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on Corporate Finance |
| By: | Kuwahara, Satoshi (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute); Sagara, Megumi (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute) |
| Abstract: | The credit risk database (CRD) makes it possible to mitigate the problem of information asymmetry between small and medium-sized enterprises (SMEs) and financial institutions and contributes to improving SMEs’ access to finance by collecting a large number of financial statements through the mechanism of SME finances and establishing a robust statistical model. We use the CRD in Japan, confirm the situation in Japan, and highlight the CRD’s contribution to evaluating the creditworthiness of SMEs. We also explain how to establish the CRD as a financial infrastructure, while indicating that the CRD and the scoring model based on it have maintained their quality owing to their operating system. We hope our experience contributes to the introduction of a statistical credit risk database composed of a large number of anonymous financial statement data in other countries and that the CRD helps to improve SMEs’ access to finance as a financial infrastructure. |
| Keywords: | credit risk database; CRD creditworthiness; SMEs in Japan |
| JEL: | G21 G28 G32 |
| Date: | 2019–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0924&r=all |
| By: | Chatterjee, Satyajit (Federal Reserve Bank of Philadelphia); Eyigungor, Burcu (Federal Reserve Bank of Philadelphia) |
| Abstract: | Larger firms (by sales or employment) have higher leverage. This pattern is explained using a model in which firms produce multiple varieties and borrow with the option to default against their future cash ow. A variety can die with a constant probability, implying that bigger firms (those with more varieties) have lower coefficient of variation of sales and higher leverage. A lower risk-free rate benefits bigger firms more as they are able to lever more and existing firms buy more of the new varieties arriving into the economy. This leads to lower startup rates and greater concentration of sales. |
| Keywords: | Startup rates; leverage; firm dynamics |
| JEL: | E22 E43 E44 G32 G33 G34 |
| Date: | 2019–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:19-18&r=all |
| By: | Jedidi, Helmi (HEC Montreal, Canada Research Chair in Risk Management); Dionne, Georges (HEC Montreal, Canada Research Chair in Risk Management) |
| Abstract: | Our main objective is to test for evidence of information asymmetry in the mortgage servicing market. Does the sale of mortgage servicing rights (MSR) by the initial lender to a second servicing institution unveil any residual asymmetric information? We analyze the originator’s selling choice of MSR using a large sample of U.S. mortgages that were privately securitized during the period of January 2000 to December 2013 (more than 5 million observations). Our econometric methodology is mainly non-parametric and the main test for the presence of information asymmetry is driven by kernel density estimation techniques (Su and Spindler, 2013). We also employ the non-parametric testing procedure of Chiappori and Salanié (2000). For robustness, we present parametric tests to corroborate our results after controlling for observable risk characteristics, for econometric misspecification error, and for endogeneity issues using instrumental variables. Our empirical results provide strong support for the presence of second-stage asymmetric information in the mortgage servicing market. |
| Keywords: | Mortgage servicing market; mortgage servicing right; information asymmetry test; MSR-purchaser; parametric model; non-parametric model; kernel estimation; instrumental variable. |
| JEL: | C14 C23 C26 G14 G21 G33 |
| Date: | 2019–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:ris:crcrmw:2019_001&r=all |
| By: | Theodore Panagiotidis (Department of Economics, University of Macedonia, Greece; Rimini Centre for Economic Analysis); Panagiotis Printzis (Department of Business Administration, University of Macedonia, Greece) |
| Abstract: | We investigate the effect of uncertainty on investment. We employ a unique dataset of 25000 Greek firms' balance sheets for 14 years covering the period before and after the eurozone crisis. A dynamic factor model is employed to proxy uncertainty. The investment performance of 14 sectors is examined within a dynamic investment model. Robust GMM estimates of the investment rate model reveal a high degree of heterogeneity among these sectors. Overall uncertainty affects negatively investment performance and this effect substantially increased in the years of crisis. Agriculture and Mining are the least affected and the most affected ones include Manufacturing, Real Estate and Hotels. Focusing on the response of investment to uncertainty, it emerges that (relative) smaller firms are affected more compared to larger ones. |
| Keywords: | Greek firms, Uncertainty, Volatility, GMM, Panel data |
| JEL: | C23 D22 D81 D92 G31 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:19-06&r=all |
| By: | Aboojafari, Roohollah (Asian Development Bank Institute); Daliri, Alireza (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Mokhtari, Mohammad (Asian Development Bank Institute); Ekhtiari, Mohsen (Asian Development Bank Institute) |
| Abstract: | Small and medium-sized enterprises (SMEs) in their growth stage reach the point where, on the one hand, personal resources do not meet their needs, and, on the other, they do not have enough collateral to attract external finance. Access to finance can be facilitated by obtaining loans from financial institutions backed by governmental credit guarantees. Therefore, the development of a sound credit guarantee scheme will be an important step in filling the financing gap of SMEs. We investigate the situation of the credit guarantee scheme for SMEs in Iran by using the available data and interviews with activists from this field with the grounded theory method. We show the weaknesses of the Iranian credit guarantee scheme, and based on the analysis, present solutions and policy recommendations in accordance with the social and economic environment of the Islamic Republic of Iran. The most important problem is the lack of a credit database for comprehensive assessment of SMEs, especially knowledge-based enterprises. The lack of a robust database makes it impossible to carry out a comprehensive evaluation because these models require a large amount of data. The lack of accurate models makes it difficult to rate credit status and thus to issue credit guarantees. In addition, the current level of the capital of the credit guarantee funds in Iran is not sufficient given the large number of SMEs in the country. |
| Keywords: | small and medium-sized enterprises (SMEs); knowledge-based enterprises; credit guarantee scheme (CGS); comprehensive credit evaluation |
| JEL: | C52 G32 H81 O10 |
| Date: | 2019–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0930&r=all |
| By: | Shankar, Savita (Asian Development Bank Institute) |
| Abstract: | We describe the common financing challenges faced by micro, small, and medium-sized enterprises (MSMEs) in India and some important measures taken to address them, with a focus on the credit rating scheme implemented in 2000. We examine the usefulness as well as the limitations of the scheme, drawing on interviews with rating agencies and MSMEs. With credit rating being an expensive exercise, the availability of government subsidies under the scheme has been an important factor in encouraging MSMEs to get themselves rated, thereby reducing information asymmetry with banks and enabling access to credit. Given the large number of unbanked MSMEs in the country, leveraging the data generated by MSME lending and credit rating in the country through the creation of a credit risk database is necessary. Lenders will then be able to tap into the collective data generated to make more informed credit decisions with regard to MSMEs without relying on subsidies. Over 63 million micro, small, and medium-sized enterprises in India generate lending and credit rating data. How can lenders leverage these to make informed credit decisions? |
| Keywords: | micro; small; and medium-sized enterprises; India; credit rating |
| JEL: | G21 G28 G38 |
| Date: | 2019–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0931&r=all |
| By: | Prempeh, Kwadwo Boateng; Peprah – Amankona, Godfred |
| Abstract: | This paper analyses the relationship between working capital management and profitability of firms in the context of developing economies. A balanced panel of 11 manufacturing companies quoted on the Ghana Stock Exchange was used. The study covered the period 2011 to 2017. The relationship between working capital management and profitability was tested using dynamic panel regression (Arellano-Bond Estimation) technique. The study revealed that there is a significant positive linear relationship between working capital management and firms’ profitability. The findings also reveal the existence of a concave quadratic relationship between working capital management and firms’ profitability. Hence, an optimal level which maximises the profitability of manufacturing firms in Ghana exists. This implies that, there is an optimal level at which working capital management maximises firm’s profitability, therefore, managers need to ensure that they operate within the limits of the optimal level by implementing an effective and efficient working capital management policy. Also, the practice of an aggressive working capital management policy maximises a firm’s profitability. |
| Keywords: | working capital management, cash conversion cycle, dynamic panel regression, manufacturing firms, Profitability. |
| JEL: | G0 G00 G3 |
| Date: | 2018–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90183&r=all |
| By: | Smoke, Paul (Asian Development Bank Institute) |
| Abstract: | Considerable attention has been given to enhancing subnational development finance in response to the 2008 global financial crisis and recent global development agendas, including the Sustainable Development Goals, Financing for Development, and Habitat III/New Urban Agenda. Much work on this topic is fragmented, focusing on specific elements of development finance: fiscal transfers, capital market access, public-sector lending agencies, or public–private partnerships. Most countries, however, have a range of subnational governments with varying needs and capacities that require different and evolving mixes of development finance mechanisms. Enabling greater subnational borrowing is often desirable but requires adoption of other reform policies to improve the fiscal capacity and creditworthiness of subnational governments over time. We review the rationale and potential for improving subnational development finance, outline the overall landscape of institutional arrangements available for this purpose, and consider broad challenges involved. Based on a review of global practice and experience in selected Asian developing countries with a range of special entities and innovations to enhance subnational investment, we propose a more integrated, strategic approach to building subnational development finance. |
| Keywords: | subnational government finance; intergovernmental transfers; subnational government debt; subnational government financial intermediaries; Asia |
| JEL: | H70 H71 H72 H74 H77 |
| Date: | 2019–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0921&r=all |
| By: | Lyons, Angela C. (Asian Development Bank Institute); Grable, John E. (Asian Development Bank Institute); Zeng, Ting (Asian Development Bank Institute) |
| Abstract: | Financial literacy is a key tool being used to bring economically vulnerable populations into the financial mainstream. Data from the 2013 China Household Finance Survey (CHFS) were used to investigate the impacts of various dimensions of financial literacy on the use of bank and non-bank loans among rural, illiterate, and migrant populations in the People’s Republic of China. The findings show that the most vulnerable groups may be less likely to benefit from financial literacy, especially when it comes to usage of formal bank loans. Other factors such as those related to social networks and infrastructure may matter more than financial literacy. Results were found to vary across measures of financial literacy and financial inclusion. The findings suggest that barriers to access likely need to be overcome so that financial literacy can be more effective. The current study provides important insights for policy makers and international organizations designing national strategies to improve financial inclusion via financial literacy, especially for populations that have been traditionally excluded. Researchers are encouraged to reexamine previous definitions and measures of financial literacy and inclusion to develop a better understanding of the relationship between the two dimensions. |
| Keywords: | financial literacy; financial inclusion; loan usage; financially vulnerable populations; People’s Republic of China |
| JEL: | D12 D14 G21 G23 O17 |
| Date: | 2019–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0923&r=all |
| By: | Abramov, Alexander (Абрамов, Александр) (The Russian Presidential Academy of National Economy and Public Administration); Radygin, Alexander (Радыгин, Александр) (The Russian Presidential Academy of National Economy and Public Administration); Chernova, Maria (Чернова, Мария) (The Russian Presidential Academy of National Economy and Public Administration) |
| Abstract: | Based on a sample of 213 non-financial public Russian companies listed on the Moscow Exchange for the period 2005-2017. The paper explores the dividend policy of the corporate sector in Russia. Signal and agent dividend hypotheses for Russian companies were tested. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:wpaper:031938&r=all |
| By: | A. Mantovi |
| Abstract: | The relevance of information dynamics and collateralization is well established for modern financial markets. Still, when it comes to first principles of financial stability, questions of transparency seem to overshadow the relevance of the specificities of networks of counterparties. The paper is meant to deepen the connection between the principle of “no questions asked” on collateralized debt (Holmström, 2015) and the stabilizing properties of collateral flows (Mehrling, 2012). Conceptual and empirical implications are thoroughly discussed, and can be conjectured to represent lines of progress for the theory of money. |
| Keywords: | Money; Financial Stability; Information Sensitivity; Market Design; Equilibrium Selection; Political Economy |
| JEL: | E59 G01 G18 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:par:dipeco:2019-ep01&r=all |