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Article
Publication date: 19 March 2024

María María Ibañez Martín, Mara Leticia Rojas and Carlos Dabús

Most empirical papers on threshold effects between debt and growth focus on developed countries or a mix of developing and developed economies, often using public debt. Evidence…

Abstract

Purpose

Most empirical papers on threshold effects between debt and growth focus on developed countries or a mix of developing and developed economies, often using public debt. Evidence for developing economies is inconclusive, as is the analysis of other threshold effects such as those probably caused by the level of relative development or the repayment capacity. The objective of this study was to examine threshold effects for developing economies, including external and total debt, and identify them in the debt-growth relation considering three determinants: debt itself, initial real Gross Domestic Product (GDP) per capita and debt to exports ratio.

Design/methodology/approach

We used a panel threshold regression model (PTRM) and a dynamic panel threshold model (DPTM) for a sample of 47 developing countries from 1970 to 2019.

Findings

We found (1) no evidence of threshold effects applying total debt as a threshold variable; (2) one critical value for external debt of 42.32% (using PTRM) and 67.11% (using DPTM), above which this factor is detrimental to growth; (3) two turning points for initial GDP as a threshold variable, where total and external debt positively affects growth at a very low initial GDP, it becomes nonsignificant between critical values, and it negatively influences growth above the second threshold; (4) one critical value for external debt to exports using PTRM and DPTM, below which external debt positively affects growth and negatively above it.

Originality/value

The outcome suggests that only poorer economies can leverage credits. The level of the threshold for the debt to exports ratio is higher than that found in previous literature, implying that the external restriction could be less relevant in recent periods. However, the threshold for the external debt-to-GDP ratio is lower compared to previous evidence.

Details

EconomiA, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1517-7580

Keywords

Expert briefing
Publication date: 31 October 2022

The debt problem is more serious, and the tools available to deal with it less developed, than often assumed. To develop plans to deal with debt problems, the international…

Details

DOI: 10.1108/OXAN-DB273691

ISSN: 2633-304X

Keywords

Geographic
Topical
Article
Publication date: 2 February 2024

Yuchen Bian and Haifeng Gu

Digital transformation is essential for commercial banks to maintain long-term competitiveness in the digital economy era. This study aims to investigate the relationship between…

Abstract

Purpose

Digital transformation is essential for commercial banks to maintain long-term competitiveness in the digital economy era. This study aims to investigate the relationship between inside debt and the bank's digital transformation.

Design/methodology/approach

This study set up a quasi-natural experiment based on implementing the executive compensation deferral system in the Chinese banking industry. Using the annual panel data of 180 commercial banks in China from 2007 to 2021, this study employed the difference-in-differences (DID) method to conduct an empirical analysis.

Findings

This study confirms a significant statistical relationship between inside debt and the bank's digital transformation, and managerial myopia is the transmission channel of inside debt affecting the bank's digital transformation. Furthermore, the development of Internet finance and the enhancement of bankers' confidence will improve the contributions of inside debt to the bank's digital transformation.

Originality/value

This study contributes to the literature on inside debt and the bank's digital transformation. It has specific policy value for the scientific design of the banking compensation mechanism and accelerating banks' digital transformation.

Details

Baltic Journal of Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-5265

Keywords

Article
Publication date: 9 February 2024

Chukwunonso Ekesiobi, Stephen Obinozie Ogwu, Joshua Chukwuma Onwe, Ogonna Ifebi, Precious Muhammed Emmanuel and Kingsley Nze Ashibogwu

This study aims to assess financial development and debt status impact on energy efficiency in Nigeria as a developing economy.

Abstract

Purpose

This study aims to assess financial development and debt status impact on energy efficiency in Nigeria as a developing economy.

Design/methodology/approach

This study combined the autoregressive distributed lag (ARDL), fully modified ordinary least squares and canonical cointegration regression analytical methods to estimate the parameters for energy efficiency policy recommendations. Secondary data between 1990 and 2020 were used for the analysis.

Findings

The result confirms the long-run nexus between energy efficiency, financial development and total debt stock. Furthermore, the ARDL estimates for this study’s key variables show that financial development promotes energy efficiency in the short run but hinders long-run energy efficiency. Total debt stock limits energy efficiency in Nigeria in short- and long-run periods.

Research limitations/implications

The limitation of this study is that the scope is limited to Nigeria as a developing economy. The need to support energy efficiency projects is a global call requiring cross-country analysis. Despite this study’s focus on Nigeria, it provides useful insights that can guide energy efficiency policy through the financial sector and debt management.

Practical implications

The financial sector must ensure the availability of long-term credit facilities to clean energy investors. The government must maintain a sustainable debt profile to pave the way for capital expenditure on clean energy projects that promote energy efficiency.

Originality/value

The environmental consequences of energy intensity are being felt globally, with the developing countries most vulnerable. The cheapest way to curb these consequences is to promote energy efficiency to reduce the disastrous effect. Driving energy efficiency requires investment in energy-efficient technology but the challenge for developing economies, i.e. Nigeria’s funding, remains challenging amid a blotted debt profile. This becomes crucial to investigate how financial sector development and debt management can accelerate energy-efficient investments in Nigeria.

Details

International Journal of Energy Sector Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1750-6220

Keywords

Article
Publication date: 9 February 2024

John Kwaku Amoh, Abdallah Abdul-Mumuni and Richard Amankwa Fosu

While some countries have used debt to drive economic growth, the asymmetric effect on sub-Saharan African (SSA) countries has received little attention in the empirical…

Abstract

Purpose

While some countries have used debt to drive economic growth, the asymmetric effect on sub-Saharan African (SSA) countries has received little attention in the empirical literature. This paper therefore examines the asymmetric effect of external debts on economic growth.

Design/methodology/approach

The panel nonlinear autoregressive distributed lag (NARDL) approach was employed in the study for 29 sub-Saharan African countries from 1990 to 2021. The cross-sectional dependence test was used to determine the presence of cross-sectional dependence, while the second-generation panel unit root tests was used to examine the unit-root properties.

Findings

The empirical results show that external debt has an asymmetric effect on economic growth in both the short and long run. In the long run, a positive shock in external debts of 1% triggers an upturn in economic growth by 0.216% while a negative shock triggers 0.354% decline in economic growth. This implies that the negative shock of external debts has a much stronger impact on economic growth than the positive shock. In the short run, a positive shock in external debts by 1% triggers a decline in economic growth by 0.641%, while a negative shock of 1% triggers a fall in economic growth of 0.170%.

Originality/value

The paper used the NARDL model to examine the asymmetric impact of external debt on the economic growth of SSA countries, which has not been extensively studied. It is recommended that governments in the selected countries in sub-Saharan Africa should drive economic growth by promoting domestic revenue mobilization since external debts impede economic growth.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 1 March 1987

E.A. Evans

Considerable debate centres around the use of debt finance as opposed to new equity and internally generated funds for the financing of new investment projects. The favourable…

1702

Abstract

Considerable debate centres around the use of debt finance as opposed to new equity and internally generated funds for the financing of new investment projects. The favourable corporate tax treatment of debt interest payments compared to equity returns appears to be a government incentive to debt finance. In addition, the differential tax treatment of financial institutions' income and individual investors' income under the tax code, all leads to the idea, that debt financing may increase the market value of a firm beyond the expected value of its operational cash flows.

Details

Managerial Finance, vol. 13 no. 3/4
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 16 March 2015

Jacques A. Schnabel

This paper aims to examine the nexus between hedging, which reduces the volatility of corporate assets, and the anomaly of debt overhang, whereby corporate management is motivated…

1166

Abstract

Purpose

This paper aims to examine the nexus between hedging, which reduces the volatility of corporate assets, and the anomaly of debt overhang, whereby corporate management is motivated to reject positive net present value (NPV) projects. The question of whether hedging ameliorates or aggravates debt overhang is addressed.

Design/methodology/approach

The Black–Scholes isomorphism between common shares and call options is exploited to determine the allocation of a project’s NPV between debt- and stock-holders. The effect of hedging on this NPV-partitioning is then gauged to determine the resulting likelihood of debt overhang.

Findings

If the volatility of corporate assets is below a critical maximum, hedging ameliorates debt overhang consistent with extant theoretical research. However, above that critical value of volatility, hedging aggravates debt overhang.

Originality/value

The novel result of this note, namely, hedging may exacerbate debt overhang, is demonstrated both analytically and intuitively. The latter is explained by allusion to a second agency-theoretic conflict between debt- versus stock-holders, namely, risk shifting. The disparate effects of hedging on debt overhang imply a non-monotonic relationship between metrics for these two variables, which is a phenomenon that extant empirical studies have failed to take into account.

Details

The Journal of Risk Finance, vol. 16 no. 2
Type: Research Article
ISSN: 1526-5943

Keywords

Expert briefing
Publication date: 16 September 2019

The outlook for provincial debt.

Details

DOI: 10.1108/OXAN-DB246414

ISSN: 2633-304X

Keywords

Geographic
Topical
Article
Publication date: 1 December 2007

Martin Lally

This paper examines the appropriate term of the risk free rate to be used by a regulator in price control situations, most particularly in the presence of corporate debt. If the…

Abstract

This paper examines the appropriate term of the risk free rate to be used by a regulator in price control situations, most particularly in the presence of corporate debt. If the regulator seeks to ensure that the present value of the future cash flows to equity holders equals their initial investment then the only choice of term for the risk free rate that can achieve this is that matching the regulatory cycle, but it also requires that the firm match its debt duration to the regulatory cycle. Failure of the firm to do so leads to cash flows to equity holders whose net present value will tend to be negative, and will also inflict interest rate risk upon equity holders. This provides the firm with strong incentives to match its debt duration to the regulatory cycle.

Details

Accounting Research Journal, vol. 20 no. 2
Type: Research Article
ISSN: 1030-9616

Keywords

Expert briefing
Publication date: 9 April 2020

The impact of the COVID-19 crisis on Africa's debt landscape.

Details

DOI: 10.1108/OXAN-DB251899

ISSN: 2633-304X

Keywords

Geographic
Topical
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