Showing papers on "Credit risk published in 1982"

Risk aversion, collateral requirements and the markets for credit and insurance in rural areas

Abstract: The main theme of this paper is the systematic exploration of the interrelated difficulties of rural credit and insurance markets. The difficulties are traced to an identical set of information, incentives and management problems which arise in spatially disposed agricultural production systems. In Section I experimental studies of risk aversion are discussed. Also discussed in this section are some of the many alternative means for stabilizing agricultural incomes such as crop diversification, price stabilization or public works; and, the potential impact of crop diversification, crop insurance and price stabilization on revenue risks is explored quantitatively across agroclimatic zones. Section II discusses a set of assumptions for credit and insurance markets. Section III explores the implications of these assumptions for credit and insurance markets, with special emphasis on the role of collateral in credit markets and the role of compulsion in insurance markets. In Section IV the special issues which arise in agriculture out of the spatial distribution of production are discussed, and Section V uses these results to explore the demand for agricultural insurance on the part of formal lending institutions in rural areas.

Municipal Market Measures and Reporting Practices: An Extension

Abstract: In a recent paper, Wallace [1981] reported the results of her study on the effects of accounting and auditing practices of municipal bond issuers on their borrowing costs and bond ratings. The study concluded that "interest costs reflect cross-sectional differences in accounting variables and bond ratings reflect cross-sectional differences in auditors and audit reports." However, the sample was constrained to municipal issues within the state of Florida, so she was unable to generalize beyond this sample. Our study provides an extension of Wallace's research by (1) examining a more representative sample of United States municipalities, (2) employing alternative measures of bond risk and return, and (3) focusing on state-mandated accounting, auditing, and financial management practices. The magnitude of municipal bond risk and return measures is hypothesized to be associated with state-mandated practices. Our findings confirm those of Wallace in that we also found accounting and auditing practices to be associated with the interest cost and risk of municipal bonds. In particular, more stringent accounting and auditing requirements were associated with lower interest costs and risk measures.

Inflation and the Trade Credit Period

Abstract: Management of accounts receivable and trade credit policy should often be adjusted to reflect changing interest rates due to changing inflation. Firms can respond to inflation by either increasing the discount for cash payments or by shortening the credit period. This paper investigates the policy of shortening the credit period in response to changing inflation rates. We first assume that inflation is fully anticipated, and later we extend the analysis to incorporate inflation risk.

The association of default risk factors with the systematic risk of corporate bonds

Abstract: This study examines the association between bond betas and default risk factors. We find that both long-term debt and the relative ratio of long-term debt to short-term debt increase the bond beta; two measures of profitability, net income/total assets and EBIT/total assets and a cash flow measure of cash flow from operations/total assets decrease the bond beta. A proxy measure of standard deviation of returns is also significantly negatively related to bond betas, confirming the prediction from the option pricing model. In addition, by using new cash flow measures in the discriminant analysis, we improve on the successful prediction rate of bond ratings.

Research in finance : a research annual

Abstract: This volume contains contributions on a range of important issues in current research in finance and economics. Topics include the design of a country's financial safety nets, the effective policies of acquiring failed banks in reducing moral hazard problems, the voluntary disclosure of real options by corporate managers, and the interrelationship between the housing and general economic activities. Some important topics such as the choice between stock and options as compensation vehicles in the presence of bankruptcy risk, the NUA tax benefits in asset allocation in the retirement accounts, the heuristic approach of using ri/stdi to select securities in forming efficient portfolio, and the arbitrage opportunity in index options at the initial stage are also included in this volume. Finally, the contributions to this volume also address some problems that include the explanations of risk premiums on futures contracts, the optimal hedging decision in futures markets, and the pricing of Asian options subject to credit risk.