Asset Revaluations and the Mitigation of Underinvestment

Asset write-ups or revaluations are a common feature of Australian accounting and reporting practice. This paper adopts the perspective that efficiency rather than opportunism is the reason for revaluations. It argues asset revaluations are a low-cost mechanism for mitigating underinvestment problems induced by the presence of risky debt and exacerbated by the manner in which conventional borrowing limitations are written. It is hypothesized that revaluation should be positively related to the presence of growth opportunities, financial leverage and the presence of borrowing limitations; and negatively related to a firm's ability to finance growth internally. The empirical results generally support the hypothesized relationships.     

Resaleable debt and systemic risk

Many debt claims, such as bonds, are resaleable; others, such as repos, are not. There was a fivefold increase in repo borrowing before the 2008–2009 financial crisis. Why? Did banks’ dependence on non-resaleable debt precipitate the crisis? In this paper, we develop a model of bank lending with credit frictions. The key feature of the model is that debt claims are heterogenous in their resaleability. We find that decreasing credit market frictions leads to an increase in borrowing via non-resaleable debt. Such borrowing has a dark side: It causes credit chains to form, because, if a bank makes a loan via non-resaleable debt and needs liquidity, it cannot sell the loan but must borrow via a new contract. These credit chains are a source of systemic risk, as one bank’s default harms not only its creditors but also its creditors’ creditors. Overall, our model suggests that reducing credit market frictions may have an adverse effect on the financial system and even lead to the failures of financial institutions.     

THE IMPACT OF FINANCING SOURCES ON MULTINATIONAL PROJECTS

It is shown here that market imperfections, such as corporate taxes, are not a necessary condition for a firm to have a debt denomination preference. When the stochastic nature of project cash flows and exchange rates are explicitly considered, the risk of the project is affected by the source of borrowing used to finance the project. It is also shown that the existence of income taxes causes the expected net present value and risk of a foreign project to depend on the source of the firm's borrowing. The debt denomination preference in both cases depends on project- and country-specific variables.     

中国地方政府债务权责划分:实践探索与改革建议

地方政府债务权责划分是一国分级财政体制的重要内容。实现中国地方政府债务的合法化已经成为解决当前地方政府债务问题的前提条件。地方政府债务的合法化不仅是债务融资权的界定问题,更是管理责任的归属问题。近年来中国某些地方已经开始自发地探索地方层面上的政府债务权责划分的方法。国家应尽快制定统一的法规,赋予地方政府合法举债权,但应严格控制债务规模、界定使用范围。应在财政部和省市县财政部门设立债务管理机构,明确地方政府的债务偿还及风险管理责任,加大债务监督力度。     

中国银行借款与商业信用融资的治理效应：过度投资视角

依据沪深 A股主板市场2007-2015年样本数据,考量中国银行借款与商业信用融资的治理效应.结果显示:无论是国有控股公司还是民营公司,银行借款均对其过度投资行为存在诱发作用;与短期借款相比,长期借款对公司过度投资的诱发作用更加突出.结果表明,商业信用融资有助于抑制公司过度投资,且市场化程度越高的地区这种抑制作用越突出.     

Risk-based pricing of interest rates for consumer loans

By focusing on observable default risk's role in loan terms and the subsequent consequences for household behavior, this paper shows that lenders increasingly used risk-based pricing of interest rates in consumer loan markets during the mid-1990s. It tests three resulting predictions: First, the premium paid per unit of risk should have increased over this period. Second, debt levels should have reacted accordingly. Third, fewer high-risk households should have been denied credit, further contributing to the interest rate spread between the highest- and lowest-risk borrowers.For people obtaining loans, the premium paid per unit of risk did indeed become significantly larger after the mid-1990s. For example, for a 0.01 increase in the probability of bankruptcy, the corresponding interest-rate increase tripled for first mortgages, doubled for automobile loans and rose nearly six-fold for second mortgages. Additionally, changes in borrowing levels and debt access reflected these new pricing practices, particularly for secured debt. Borrowing increased most for the low-risk households who saw their relative borrowing costs fall. Furthermore, while very high-risk households gained expanded access to credit, the increases in their risk premiums implied that their borrowing as a whole either rose less or, sometimes, fell.     

地方政府债务管理及危机处置的国际经验借鉴

地方政府举债是工业化、城市化的必然选择,合理举债有利于地方财政的高效运转,但若监管错位、过度举债则有可能引发债务危机。自2014年起,我国赋予地方政府发债权,随着近年来收益类专项债的扩容,地方政府债务规模不断扩大,同时融资平台、政府引导基金等各种形式的隐性债务风险依然突出。当前地方政府债务风险被视为“灰犀牛”,亟需引起重视和关注。本文通过梳理美国、日本、巴西地方政府债务危机产生的原因和处置方式,总结国外地方政府债务管理和危机处置的有效经验,并结合现阶段我国地方政府债务管理中存在的预算软约束、发行主体单一、债务透明度差、评级和监管缺位、预警和处置机制不完善等主要问题,提出相关对策建议。     

Foreign currency-denominated borrowing in the absence of operating incentives

It is well known that corporations issue foreign currency-denominated debt to hedge foreign currency cash flows with offsetting interest payments. We test an alternative “opportunistic” motive for foreign currency-denominated borrowing. We do so by constructing a comprehensive sample of foreign currency-denominated bonds issued by sovereign government and agency issuers with no foreign currency cash flows or foreign operations. We find strong and consistent evidence that the borrowers in our sample consider cross-currency differences in covered and uncovered interest yields in choosing the currency in which to denominate their international debt. We estimate the average gains to opportunistic covered yield borrowing to be 4 to 18 basis points. Interestingly, we also find that the average bond offering in our sample precedes a large and beneficial depreciation of the issue currency over the course of the following year. These results support what has been a frequent conjecture in the foreign debt market.     

Sovereign Debt Portfolios,Bond Risks,and the Credibility of Monetary Policy

We document that governments whose local currency debt provides them with greater hedging benefits actually borrow more in foreign currency. We introduce two features into a government's debt portfolio choice problem to explain this finding: risk-averse lenders and lack of monetary policy commitment. A government without commitment chooses excessively countercyclical inflation ex post, which leads risk-averse lenders to require a risk premium ex ante. This makes local currency debt too expensive from the government's perspective and thereby discourages the government from borrowing in its own currency.     

Bank Information Monopolies and the Mix of Private and Public Debt Claims

This article examines the determinants of the mix of private and public debt using detailed information on the debt structure of 250 publicly traded corporations from 1980 through 1990. We find that the relationship between bank borrowing and the importance of growth opportunities depends on the number of banks the firm uses and whether the firm has public debt outstanding. For firms with a single bank relationship, the reliance on bank debt is negatively related to the importance of growth opportunities. In contrast, among firms borrowing from multiple banks, the relationship is positive.     

The Debt Equivalence Of Leases In The UK: An Empirical Investigation

In finance theory, leasing is viewed as a form of borrowing. Prior studies have indicated that secured debt and lease are regarded as equivalent by the capital market.The following questions are addressed: i) do debt and lease have the same effects on the volatility of equity return? ii) Have changes in the accounting regulations altered the effect of lease obligation on the volatility of equity return? The results indicate that, on average, finance leases have a positive effect on the volatility of the return on equity as debt does. It is also found that the market considers leases more favourably (less risky) than debt.Two explanations are possible for the favourable treatment: i) the finance lease obligations are less like debts due to the imposed capitalisation requirements; ii) firms pay high costs of leasing because of the benefits from leasing relative to debt and the market reacts to those benefits favourably.     

The Choice of Debt Source by UK Firms

We examine the choice of borrowing source among public debt, syndicated bank loans, bilateral bank loans and non‐bank private debt. Using a sample of 400 non‐financial firms over the period 2000–2012, we find strong support for the reputational theory of borrowing source. Larger firms are more likely to borrow in public debt markets. Bank dependent firms are less likely to borrow in public debt markets and choose between bank and non‐bank private debt based on maturity, collateral available to lenders and other firm characteristics. These results are consistent with the role of borrower reputation being the primary determinant of borrowing source for UK listed firms.     

ON THE CAPITAL STRUCTURE OF NON‐PROFIT ORGANISATIONS: A REPLICATION AND EXTENSION WITH BELGIAN DATA

The empirical tests of non‐profit organisations' capital structure theories by Jegers and Verschueren (2006) on a sample of Californian non‐profit organisations (data on 1999) are replicated and extended for a more recent Belgian sample (844 observations pertaining to 2007). Three complementary theories to explain the presence and levels of overall debt and financial debt are examined: equity constraints, agency, and borrowing constraints. The decision to borrow and the amount to be borrowed are analysed separately. The estimations obtained reveal that both are driven by different mechanisms. After having removed outliers, the results show effective equity constraints when explaining debt levels, as observed in the Californian sample with respect to the overall amount of debt. The results also indicate an agency explanation of debt: both the decision to borrow from financial institutions, and the overall amount of (financial) debt are positively affected by the presence of a potential agency gap between board and management. In the Californian sample, the results on this were mixed. Borrowing constraints were almost never discovered, similar to the conclusions reached by Jegers and Verschueren. However, slightly reducing the sample by removing outliers makes borrowing constraints apparent. As to the control variables, size positively affects the probability of borrowing, but, for the organisations taking on debt, negatively affects the level of borrowing. As could be expected, the amount of tangible fixed assets in place is positively related to the amount of financial debt.     

Determinants of corporate borrowing

Many corporate assets, particularly growth opportunities, can be viewed as call options. The value of such ‘real options’ depends on discretionary future investment by the firm. Issuing risky debt reduces the present market value of a firm holding real options by inducing a suboptimal investment strategy or by forcing the firm and its creditors to bear the costs of avoiding the suboptimal strategy. The paper predicts that corporate borrowing is inversely related to the proportion of market value accounted for by real options. It also rationalizes other aspects of corporate borrowing behavior, for example the practice of matching maturities of assets and debt liabilities.     

Debt overhang and non-distressed debt restructuring

In this paper, we analyse the restructuring of debt in the presence of debt overhang. The firm starts out with a debt liability and an investment opportunity. Then with unrestructured debt, the firm maintains the current borrowing payments until default or investment. If the creditors allow the parties to restructure the debt with exchange offers, then the borrowing payments change as well as the default and investment points. We find that there is a unique optimal restructuring path which maintains debt at positive levels but defers default indefinitely. This path is optimal regardless of whether the debt holders or the firm control the process through superior bargaining power. Moreover, a debt-for-equity exchange to remove all existing debt takes place just before investment that is followed by the issue of an optimal amount of new debt as part of the funding for the investment cost. The optimal investment trigger is higher along the optimal restructuring path than it is for an unlevered firm. We discuss the findings in the light of existing empirical evidence.     

Corporate ownership structure and the choice between bank debt and public debt

This article examines the relation between a borrowing firm's ownership structure and its choice of debt source using a novel data set on corporate ownership, control, and debt structures for 9,831 firms in 20 countries from 2001 to 2010. We find that the divergence between the control rights and cash-flow rights of a borrowing firm's largest ultimate owner has a significant negative impact on the firm's reliance on bank debt financing. In addition, we show that the control-ownership divergence affects other aspects of debt structure including debt maturity and security. Our results indicate that firms controlled by large shareholders with excess control rights may choose public debt financing over bank debt as a way of avoiding scrutiny and insulating themselves from bank monitoring.     

基于VECM模型的信贷约束、家庭债务与中国宏观经济波动分析

采用1997~2013年家庭债务、贷款价值比与 GDP 增长率等变量数据,在借鉴 Kim 的模型基础上,构建 VECM 模型,检验了信贷约束、家庭债务与中国宏观经济波动之间的关系。结果表明：短期内宽松的借贷约束促进了家庭债务的增加,从而推动经济增长,但从长期来看,宽松的借贷约束会导致家庭债务过高,阻碍长期经济增长;与居民消费率、家庭债务等变量相比,贷款价值比、利率对宏观经济波动的影响较大。因此,政府决策部门应制定合理的消费金融政策,居民应通过优化家庭资产组合,以实现家庭债务的可持续性增长,从而促进经济增长。     

A portfolio based theory of excessive foreign borrowing and capital control in a small open economy

We develop a simple model of portfolio choice in a mean variance framework to address the issue of international borrowing and financial crisis. Instead of adverse selection or moral hazard of lending and borrowing activities we emphasise the role of exchange rate movement. Syndicated borrowing by way of internalising the aggregate effect tends to restrict excessive borrowing from external source. However, this may undermine the welfare consequences by further aggravating the extent of risk undertaken in the process. There is a built-in externality in the model that leads to over exposure to foreign currency debt and readily calls for intervention by the government. Government intervention by way of a tax on foreign borrowing may help restrain the amount of external debt and implement the first best.     

The market reaction to debt announcements: UK evidence surrounding the global financial crisis

We examine the stock market response to announcements of public, bank and privately placed debt issuance by large UK firms surrounding the global financial crisis of 2008. Prior to the crisis, we find that stock prices respond positively to announcements of bank debt issuance only. This is restricted to the sub-sample of syndicated bank loans and this is suggestive of the certification from multiple lenders conveying a signal of creditworthiness. We find that abnormal returns on the announcement of bank loans have declined since the financial crisis, both in absolute terms and in comparison to alternative borrowing sources. Overall, our results suggest that surrounding the global financial crisis of 2008, bank loans have become less informative as a signal of the creditworthiness of borrowing firms.     

Aversion to Student Debt? Evidence from Low-Wage Workers

We combine state minimum wage changes with individual-level income and credit data to estimate the effect of wage gains on the debt of low-wage workers. In the three years following a $0.88 minimum wage increase, low-wage workers experience a $2,712 income increase and a $856 decrease in debt. The entire decline in debt comes from less student loan borrowing among enrolled college students. Credit constraints, buffer-stock behavior, and other rational channels cannot explain the reduction in student debt. Our results are consistent with students perceiving a utility cost of borrowing student debt arising from mental accounting.