Showing papers on "Debt published in 2022"

The Impact of Green Credit on the Green Innovation Level of Heavy-Polluting Enterprises—Evidence from China

Abstract: This article uses the “Green Credit Guidelines” promulgated in 2012 as an example to construct a quasi-natural experiment and uses the double difference method to test the impact of the implementation of the “Green Credit Guidelines” on the green innovation activities of heavy-polluting enterprises. The study found that, in comparison to non-heavy polluting enterprises, the implementation of green credit policies inhibited the green innovation of all heavy-polluting enterprises. In the analysis of heterogeneity, this restraint effect did not differ significantly due to the nature of property rights and the company’s size. The mechanism test showed that green credit policy limits the efficiency of business investment and increases the cost of financing business debt. Eliminating corporate credit financing, particularly long-term borrowing, negatively impacts the green innovation behavior of listed companies.

The effect of local government debt on green innovation: Evidence from Chinese listed companies

Abstract: Based on the “income and expenditure” identity, we examine the Chinese provincial-level government debt from 2011 to 2019 and empirically analyze the effect of local government debt on corporate green innovation. Our results show that an increase of one standard deviation in the provincial debt-to-GDP ratio results in a 3.08% decline in the level of corporate green innovation. The crowding-out effect is stronger for provinces with lower fiscal self-sufficiency capability and for companies with less tangible assets. Mechanism tests show that elevated local government debt exacerbates corporate financial constraints, raises financing costs, and motivates companies to take on “short-term debt for long-term investment”, which ultimately weakens the green innovation ability of companies while creating large financial risks. To tackle these adverse shocks, our analyses find that improving the level of banking competition, strengthening environmental regulations, and promoting the development of green finance can alleviate the negative impact of local debt on corporate green innovation.

Making Debt Work For Development and Macroeconomic Stability

Abstract: be used to identify priorities, and be compared with peers to inform the local debt market development plan. The work on developing local currency debt markets feeds into the WBG-IMF core areas of work. This includes fiscal and monetary policy, financial stability, capital market development, management of foreign flows, business cycles, and economic growth. In many cases, a wide spectrum of reforms is needed to help develop local currency bond markets, and often careful consideration is needed to determine optimal sequencing and timing of the reforms. The WBG and IMF will continue to play a catalytic role in helping coordinate reforms through regular monitoring of economic and financial conditions, as well as through ongoing dialogue with authorities.

Economic Consequences and Implications of the Ukraine-Russia War

Abstract: Since the end of the Cold War, the sanctions against Russia have been the harshest and most costly imposed on a major economy. They appear to be unprecedented in terms of speed, breadth, and global coordination. The latest situation heightens the sense of danger that comes with cross-border financial and operational vulnerability. Even if future oil and gas embargoes are imposed, the economy of Russia will rest on its current export strategy, which may be tough to weaken. The important factors to take into account at the onset of the war are the opportunity cost of military investment, the humanitarian loss of the financial system, and the burden of repairing post-war damage. In this paper we review the economic impact of war, and discuss the potential implications of the Russia Ukraine war on the local and global economies. Overall, there are human costs of war along with the economic influences like building, devastation, inflation, limitation of services debt increase, and daily economic life.

From Health Crisis to Financial Distress

Abstract: I discuss the multifaceted economic and financial vulnerabilities that have been created or exacerbated by the COVID-19 pandemic on a foundation of already weak economic fundamentals in many countries. Crises often do not travel alone. Banking, sovereign debt, exchange rate crashes, sudden stops, inflation often intersect to become severe conglomerate crises. Historically, whether of the individual or conglomerate variety, crises influence the shape and speed of economic recovery. As the health crisis morphs into a financial or debt crisis in some countries, I discuss what may lie ahead in terms of the stages in crisis resolution and brief reflection how the resolution process can be expedited.

The role of artificial intelligence in sustainable finance

Abstract: This Special Issue includes several articles on a variety of issues related to sustainable development, ESG investing and the role of Artificial Intelligence in helping creditors, investors and business managers in making optimal decisions to ensure long-term financial sustainability. In this context, it can be argued that it is necessary to consider the challenges and opportunities presented by AI in providing solutions to sustainability issues. In addition to outlining the articles in this Issue, this Editorial provides new insights from the literature on the importance of AI applications and models, for sustainable investments and understanding the value of AI beyond a problem-solving tool.

Presidential Address: Corporate Finance and Reality

Abstract: This paper uses surveys to document CFO perspectives on corporate planning, investment, capital structure, payout, and shareholder vs. stakeholder focus. Comparing policy decisions today to those 20 years ago, I find that companies employ decision rules that are conservative, sticky, and geared to time the market; rely on internal forecasts that are miscalibrated and considered reliable only two years ahead; and, emphasize corporate objectives that focus increasingly on stakeholders and revenues. These practice of corporate finance themes can discipline academic models toward better explaining outcomes. Models of satisficing decision-making or costly managerial biases align with many of the themes. This article is protected by copyright. All rights reserved

Debt as Safe Asset

Abstract: The price of a safe asset reflects not only the expected discounted future cash flows but also future service flows, since retrading allows partial insurance of idiosyncratic risk in an incomplete markets setting. This lowers the issuers’ interest burden and allows the government to run a permanent (primary) deficit without ever paying back its debt. As idiosyncratic risk rises during recessions, so does the value of the service flows bestowing the safe asset with a negative β. This resolves government debt valuation puzzles. Nevertheless, the government faces a “Debt Laffer Curve”. The paper also has important implications for fiscal debt sustainability.

Can direct innovation subsidies relax SMEs’ financial constraints?

Abstract: Financial constraints hamper the ability of small and medium-sized enterprises (SMEs) to undertake innovative activities, which, in turn, affects countries’ long-term growth. Therefore, promoting access to external funding for SMEs represents an important challenge for policymakers. This paper investigates whether innovation subsidies, provided by France's public investment bank to French SMEs, have translated into better access to both debt and equity financing by means of a certification effect. We exploit a unique database that collates the innovation subsidies received by French firms over the 2000-2014 period to construct a quasi-natural experiment and evaluate the causal impact of these subsidies on financial constraints for SMEs. We find a significant improvement in access to bank financing for subsidized firms, but the effect is heterogeneous and mainly concentrated on micro and small firms that have been operating for around six years. In contrast, we do not find any significant improvement in access to equity financing. We demonstrate that this last result is partly explained by a substitution effect between bank debt and equity financing.

The Economic Weapon: The Rise of Sanctions as a Tool of Modern War

Abstract: 29 All statements of fact, opinion, or analysis expressed in this article are those of the author. Nothing in the article should be construed as asserting or implying US government endorsement of its factual statements and interpretations. “We Russians don’t give a shit about all their sanctions. We are [now] more self-sufficient.” The bravado expressed by the Russian ambassador to Sweden in February 2022 about the threatened use of sanctions to deter an invasion of Ukraine would have been unthinkable in the period covering the world wars of the last century, if The Economic Weapon is any guide. World leaders then lived in fear of blockades or embargoes, after the British-led ones during World War I against Germany and ally Austria-Hungary led to the deaths of 300,000– 400,000 civilians. Mulder notes that the death toll was just as high against fellow belligerent Turkey in the then “Ottoman provinces of the Middle East.” (5)

Impact of Advance Payments of Tax on Profit on Effectiveness of Investments

Abstract: Recently Brusov et al. have developed innovative investment models that are very close to investment practice. Investment models with frequent payments of tax on profit and of interest on debt at the ends of periods have been considered. However, in practice, payments of tax on profit as well as of interest on debt could be made in advance. In the current paper, we developed, for the first time, innovative investment models with frequent advance payments of tax on profit and of interest on debt and studied the impact of these types of payments on investment project effectiveness. Numerical calculations carried out for four innovative investment models (without split flows) showed that, in the case of advance frequent payments of income tax and interest on debt, all the results related to the effect of the number of payments of income tax and interest on debt on the investment projects’ effectiveness were opposite to the results in the case of payments at the end of the periods obtained by Brusov et al. in the previous article. Thus, this means that the method of payments of tax on profit and of interest on debt (in advance or at the ends of periods) changes drastically the effect of the number of payments of income tax and interest on debt on the investment effectiveness. The verification developed by us for the new models with frequent advance payments of tax on income helps create a comprehensive system of correct valuation of the investments’ effectiveness for two schemes for payments of income tax (in advance or at the ends of periods). The obtained results help the tax regulator (Finance Ministry) understand the influence of the frequency of payments of tax on income and the credit regulator (Central Bank) understand the influence of the frequency of payments of interest on debt on the investment projects’ effectiveness. This allows them to modify and improve tax legislation and credit policy, respectively.

Time Consistency and Duration of Government Debt: A Model of Quantitative Easing

Abstract: This paper presents a model of quantitative easing (QE) at the zero lower bound (ZLB) on the short-term nominal interest rate. QE, which reduces the maturity of government debt, is effective at the ZLB because it generates expectations of future monetary expansion in a time-consistent equilibrium. Numerical experiments show that this effect can be substantial.

Financial constraints, investments, and environmental strategies: An empirical analysis of judicial barriers

Abstract: This work analyzes the relation between the judicial system and financial constraints, investigating whether inefficiency in enforcing credit rights can amplify companies' difficulties in collecting resources on the capital market, limiting their access to the funds needed to support investments and environmental sustainability. Considering the Italian manufacturing industry and according to the selected insolvency procedures, our results suggest that, if the time necessary to settle cases decreases by 20%, we can expect an increase in the financial debt ratio between 0.92% and 5.08% and a decrease in the trade credit ratio between 0.81% and 2.71%, as well as an increase in investments between 0.46% and 3.22%. These results are robust under a variety of tests and support the hypothesis that judicial inefficiency represents a barrier to environmental sustainability, preventing investments in key technologies able to support green strategies, as well as the key role of trade dynamics as alternative funding strategy for their business. The economic implications of our evidence could be far-reaching for the whole economy, not only reducing the competitiveness and financial stability of the national system but also triggering a cascade effect on the market and undermining environmental strategies.

Non-Performing Loans and Macroeconomics Factors: The Italian Case

Abstract: The purpose of this work is to investigate the influence of macroeconomics determinants on non-performing loans (NPLs) in the Italian banking system over the period 2008Q3–2020Q4. We mainly contribute to the literature by being the first empirical article to study this relationship in the Italian context in the recent period, thus providing fresh evidence on the macroeconomic impact on NPLs, i.e., on the credit risk of Italian banks. By employing the Autoregressive Distributed Lag (ARDL) cointegration model, we are able to investigate the short and long-run effects of macroeconomic factors on NPLs. The empirical findings show that gross domestic product and public debt have a negative impact on NPLs. On the other hand, we find that the unemployment rate and domestic credit positively influence impaired loans. Finally, we find evidence of the “gamble for resurrection” approach, i.e., Italian banks tend to support “zombie firms”.

Incomparable Punishments: How Economic Inequality Contributes to the Disparate Impact of Legal Fines and Fees

Abstract: Low-level misdemeanor and traffic violations draw tens of millions of people into local courts to pay fines and fees each year, generating billions of dollars in revenue. We examine how standardized legal fines and fees for low-level charges induce disparate treatment and result in disparate impact. Using a mixed-methods approach that incorporates administrative court records as well as interviews with criminal defendants from Texas, we find that although the majority of defendants readily pay for and conclude their case, African American, Latinx, and economically disadvantaged defendants spend disproportionate amounts of money and time resolving theirs. Analysis of criminal case records illustrates the disparate impact of monetary sanctions through the accrual of debt and time spent resolving a charge. Interviews reveal irreconcilable tensions between American ideals of equality in sentencing and the meaning and value of money and time in an increasingly unequal society.