Reduce Financing Costs Research Articles

Incentive Contract, Equity Pooling, and Optimal Securitization Design

ABSTRACTThis paper examines the optimal security design and financing structure for investment funds, considering investors with heterogeneous risk preferences. The private equity (PE) fund serves as an information intermediary that plays a crucial role in aligning incentives and facilitating financing activities. To address the potential misalignment between incentive structures and financing requirements, we develop an integrated framework that incorporates both internal moral hazard and external financing decisions. Our analysis demonstrates that optimal equity incentives effectively align the interests of fund manager and PE fund, thereby enhancing fund performance. The results indicate that the optimal financing mechanism comprises a “waterfall” structure consisting of equity, senior bonds, and junior bonds. Furthermore, we find that pooling equity and issuing asset‐backed securities substantially reduce financing costs, although these costs increase with the size of the financing gap. The dual information asymmetry framework offers novel insights into structured financing and corporate growth strategies.

How does local government debt governance affect corporate credit mismatches? Evidence from implementing the New Budget Law

This study explores the impact of the New Budget Law, representing local government debt governance, on corporate credit discrepancies. Findings indicate that the New Budget Law can reduce corporate credit mismatch allocation based on the data from 2011 to 2022. Furthermore, the positive effects are achieved by reducing financing costs, increasing the availability of corporate finance, and reducing the negative impact of corporate credit mismatch. The results contribute to the restructuring of the local debt management system by providing a basis for decision-making and insights into establishing an efficient government and attaining robust economic growth.

Artificial intelligence adoption and credit ratings*

ABSTRACT Using 6,566 observations of bond credit ratings in China from 2010 to 2022, this paper empirically finds that artificial intelligence (AI) adoption by firms improves bond credit ratings via improving productivity and information transparency. Such a positive relationship is more pronounced when the issuers are non-state-owned enterprises, labor-intensive enterprises, or engage heavily in earnings management. This study enriches the literature of the influencing factors of credit ratings and the economic consequences of AI adoption. Furthermore, this study offers insights for enterprises seeking to leverage AI for reduced financing costs, and sheds light on future digital policy design.

From policy to practice: Enhancing enterprise productivity through energy transition initiatives

This study investigates the impact of energy transition policies on enterprise Total Factor Productivity (TFP) in China, utilizing a quasi-natural experiment with New Energy Demonstration Cities (NEDC) and panel data from Chinese cities and manufacturing enterprises (2011–2021). Using the difference-in-difference method, the analysis reveals that energy transition policies positively affect enterprise TFP, especially in non-resource-based cities, less polluting industries, and enterprises with strong Environmental, Social, and Governance (ESG) performance. The research identifies two key mechanisms driving productivity gains: green innovation and reduced financing costs. Additionally, it examines the role of Environmental Regulation (ER), finding that formal ER can mitigate the positive impact of energy transition policies on enterprise TFP, while informal ER has a reinforcing effect. This study contributes to the broader understanding of the policy implications of energy transitions, highlighting the nuanced effects of different regulatory environments on enterprise development and providing evidence on sustainable growth in the context of climate imperatives. The findings offer insights into the complex dynamics between energy policy and industrial productivity, relevant to policymakers, industries, and stakeholders interested in the interplay between energy transition and economic sustainability.

Can Corporate Environmental Social Responsibility and Financial Performance Achieve a Win-win Situation in China? -From the Perspective of Executive Social Capital

ABSTRACT Based on the new market corporate social responsibility theory, enterprises try their best to achieve a win-win situation between environmental social responsibility and corporate financial performance. This paper quantifies corporate environmental social responsibility from the perspective of enterprise front-end governance, back-end governance and employee green behavior, based on the data of Chinese A-share listed companies from 2010 to 2022. Return on assets is used to measure the corporate financial performance. Then, from the perspective of executive social capital, this paper explores the threshold effect of environmental social responsibility on financial performance and draws the following conclusions: (1) In the short term, corporate environmental social responsibility exerts a negative effect on financial performance by augmenting R&D investment. In the long term, corporate environmental social responsibility has a positive effect on financial performance by enhancing reputation or reducing financing costs; (2) Specifically, compared with employee green behavior, front-end and back-end governance have a notably substantial adverse effect on corporate financial performance; (3) When executive social capital crosses a specific threshold, the negative impact of corporate environmental social responsibility commitment on financial performance becomes insignificant. Consequently, this study suggests that bolstering executive social capital is essential for concurrently advancing corporate environmental social responsibility and financial performance.

Financing options for logistics firms considering product quality loss

PurposeThis paper aims to investigate the impact of quality loss in transit on e-commerce supply chain pricing, production and financing decisions.Design/methodology/approachThe authors consider a Stackelberg game model with a supplier, logistics firm and e-commerce platform. The logistics firm is capital-constrained and obtains funding from the e-commerce platform by debt financing or equity financing. Through backward induction, this paper first solves the equilibrium results under the two financing schemes and then reveals the financing preferences of all parties.FindingsThe results demonstrate that equity financing reduces financing costs and promotes production significantly. However, it may also lead to overproduction, particularly in markets with poor profitability and high cost factors. When the percentage of product quality loss is large, equity financing is preferable. With the increasing of transportation level, the benefits of debt finance are steadily growing. In addition, equity financing is the Pareto dominant scheme for all firms under certain circumstances. The extensions consider hybrid financing and another quality loss type.Practical implicationsThe paper derives the equilibrium solutions and financing preferences, then specifies the threshold for applying financing schemes. Provide guidance for logistics firms’ finance model innovation and core enterprise involvement in the logistics industry.Originality/valueThe paper investigates how logistics firms’ financing strategies are impacted by product quality loss.

Problems and Strategies of Financial Services Supporting the Real Economy

With the rapid development of China's economy, the status and role of the financial industry in the national economy have become increasingly prominent. The healthy development of the financial industry is of great significance for promoting the development of the real economy, adjusting the economic structure, and upgrading the economy. However, there are still some problems with financial services supporting the real economy in China, such as the misallocation of financial resources, high financing costs, and rising financial risks. These issues limit the support financial services can provide to the real economy. This paper analyzes the main problems currently existing in financial services supporting the real economy and proposes countermeasures from optimizing the allocation of financial resources, reducing financing costs for the real economy, preventing and resolving financial risks, and deepening the structural reform of the financial supply side. The aim is to provide references for relevant personnel.

Forward-looking disclosure effects on stock liquidity in China: Evidence from MD&A text analysis

We investigate the impact of forward-looking disclosures in annual reports on stock liquidity in China. Analysis of the MD&A sections within annual reports demonstrate a strong positive correlation between forward-looking disclosures and a company's stock liquidity. This promotional effect appears more pronounced within high-tech companies and those with lower levels of information transparency. Mechanistic tests indicate that the increase in equity liquidity attributable to forward-looking disclosures can be traced to heightened interest from analysts and media coverage. Further examination of the impact of MD&A textual characteristics reveals that improvements in the readability and tone of the text strengthen the effect of forward-looking information on enhancing stock liquidity. Economic consequence tests show that forward-looking disclosures not only enhance stock liquidity but also contribute to expanding investment scale, reducing financing costs, and improving both future firm performance and market valuation. These findings suggest that augmenting the efficiency of capital market information dissemination could significantly bolster financial support for the real economy.

Digital Inclusive Finance and the Shadow Banking of Non-Financial Enterprises

In consideration of the macro background of guarding against diverting out of the real economy and the rapid development of digital inclusive finance, this study selects the A-share listed companies on the Shanghai and Shenzhen stock exchanges from 2011 to 2019 as samples to empirically investigate the impact of digital finance on the shadow banking of non-financial enterprises. The research finds that digital finance suppresses the expansion of shadow banking business scale in non-financial enterprises. Further examination reveals that the impact of digital finance development on the shadow banking of non-financial enterprises is mainly achieved through alleviating financing constraints and reducing financing costs. Heterogeneity tests indicate that the inhibitory effect of digital finance on non-financial enterprise shadow banking is more pronounced in companies with smaller scales, poorer information disclosure quality, and higher management expense ratios. Additionally, this inhibitory effect is primarily generated by the depth of digital finance development. This study provides empirical evidence and decision-making references to clarify the inhibition of shadow banking by digital finance and guide the development of digital finance.

Banking market structure and corporate investment efficiency

The study examines the link between bank competition and firms’ capital investment efficiency. Utilizing a unique dataset comprising Vietnamese listed firms from 2007 to 2022, we suggest that heightened bank competition, as reflected by lower values of concentration ratios, the Lerner index, and the Boone indicator, raises firms’ investment efficiency. Further analysis reveals that bank competition increases investment efficiency specifically in the form of mitigating the underinvestment issue. The validity of the result holds through numerous robustness tests, especially with careful consideration of endogeneity concerns. Through mechanism tests, our study reveals that increased bank competition elevates corporate investment efficiency by mitigating firms’ financing constraints, offering more bank credit, and reducing financing costs. In cross-sectional analysis, we document that the relationship between bank competition and capital investment efficiency is stronger for firms with closer bank-firm ties, greater investment opportunities, and weaker financial positions (captured by firm size, state ownership, and listing location). Further, we observe that the influence of bank competition is attenuated during macroeconomic shocks, as exemplified by the financial crisis and the coronavirus pandemic.

Impact of Cost of Capital on European Economic Growth: The Role of IFRS Mandatory Adoption

Since 2005, the International Financial Reporting Standards (IFRS) mandatory adoption in the European Union has played a pivotal role to reduce financing costs which has influenced positively economic growth across member states. Thus, this study examines the effect of Cost of Capital on Economic Growth under IFRS mandatory adoption in 17 European countries between 1994 and 2021 using Pooled Mean Group Autoregressive Distributed Lag (PMG-ARDL) and System Generalized Method of Moments (GMM-system) methods. The findings reveal a positive correlation between the Cost of Capital and Economic Growth under IFRS adoption. Specifically, the model estimates indicate that the Cost of Capital contributes to a 0.58% increase in Economic Growth in the PMG-ARDL framework. Moreover, the GMM-system model underscores the significance of IFRS adoption in reducing the Cost of Capital, leading to a 0.52% increase in Economic Growth. These results provide insights into the benefits of adopting international accounting standards and highlight the importance of institutional and financial factors in shaping the economic impact of adopting accounting standards.

Transparency pays: How carbon emission disclosure lowers cost of capital

Amidst increasing global attention on corporate environmental responsibility, the impact of carbon emission disclosure on financial outcomes remains a pertinent question. Existing literature suggests that transparency in carbon disclosure can influence investor perception and capital costs, yet detailed mechanisms and broader economic implications are less understood. In this study, using data from Chinese publicly traded companies from 2017 to 2022, we investigate how carbon emission disclosure affects the implied cost of capital, with a focus on the mediating role of stock liquidity. Our findings reveal that enhanced transparency in carbon reporting significantly lowers the implied cost of capital by improving stock liquidity, a previously underexplored channel. This effect is particularly pronounced in sectors with high carbon footprints and within regions emphasizing sustainable finance policies. The results underscore the economic benefits of environmental transparency, suggesting that robust disclosure practices can serve as a strategic tool for firms to reduce financing costs while contributing to broader sustainability goals.

Do enterprises adopting digital finance exhibit higher values? Based on textual analysis

In this paper, we investigate whether enterprises adopting digital finance exhibit higher values. Based on the Management Discussion and Analysis (MD&A) sections of annual reports, we employ textual analysis and machine learning techniques to construct an indicator of the degree to which enterprises apply digital finance. We utilize panel data regression and mediation models based on data of Chinese A-share listed companies from 2016 to 2022 and explore the impact of this degree of digital finance application on enterprise value. We find that the degree to which enterprises apply digital finance elevates their values. The in-depth integration of digital technology and finance directly enhances enterprise value by reducing financing costs. Additionally, the effects are more evident among small-scale firms and enterprises in regions with lower marketization. However, in the face of the impact of the COVID-19 pandemic, the positive effects on enterprises are relatively low.

Краудфандинговые онлайн-платформы для малого и среднего бизнеса в России

In the modern world, in the conditions of digitalization of the economy, significant changes are taking place in the financing market. One of the results of such changes was the emergence and development of alternative sources of financing. Crowdfunding is becoming one of the most attractive forms of financing for small and medium-sized businesses, which, due to its features, significantly reduces financing costs. This article discusses the concept of platform crowdfunding, the dynamics of the crowdfunding platform market in Russia, as well as possible prospects for its development.

Financing Dilemma and Optimization Strategies of High-Tech Enterprises

In recent years, Chinas economic market has been developing rapidly and the number of enterprises has been increasing. However, the development of enterprises needs to rely on the support of capital, due to the high financing threshold of the capital market, ordinary commercial banks and private financial institutions can not fully meet the capital needs of all enterprises in the market. This has, to a certain extent, exacerbated the phenomenon of capital bottlenecks and stagnant development faced by Chinese enterprises, and many even went bankrupt due to poor capital turnover. This paper combines the views and conclusions put forward by a number of professional articles to analyze the status quo and predicament of the company's financing. It is found that high-tech enterprises have problems such as less application of financing methods, high financing costs and unreasonable financing structures. By optimizing the financing structure, improving the company's credit level to expand financing methods, and reducing financing costs, the government has introduced helping policies and other optimization strategies that can promote the healthy and stable development of high-tech enterprises.

How digital finance affects the sustainability of corporate green innovation

Through analysis, this study finds that digital finance can promote green innovation by alleviating financing constraints and reducing financing costs, with ESG ratings playing a moderating role in this relationship. Heterogeneity analysis reveals that the impact of digital finance on green innovation is more significant in non-high-tech and non-high-pollution industries. The findings provide strategic recommendations for policymakers to promote corporate green innovation and indicate directions for future related research.

Can digital transformation improve corporate green innovation?

ABSTRACT Drawing on legitimacy and resource-based theories, this study uses a sample of A-share listed companies in the Shanghai and Shenzhen stock markets from 2010 to 2020. Employing advanced big data text recognition techniques, this study delineates the intensity of corporate digital transformation and explores its impact on green innovation in enterprises. The findings reveal a positive relationship between the degree of digital transformation and the level of corporate green innovation. Mediation analysis indicates that digital transformation facilitates a substantial improvement of green innovation within enterprises by increasing media attention and reducing financing costs. Further analysis suggests that the intensity of regional environmental regulations diminishes digital transformation’s positive effects on corporate green innovation. Specifically, the impact of digital transformation on green innovation is more pronounced for enterprises in regions with weaker environmental regulations than in those with stronger regulations. This study contributes to the understanding of the microeconomic implications of corporate digital transformation, enriches the literature on the factors influencing corporate green innovation, provides empirical insights into the economic outcomes of corporate transformation in the digital era, and offers inspiration for the sustainable development of the global economy.

Digital inclusive finance: A lever for SME financing?

This paper systematically investigates the relationship between digital inclusive finance and small and medium enterprises (SMEs) financing constraints. We extrapolate the influence model between them from an economic theory perspective and conduct an empirical test using two-way fixed effects and a mediation effect model. The results show: (1) Digital inclusive finance significantly alleviates the financing constraints of SMEs; (2) Compared to the breadth of coverage, the depth of use of digital inclusive finance has a more noticeable effect; (3) The alleviation effect of digital inclusive finance exhibits heterogeneity. It can correct the attribute mismatch, field mismatch, and regional mismatch of traditional financial loan services; (4) Digital inclusive finance alleviates SME financing constraints by reducing financing costs and controlling leverage levels, increasing internal sources of enterprise funds. This research is significant for promoting digital inclusive finance to alleviate the financing difficulties of SMEs in China and provides valuable solutions for other countries to mitigate the “Macmillan Gap” phenomenon.

Impact of Digital Financial Inclusion on Small and Medium-Sized Enterprises

With the rapid development of digital technology, Digital Inclusive Finance (DIF) has emerged and gradually become an important part of financial services. DIF expands service coverage and financing channels through digital technology, bringing a new kind of development opportunity for Small and Medium-Sized Enterprises (SMEs). This paper analyses the enterprises broken down into different regional and different property rights systems in order to study the degree of impact of DIF on SMEs from the perspectives of financing constraints and transformation and upgrading. It then draws the conclusion that DIF has a facilitating effect on SMEs. It can alleviate the financing constraints and reduce the financing cost of SMEs through DIF, which can help to reduce the financing cost of SMEs and improve their development. financing constraints and reduce financing costs, thus promoting innovation and upgrading of SMEs. The effects of digital financial inclusion on SMEs vary depending on location and ownership structures. From a regional perspective, digital financial inclusion has a greater impact on SMEs in the central and western regions than it does on SMEs in the eastern regions. From the perspective of property rights, non-state-owned SMEs have a greater impact on digital financial inclusion than state-owned businesses.

Intermediary Mechanism Study on the Impact of ESG Assessment on Bond Issuance Interest Rates

ESG (Environmental, Social, and Governance) assessment is a widely recognized system for evaluating corporate sustainable development by international investors. The emphasis and improvement of ESG indices can have multiple effects on corporate operations and development. This paper focuses on the impact of ESG on corporate bond financing interest rates, considering the relevant relationships and intermediary mechanisms involved. The results indicate that, with controlled variables considered, corporate bonds with higher ESG scores tend to have lower issuance interest rates. Furthermore, besides the direct impact on bond rates, ESG scores also generate indirect effects through the intermediary variable of financing constraints. The study establishes from a corporate financing perspective that the development of ESG assessment has positive implications for corporate operations and confirms the intermediary role of financing constraints in this causal chain. According to the results, targeted recommendations are proposed for corporate operations: to reduce financing costs, continually optimize ESG and financing constraints.