Credit Issues Research Articles

Debt finance as a public phenomenon: conceptual basics and prospects of democratization

Introduction. Issues of budget deficits, public credit and debt form the sphere of debt finance – a model established in a particular country for ensuring the balance of the budget, the organization of government borrowings, the system of public debt management in order to influence the development of the economy and the functioning of public finance. Methods. The methods of abstraction, comparison, institutional analysis and idealization have been used. Results. The study draws attention to the microeconomic fundamentals of debt finance, considering them through the prism of the individual interests. It has been found out that the developed Western countries are characterized by the public nature of debt finances as a result of the evolutionary democratization of public debt – the accessibility of government debt operations to the general public. It is revealed that due to a number of institutional restrictions, the democratization of this sphere in Ukraine has not been fully implemented yet. It is proved that the public debt manifests the same power as pure public goods: the indivisibility in consumption and the impossibility to exclude from the debt burden, which enable its study as public bads. The key features that determine the social nature of debt finance in developed democratic countries are revealed. It is proved that the determinants of debt finance are both economic and political and institutional imbalances, not only in the area of public finance, but also at the level of economic entities. The key components of the institutional environment of the functioning of debt finance are considered: political decision- making mechanisms, procedures of the budget process, the institutional organization of the financial market. It is argued that one of the key shortcomings of the domestic practice of servicing domestic public debt is the insignificant share of debt owned by citizens. Conclusions. The disadvantages and obstacles of democratization of the model of borrowing in Ukraine are studied in the paper. A promising mechanism of financial inclusion of the population in transactions with government debt is proposed.

A Single Coin Monetary Mechanism for Distributed Cooperative Interference Management

We present an example, where a distributed coordinated protocol supported by a simple monetary mechanism leads to achieving optimal information theoretic degrees of freedom gains. The considered setting is that of a linear interference network, where cooperative transmission is allowed, but at no cost in terms of the overall backhaul load. We show that a simple monetary mechanism that consists only of one coin type can enable the achievability of the optimal centralized solution. The proposed greedy distributed algorithm relies on incentivizing the users to share their resources in one channel use, in return of credit they receive for maximizing their rate gains in future channel uses. This example is the first in its class and it opens the door for constructing a unified framework for monetary mechanisms for optimal interference management and spectrum sharing. This problem carries the promise of a significant impact as blockchain techniques open the door for implementing such mechanisms in practice.

Can green financial development promote renewable energy investment efficiency? A consideration of bank credit

Taking 141 listed renewable energy enterprises in China as a sample, the Richardson model is adopted to measure their investment efficiency in this paper. On this basis, an intermediary effect model of panel data is constructed to empirically analyze the intermediary effect of green financial development on renewable energy investment efficiency through bank loans, short-term loans, and long-term loans. We find that China’s green financial development has a negative impact on bank loan issuance in general, and inhibits the improvement of renewable energy investment efficiency to a certain extent, with an effect degree of 0.0017. Besides, the short-term loan has few intermediate effect on investment efficiency, while there is no intermediary effect of long-term loans. Moreover, as for the over-investment renewable energy enterprises, intermediary effect of bank loans exists. Green financial development can inhibit over-investment in renewable energy by reducing bank credit issuance; for renewable energy companies of under-investment, on the contrary, it aggravates the under-investment to a certain extent. This paper suggests that the government should both construct and consummate the green financial system through policies and regulation. Financial institutions should actively produce innovative green financial products and support the development of renewable energy enterprises and the renewable energy enterprises should strengthen their internal management and develop financing channels.

CREDIT RATINGS AND THE COST OF ISSUING SEASONED EQUITY

AbstractI examine the effects of issuer credit ratings on the costs associated with seasoned equity offerings (SEOs). The evidence from a panel of SEOs from 1990 to 2014 shows that when firms issue seasoned equity, those with issuer credit ratings pay reduced investment banking fees. I confirm these results by conducting a propensity‐score matched‐sample comparison analysis of firms that obtain new, long‐term issuer credit ratings with an unrated control group. Controlling for known determinants of SEO fees, I find that firms that obtain a new credit rating before issuing seasoned equity pay significantly reduced investment banking fees. In economic terms, underwriting fees for newly rated firms are 7.2% lower than those for similar, yet unrated firms. Finally, I examine the indirect costs of issuance and find evidence that credit‐rated firms face reduced market‐based costs to issue. Rated firms incur lower dilutionary costs to issue and have more positive abnormal returns surrounding the issue.

Give Credit Where Credit is Due: What Explains Corporate Bond Returns?

This paper explains the risk and returns of US corporate bond indices using a set of economically-motivated factors. In particular, I find that options markets explain a great deal of credit returns. Two particular features of corporate bonds generate option exposure. The first is that, in accordance with the Merton model, a corporate bond is economically equivalent to a short put option on a firm’s assets bundled with a risk-free bond. The second is that many corporate bonds include call provisions, which are basically options granted to the bond issuer. Thus, callable corporate bonds are positively exposed to firm asset values and negatively exposed to interest rates, firm volatility, and bond volatility. Using data spanning 21 years, I find that these identified risk factors explain between 60% and 76% of the return variability of the aggregate US investment grade corporate index, its sub-indices by maturity, and the aggregate US high yield index. I further decompose performance to identify systematic and idiosyncratic exposures. Systematic exposures compensate bond investors via the bond, equity, equity volatility, and bond volatility risk premia. Idiosyncratic exposures, on the other hand, provide risk without reward on average. Finally, I propose a Risk-Efficient Credit strategy that isolates the compensated risk premia by buying bonds and equities and by selling delta-neutralized equity index options and bond options. Risk-Efficient Credit strategies had similar or higher average returns than their corporate bond index counterparts, despite realizing between 15% and 48% lower volatility as well as attenuated drawdowns.

Application of Credit Risk Management Model in Chinese Banks

The main objective of this paper is to perform empirical analysis and research on the KMV and Zeta models, discussing whether banks in China could adopt both models in their credit risk management practices. In order to measure credit risk, the KMV model focuses on “Expected Default Probability” (EDP) that is calculated using Black-Scholes Option Pricing Formula. On the other hand, the Zeta Model focuses on determining the probability of a company going bankrupt two years prior to the event. Previous research on risk management has shown that the primary risk the banks generally face is credit risk as an increasingly greater number of banks suffer losses because of credit issues. This paper therefore aims to add to the existing literature a strong case for the relevance of both the KMV and Zeta models to be considered in the topic of banks’ credit risk management.

Do Rating Agencies Benefit from Providing Higher Ratings? Evidence from the Consequences of Municipal Bond Ratings Recalibration

ABSTRACTWe ask whether credit rating agencies receive higher fees and gain greater market share when they provide more favorable ratings. To investigate this question, we use the 2010 rating scale recalibration by Moody's and Fitch, which increased ratings absent any underlying change in issuer credit quality. Consistent with prior research, we find that the recalibration allowed the clients of Moody's and Fitch to receive better ratings and lower yields. We add to this evidence by showing that the recalibration also led to larger fees and to increases in the market shares of Moody's and Fitch. These results are consistent with critics’ concerns about the effects of the issuer‐pay model on the credit ratings market.

Faktor Eksternal Dan Internal Terhadap Keputusan Kredit Oleh Nasabah Pada PT. Pegadaian Manokwari

Purpose of this study is to analyze the relationship between external and internal factors on credit decision making by the customers. This is an associative study using quantitative data. Population in this study is the customer of PT. Pegadaian Manokwari. Incidental techniques is used as sampling method with 100 customers as respondents. Data analysis in this study used ordinal logistic regression. The results indicate that the independent variables have partial influence on credit decisions at PT. Pegadaian Manokwari Regency. Variables that have a significant effect are the appropriateness of collateral value, ease of procedure and types of work for both civil servants and private employees as well as the average credit return for two months. Furthermore, the results also indicate that the more considerations will lead to the opportunity for the decision to take credit at PT. Pegadaian are getting higher and vice versa. Thus, collateral and procedures as an external factors and customer’s job and credit period as internal factors are significant factors at the 95% level of confidence affecting the customer’s credit decisions at PT. Pegadaian Manokwari.

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.

The effect of corporate governance on credit ratings: Evidence from China's bond market

AbstractThis paper examines the association between firms’ corporate governance and credit ratings (both bond ratings and issuer ratings) in China. In addition to considering the financial attributes of bond issuers, we ask to what extent do credit rating agencies consider the corporate governance attributes of issuers? In concept, bondholders are concerned with the financial effects of how corporate governance resolves the agency conflicts between bondholders and managers, majority and minority shareholders, and shareholders and bondholders. We find that corporate governance affects bond issuer credit ratings in China. After controlling for firms’ financial attributes, we find that issuer ratings are positively related to dual‐listing, whether the firm is a state‐owned enterprise, the ownership of the second to the tenth largest shareholder; and negatively related to the relative scale of audit fees. We attribute the positive association between dual‐listing and credit rating to higher quality and transparency of information reported by the dual‐listed firm. The value to bondholders of the implicit government guarantee of debt payments more than offsets the negative association between firm value and being an SOE. Bond rating agencies expect that the change in agency costs with a reduction in the ownership of the largest shareholder benefits bondholders. To credit rating agencies, the scale of audit fees (relative to total assets of the accounting firm) signals interest binding between the client firm and the accounting firm that threatens the independence of auditing and the quality of financial reporting. We also find that bond‐specific attributes: collateral and issue size, are positively related to bond credit ratings.

Modeling variations in price inertia under demand uncertainty

This study employed a model of two-period in which the manufacturer determines a price floor and drafts output of production precedently to the attainment of certainty by demand. In addition, the closer the distance between the minimum price and the price during the high phase of demand, the higher is the degree of price inertia. This model first assumes that the manufacturer sells products to consumers directly and then introduces competing retailers who have the right to return unsold goods at the minimum resale price specified by the manufacturer. By solving for the minimum resale price and production output, the model’s results indicate that vertical market linkages influence the market power–price inertia relation and that asymmetric price transmission could be symbolic of competitive markets. Further, study reveals that the retail price in a highly concentrated retail market might be lower than that in a retail market with fierce competition. In addition, high product durability, low demand uncertainty, low return credit, and long contract duration between upstream and downstream members lead to price inertia rising during economic recessions compared with booms. The relationship between price adjustments and market competition, therefore, suggests that the reasons underlying price inertia should be considered when formulating antitrust and monetary policy.

Scoring is an expert method for predicting the credit capacity of social assets

The article defines that modern approaches to solving the credit issue, while minimizing the risk of possible losses, need to introduce new effective risk management principles and computer decision support systems. The construction of such systems involves the development and use of a variety of alternative methods for analyzing data, alternative models and relevant criteria for analyzing the quality of models and the final result – the probability of non-return of credit. It has been proven that the use of the scoring model as one of the main risk management tools of credit operations is recognized worldwide as one of the most effective. In modern foreign banking practice, when building a scoring system, most often, such client characteristics are taken into account: the number of children, marital status, income, telephone availability, and the period of cooperation with the bank. In recent years, scoring systems have become widespread in the activities of domestic banks. Keywords credit scoring, scoring model, creditworthiness of individuals, bank accountant, post-manager, credit scoring technology.

신용등급 하락 조건부 채권의 가치평가(A Practical Valuation of the Rating-triggered Bond)

Korean Abstract: 본 연구는 발행자의 신용등급이 일정한 등급 이하로 하락할 경우 1) 높은 등급의 채권을 담보로 제공할 발행자의 의무 또는 2) 조기상환을 요구할 투자자의 권리가 발생하는 채권의 가치평가 방법을 실무적인 각도에서 제시한다. 국내에서 발행된 이와 같은 채권을 5가지 유형으로 분류한 후 평가과정에서 적용하는 전이행렬의 형태에 차이가 있음을 보여주었다. 또한 등급하락 확률을 계산하기 위해 신용평가사에서 제공하는 역사적 전이행렬을 사용하여 계산의 용이성을 확보하였다. 분석 결과 등급하락에 연계된 조건부 조항은 일정 부분 가치가 있는 것으로 평가되었다. 따라서 신용등급 하락 조건부 채권을 평가할 때 등급 하락 조건부 조항을 제외하고 일반채권과 동일한 방법으로 평가하는 것은 지양해야 할 것으로 보인다. 향후 경기 둔화 및 신용 상황 악화 등 금융불안이 발생하면 부도율 및 등급하락 확률이 상승하고 금리변동성이 높아지면 조건부 조항의 가치는 중첩적으로 높아질 것이다. 따라서 선제적인 채권 포트폴리오 위험관리를 위해 신용등급 하락 조건의 가치를 명시적으로 고려할 필요가 있다. English Abstract: The purpose of this paper is to present a practical approach to do valuation of rating-triggered bond, which provides a higher-rated bond as collateral that allows the investors to exercise the right of early redemption when an issuer's credit rating falls below some predetermined threshold rating. The domestic rating-triggered bonds are classified into five categories and we stress that there are differences in calculating rating downgrade probability according to five categories in the process of valuation. Historical average transition matrix is used conveniently from credit rating companies for calculating the rating downgrade probability. Empirical valuation study shows that additional values from rating triggered clauses are not negligible. Therefore, it should include rating-triggered clauses in the process of the valuation of rating-triggered bond. It is expected that if default rates and rating downgrade probability are high when economic or credit condition gets worse, rating-triggered clauses will increase in value. Therefore it is necessary to consider rating-triggered clauses appropriately in the process of valuation.

Lens of London: 'Granting Limited Copyright Protection for Performers'

This paper consists in the “Lens of London” documentary which is created by Queen Mary students of Intellectual Property Law under the US jurisdiction. The focus of this paper are the issues such as: what is a performer, who owns the copyright of the work, credit and pre-existing work issues. However, despite the above mentioned issues which this paper deal, the scope of this paper is to argue that performers which present motion pictures for the purpose of a documentary or in a film should provide joint authorship in the cases where they have contributed with more than a simple performance. In addition, among other cases, these problems have been analysed under two main cases which are related with the film industry and shooting, respectively “Garcia v. Google” and “Burrow-Giles Lithographic Co. v. Sarony” case. The former refused to know the authorship of the work to a performer in the film industry and the latter raise the inquiry whether a simple picture was a product of an author and whether it could be granted protection under the Copyright Clause. This paper conclude that the best way to resolve the copyrightable issue for the motion picture is to be classified as joint authorship as performers play a core role in the film industry.

Accountability by the accountable self: The case of Leone Wollemborg

The accounting history literature has mostly concentrated on depicting how accountability practices evolve with respect to the organisational and social contexts, leaving at the margins explorations of the role of the ‘accountable self’ in this process. To extend this literature, the present study examines how the economist and landowner Leone Wollemborg (1859–1932) acted as an ‘accountable self’, explaining his own actions to the ‘other’, to promote a new organisational model aimed at solving the credit issue affecting the rural population. Based on archival material, the article explores Wollemborg’s biography and develops a content analysis of his discourses. The findings show that, by making a pervasive use of face-to-face narrative accountability, Wollemborg obtained trust and engagement of external potential stakeholders, thus expanding the rural credit cooperatives (Raiffeisen-style). This research facilitates understanding of the relevance for the initiator of a new organisational model to act as an ‘accountable self’.

Remand as a Cross-Institutional System: Examining the Process of Punishment before Conviction

Currently in Canada, there are more legally innocent people in custody in provincial/territorial prisons than there are sentenced prisoners. This group, known as remand prisoners, constituted 37% of the total prison population – federal and provincial/territorial – in Canada in 2015. Despite growing public attention and legal awareness of the remand problem, little is known about the human costs of pre-trial detention. I outline some of these costs to individuals through a discussion of three distinctive dimensions of remand imprisonment: arrest, court appearances, and daily life in custody. Based on interviews with 120 remand prisoners (60 male, 60 female) at four maximum-security provincial prisons in Ontario, I demonstrate that the system imposes many punishments on individuals long before – and often in the absence of – conviction. The consequences of remand custody have implications for our understanding of the nature of punishment before conviction and for contemporary legal debates in Canada on the issue of pre-trial credit.

Gambling despite financial loss-the role of losses disguised as wins in multi-line slots.

Slot machines pose serious problems for a subset of gamblers. On multi-line slots, many small credit returns are less than one's spin wager, resulting in a net loss to the player. These outcomes are called 'losses disguised as wins' (LDWs). We aimed to show that different proportions of LDWs could differentially affect gambling persistence (continuing to gamble despite financial loss), but that such LDW effects may depend on problem gambling symptomatology. Gamblers were randomized to play 100 spins on a game with few, moderate or many LDWs (between-subjects design), then continued playing for as long as they wished during (unbeknown to players) a losing streak (to measure gambling persistence). A custom-built casino in a gambling research laboratory in Waterloo, Canada. Experienced gamblers (n=132) with varying levels of problem gambling symptomatology from the Waterloo, Canada community. We measured the number of voluntary spins participants played (persistence) during the losing streak following the 100-spin playing sessions. We measured problem gambling symptomatology using the Problem Gambling Severity Index, and classified them as non-problem (n=53), low-risk (n=55) or higher-risk (n=24) gamblers. Persistence trends differed depending on LDW frequency and problem-gambling status (interaction: P=0.037). High-risk gamblers showed a 'sweet spot' for LDW reinforcement, persisting for longer in the moderate than few or many LDW games (quadratic trend across LDW games: P=0.028). Non-problem gamblers showed a linear trend across LDW games, gambling for longer in the few LDW game (P=0.007). For low-risk gamblers, the quadratic contrast was not significant, P = 0.032. Multi-line slots contain outcomes in which one gains less than the original wager (losses disguised as wins or LDWs). Moderate (versus few and high) proportions of LDWs appear to make higher-risk players gamble for longer despite financial loss.

Vexed with Devils: Manhood and Witchcraft in Old and New England

Vexed with Devils: Manhood and Witchcraft in Old and New England

Multivariate ordinal regression models: an analysis of corporate credit ratings

Correlated ordinal data typically arises from multiple measurements on a collection of subjects. Motivated by an application in credit risk, where multiple credit rating agencies assess the creditworthiness of a firm on an ordinal scale, we consider multivariate ordinal regression models with a latent variable specification and correlated error terms. Two different link functions are employed, by assuming a multivariate normal and a multivariate logistic distribution for the latent variables underlying the ordinal outcomes. Composite likelihood methods, more specifically the pairwise and tripletwise likelihood approach, are applied for estimating the model parameters. Using simulated data sets with varying number of subjects, we investigate the performance of the pairwise likelihood estimates and find them to be robust for both link functions and reasonable sample size. The empirical application consists of an analysis of corporate credit ratings from the big three credit rating agencies (Standard & Poor’s, Moody’s and Fitch). Firm-level and stock price data for publicly traded US firms as well as an unbalanced panel of issuer credit ratings are collected and analyzed to illustrate the proposed framework.

Climate Change Information Source and Indigenous Adaptation Strategies of Cucumber Farmers in Enugu State, Nigeria

The study assessed the climate change information source and the indigenous adaptation strategies of cucumber farmers in Enugu State. A multi-stage sampling technique was used in selecting 80 respondents. Data were elicited using structured interview schedule and presented in percentage and mean scores. Findings showed that the majority (92.5%) of cucumber farmers never had contact with extension workers. Information on climate change was mainly from neighbours/friends and personal experience. The indigenous strategies employed for climate change adaptation were organic manure ( =2.91), crop diversification (=2.75), early harvesting ( =2.74) planting early maturing varieties ( =2.59), prompt weeding ( =2.79) among others. The major challenges encountered by the respondents included poor market facility ( =2.36), non-availability of credit facility ( =2.74), non-availability of storage facilities ( =2.75), high cost of labour ( =2.48), poor access to information sources ( =2.30), limited income ( =2.58). It was recommended that high level awareness via media campaign be employed by government extension agency to educate cucumber farmers on climate change issues. Also, a sustainable national climate change policy should be championed by the Ministry of Agriculture to build farmers capability to adapt to climate change. Also, government should intervene in the issues of credit, input/facilities and map out a framework to guarantee access to land by farmers for enhanced resilience and expand of production.Keywords: Climate change, indigenous, information, adaptation, strategies, cucumber, farmers