratically owned and oriented towards the needs of public and environment.

The State as a Financial Market Participant

High levels of public debt and chronic budget deficits force states to be constantly present on the financial market. This leads to the slow transformation from tax states into debt states. The change in the financial operating model generates new risks, the essence of which the literature has yet to fully identify. Increasingly, states are beginning to resemble intergenerational financial institutions, allocating funds from future generations to those currently living. The aim of this article is to identify the risks to socio-economic sustainability posed by the critical dependence of the state on market-based financing of its borrowing needs. This is a first step in the search for a new security architecture that better serves the idea of sustainable finance.

Leveraging uncertainty, market-power, and fiscal opacity: The growth of financial security states

AbstractSince 2008, we have observed a more prominent role of the state in economic life, with the widespread use of financial tools. Advancing discussions on the financialization of distributional politics, the expansion of financial statecraft as a result of fiscal conflicts, and the fragmentation of state power, this article explores how proliferating financial policies reconfigure the state and its relationship with the economy as well as its democratic foundations. I introduce the concept of financial security states to theorize reactions to mature financialization and its inherent instabilities, which provoke socially structured demands for public stabilization. Leveraging the tradition of fiscal sociology, I work out differences between taxation and welfare systems and those based on financial security. In particular, I show that financial security states exploit value uncertainties to postpone loss-reckoning, are carried by hybrid state-banking institutions, and leverage the states’ endogenous power within market-based finance. This article argues that the by-and-large regressive distributional outcomes and fiscal costs of financial policies remain opaque, due to strategic obfuscation, the failure of traditional modes of political mediation, and deficient budgeting procedures.

Building an island of state capacity: How the UK state implemented the Thames Tideway Tunnel with market-based finance

This article contributes to the literature on state capacity in financialized political economies by studying the market-based investment setting for the Thames Tideway Tunnel, a £4.2 billion sewer, built underneath central London to prevent raw sewage from spilling into the River Thames. Most analyses conclude that financial statecraft undermines state capacities, as it empowers finance and exposes states to uncontrollable risks. This article moves beyond these accounts by arguing that public policy officials engage with finance instrumentally, taking on risks to solve the governing challenges they face. It demonstrates that state action can build islands of state capacity with financial statecraft in fragmented policy environments. Based on expert interviews and documentary analysis, the article traces how the UK’s Ministry of the Environment experimented with a policy instrument and used investment capacities from different levels of government, to implement the Thames Tideway Tunnel through institutional equity investment and share risks in the privatized and financialized environmental sector. The paper concludes that under the current conjuncture, financial statecraft will play an important role in addressing the climate crisis. Therefore, further comparative research is required to explore its normative paradox.

Access to finance: adaptability and resilience during a global pandemic

Firms’ access to external finance is constrained by information asymmetries between lenders and borrowers, which are inversely related to firm size and economic growth. Pandemic and lockdown measures constituted an extraordinary shock for corporations, including for their funding, mitigated, however, by governments’ fiscal, monetary and regulatory responses. The combined effect of these measures created a virtuous circle between corporates, banks, and sovereigns, avoiding a funding crunch for either and keeping risk premiums at deflated levels. Some of the more recent shocks provide similar justification for government interventions. However, there is a trade-off between government support during tail events and the market distortions that come with such support programmes. The conjecture is that we will continue to see a stronger role for governments during this time of great volatility and a tightening on market-based funding for corporations.

China's Financial System and Economy: A Review

China's financial system has been integral to its spectacular economic growth over the past 40 years. We review the recent literature on China's financial system and its connections to the Chinese economy based on the categories of Aggregate Financing to the Real Economy (AFRE), a broad measure of the nation's yearly flow of liquidity accounting for unique features of China's financial system. While early work on China's financial system emphasizes the state-owned enterprise reform, the recent literature explores other more market-based financing channels—including shadow banking—that grew rapidly after 2010 and have become important components of AFRE. These new financing channels not only are intertwined with each other, but also, and more importantly, are often ultimately tied back to the dominant banking sector in China. Understanding the mechanisms behind these channels and their intrinsic connections is crucial to alleviate capital allocation distortion and mitigate potential systemic financial risk in China.

Central Banking in Perilous Times: An Open-Ended Chronicle

Abstract Conventional understanding relegates the role of central banking to benchmark interest rate guidance which is supposed to have direct and straightforward impact on real economy. Accordingly, central banks are praised for and supposed to stay independent from treasuries and money markets while indirectly influencing both of them by that guidance. This article provides hints for an alternative explanation by investigating central bank dual connection with treasuries and private finance, especially money markets. It recounts the main financial episodes of the last decades from this institutional monetary economic perspective through a dynamic systems analysis covering money and financial aggregates, pointing to the peculiar ways in which this connection has been organised under the market-based (asset-based) finance regime and its systemic failure since 2007.

UK pension funds’ patience and liquidity in the age of market-based finance

ABSTRACT Pension funds have often failed to meet expectations in terms of providing ‘patient capital’. Explanations for this lapse have ranged over regulatory and ideational factors. We argue that a new ‘impatient’ phenomenon is emerging that requires further explanation: pension funds are becoming more mindful of their liquidity and collateral management, and engage in pro-cyclical investment behaviour. We show how UK pension funds have adapted their investment strategies, investing significantly in collective funds, including in foreign and in ‘alternative assets’, and setting aside protection assets as collateral for their derivatives and repo transactions. This behaviour has increased pension funds’ exposure to and participation in liquidity spirals, forcing them to dispose of assets during crises and contributing to the overall pro-cyclicality of the contemporary market-based financial system. This was most recently highlighted by the instability of UK government bond markets in September 2022. Drawing from Minsky and the emerging literature on Critical Macro-Finance, we argue that this new pension fund behaviour is in response to structural changes in the financial markets in which they operate.