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Article
Publication date: 11 October 2021

Zsuzsanna Győri and Borbála Benedek

The purpose of this paper is to discuss the stakeholders of debt settlement programmes in general and some lessons learnt from the most significant debt settlement…

Abstract

Purpose

The purpose of this paper is to discuss the stakeholders of debt settlement programmes in general and some lessons learnt from the most significant debt settlement programmes of recent years in Hungary. The study also presents a planned debt settlement programme in Hungary. The paper explores and details behaviours and motivations of different stakeholders in debt settlement in general and also with reference to a specific case study. As for its main research question, the paper seeks to identify the preconditions of a successful debt settlement programme with specially emphasis on the poor.

Design/methodology/approach

Data from semi-structured in-depth expert interviews, documents and former research papers were collected for identifying previous Hungarian debt settlement programmes and potential lessons learnt. After a general discussion, based on primary and secondary sources, a case study is presented to obtain a more comprehensive understanding of opportunities and challenges of debt settlement.

Findings

Six preconditions of successful debt settlement targeting the poor are identified. In the case study, the existence and relevance of these preconditions are tested: the main finding is that they all are important for solving the situations, so a partial solution is not sufficient. In the scope of the case study, more precisely within the planned innovative banking solution, the motivations of the bank and the coordinator NGO are identified. On the part of the bank, motivations for solving social problems (both as far as business and moral issues are concerned) are relevant, while – as for the other party – the situation of the debtor is important to understand so that opportunities of cooperation can be identified. In addition, as other stakeholders also influence the potentials of the programme, their cooperative attitude is also needed.

Research limitations/implications

Limitations consist in generalisation: the study presents some cases from one single country and finally it focuses only on one specific case in one specific social and economic context in Hungary. Having recognized this risk, the author opted for basing research questions on theory, documented the process in detail, and also used triangulation through applying a multiple data collection (interview, content analysis, literature review) method.

Practical implications

Besides presenting an academic understanding of the phenomena, the goal of the study is to contextualize and interpret the case, to help the realization of currently frozen initiatives and to promote similar future ones.

Social implications

Indebtedness is a stressful situation affecting families, smaller communities and broader society as well. The planned cooperation of BAGázs and MagNet tries to help people excluded from the banking system. So that a deeper debt trap can be avoided, the goal of this programme is to purchase, partially discharge and reschedule pre-accumulated debts of carefully selected people who have regular income and are willing to undertake bearable repayment. The idea is very innovative with literally no good practice to follow. The research seeks to clarify the pitfalls and opportunities to help the realization of the project and similar future ones.

Originality/value

A certain form of values-based banking concerns the financial inclusion of the poor, e.g. debt settlement. Nevertheless, over-indebtedness and the settlement of existing debts as well as the relevance of such issues to the financial inclusion are not emphasized enough in the literature or in practice. Besides presenting an academic understanding of the phenomena, the goal of the study is to contextualize and interpret the case, to help the realization of currently frozen initiatives and to promote similar future ones.

Details

Social Responsibility Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1747-1117

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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

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Geographic
Topical
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Article
Publication date: 3 October 2021

A.K.M. Kamrul Hasan and Yasushi Suzuki

The purpose of this paper is to investigate the impact of basel accord on the Bangladeshi bank performance including Islamic banks and the role of subordinated debt (sub…

Abstract

Purpose

The purpose of this paper is to investigate the impact of basel accord on the Bangladeshi bank performance including Islamic banks and the role of subordinated debt (sub-debt) as basel regulatory capital (BRC).

Design/methodology/approach

The authors conducted the empirical investigation by adopting a quantitative approach and using the secondary data available in the annual reports of the sample banks between 2009 and 2018. This paper develops an econometric model to compare and analyze the regression result under two states of capital-to-risk adjusted assets ratio (CRAR) with sub-debt and CRAR without sub-debt. This paper analyzes the impact of sub-debt in the largest Islamic bank for the year 2007 as a case study for endorsing the findings.

Findings

This paper finds that CRAR has positive alignments with return on equity (ROE) and cash dividend when sub-debt is considered as Tier 2 capital. This paper observes that the huge bad loan write-off supports to downsize the asset size thus temporarily enhance the return on assets (ROA). In a nutshell, sub-debt gives banks an ill incentive to disburse steady cash dividends instead of injecting genuine equity capital, encouraging them to take more credit risk. In fact, more private commercial banks (PCBs) issued huge sub-debts between 2009 and 2018 under a unique arrangement, which the authors termed as the “sub-debt trap.”

Research limitations/implications

This paper draws policy implications for the banking regulator to identify and rectify a systemic problem of the “sub-debt trap” which hinders the regulatory purpose from the implementation of basel accord II and III. A limitation of this study is the authors shed analytical light on Bangladeshi banks, i.e. it a single country analysis which may not be generalized to other developing countries except matching with a similar context.

Originality/value

The paper contributes to accumulating empirical studies on the effectiveness of basel accord implementation in developing countries. In most of the developing countries, where institutional loopholes are a major concern, the research provides evidence that how weak institutional settings are largely responsible for harvesting the potential benefit from micro-prudential regulation such as the basel accord. To shed analytical light on developing country context, the study document that sub-debt has been instrumentalized to maintain minimum capital ratio and banks managers tends more focus on improving ROE instead of ROA. The findings of the study are supportive to other developing countries where sub-debt considered as BRC and issued through private placement. To the best of the authors’ knowledge, it is the first attempt to cast doubt on the impact of sub-debt as a BRC, given the uniqueness of the Bangladeshi banking industry, on the PCBs including Islamic banks.

Details

Journal of Islamic Accounting and Business Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 27 September 2021

Omer Unsal

This paper aims to investigate how firms’ relationships with employees define their debt maturity. The authors empirically test the role of employee litigations in…

Abstract

Purpose

This paper aims to investigate how firms’ relationships with employees define their debt maturity. The authors empirically test the role of employee litigations in influencing firms’ choice of short-term versus long-term debt. The authors study employee relations by analyzing the importance of the workplace environment on capital structure.

Design/methodology/approach

The author’s test hypotheses using a sample of US publicly traded firms between 2000 and 2017, including 3,056 unique firms with 4,256 unique chief executive officer, adopting the fixed effect panel model.

Findings

The authors document that employee litigations have a significant negative effect on the use of short-term debt and a significant positive affect on long-term debt. Employee litigations, along with legal fees, outcomes and charging parties, matter the most in explaining debt maturity. In addition, frequently sued firms abandon the short-term debt market and use less shareholders’ equity to finance their operations while relying more on the longer debt market.

Originality/value

To the best of the authors’ knowledge, this is the first study to examine the role of employee mistreatment in debt maturity choice. The study extends the lawsuit and finance literature by examining unique, hand-collected data sets of employee lawsuits, allegations, violations, settlements, charging parties, case outcomes and case durations.

Details

Corporate Governance: The International Journal of Business in Society, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 13 September 2021

Amira Houaneb, amira Houaneb, Rim Ben Hassen and Dorra Talbi

The purpose of this paper is to investigate the relationship between restrictive covenants and accounting conservatism. More specially, the authors try to explain how the…

Abstract

Purpose

The purpose of this paper is to investigate the relationship between restrictive covenants and accounting conservatism. More specially, the authors try to explain how the use of restrictive covenants of public debt may affect accounting conservatism.

Design/methodology/approach

The sample is composed of non-financial firms and for each firm one debt contract is considered. The authors have used the Ball and Shivakumar (2005) models to test the relationships. All variables were retrieved from Mergent Fixed Investment Securities and COMPUSTAT Databases.

Findings

The findings of this study show that the more the firm relies on bond covenants, the higher is the degree of conservatism. The authors found also that these firms also exhibited a widely significantly increased level of conservatism in the years following the issuance of debt.

Research limitations/implications

The results should be interpreted with caution because the use of covenants does not take into consideration the tightness of their inclusion in the public debt contract.

Originality/value

This paper makes a timely contribution to the debate of timely loss recognition by confirming the complementarity between the inclusion of restrictive covenants in the debt agreement and the accounting conservatism before and after the emission of public debt.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 21 September 2021

Sara Fernández-López, Djamila Daoudi and Lucía Rey-Ares

This paper aims to explore the linkage between households' social interactions and credit context and how these interactions may influence household borrowing decisions.

Abstract

Purpose

This paper aims to explore the linkage between households' social interactions and credit context and how these interactions may influence household borrowing decisions.

Design/methodology/approach

Based on a sample of 45,907 individuals referred to 18 countries, drawn from the Survey of Health, Ageing and Retirement in Europe, different probit regressions are used to test the four hypotheses proposed.

Findings

Empirical evidence confirms that intensive and extensive sociability are positively related to consumer debt holding. However, when social activities are considered separately, there is weak evidence that they are also related to mortgage debt holding and over-indebtedness. Moreover, at this level of analysis, the different nature of the social activities in which the individual participates in may condition the relationship with borrowing behaviour. The findings also show that relative income plays a passive role in household borrowing behaviour, since low-income households are more likely to hold mortgage and informal loans or to be over-indebted in highly indebted countries.

Originality/value

First, this paper extends the knowledge of the relationship between social interactions and borrowing behaviour by considering not only the intensity and diversity of the social activities in which the individual participates, but also the different nature of these activities. Second, it proposes that social interactions may play a passive role on borrowing decision, suggesting that household's behaviour might be passively affected by the density of borrowers surrounding it. To the best of our knowledge, there has not been any attempt to test this issue regarding household borrowing decisions. Third, unlike the few empirical papers on the topic, the paper also analyses previous issues by distinguishing between different types of debts; a distinction that revels the different role played by social interactions.

Details

International Journal of Bank Marketing, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0265-2323

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Article
Publication date: 24 September 2021

Rabiatu Kamil and Kingsley Opoku Appiah

This study aims to investigate the nexus between gender-diverse boards and cost of debt in the developing economies context. Specifically, the authors examine whether firm…

Abstract

Purpose

This study aims to investigate the nexus between gender-diverse boards and cost of debt in the developing economies context. Specifically, the authors examine whether firm size moderates the relationship between female board representation and cost of debt, regardless of the industry type.

Design/methodology/approach

The authors use panel data from 17 non-financial listed Ghanaian firms over the period 2007–2017, ordinary least square, two-stage least square and generalised method of moments estimations to test the hypothesis.

Findings

The authors find that board gender diversity is positively related to cost of debt. Further evidence suggests the interaction of firm size and board gender diversity displays a negative association with cost of debt.

Practical implications

The study evidence suggests larger non-manufacturing firms with gender-diverse boards attract lower cost of capital in an environment with lax enforcement of rules and regulations in corporate governance.

Social implications

Lenders consider the size and industry of firms in pricing debt. This has implications on UN Goal 5, highlighting that shareholders of larger non-manufacturing firms benefit immensely from board gender diversity in the context of debt.

Originality/value

The authors contribute to the board gender diversity and cost of debt literature by demonstrating that firm size and industry type matter in the developing economies context.

Details

Gender in Management: An International Journal , vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1754-2413

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Article
Publication date: 21 September 2021

Chengcheng Liao, Peiyuan Du, Yutao Yang and Ziyao Huang

Although phone calls are widely used by debt collection services to persuade delinquent customers to repay, few financial services studies have analyzed the unstructured…

Abstract

Purpose

Although phone calls are widely used by debt collection services to persuade delinquent customers to repay, few financial services studies have analyzed the unstructured voice and text data to investigate how debt collection call strategies drive customers to repay. Moreover, extant research opens the “black box” mainly through psychological theories without hard behavioral data of customers. The purpose of our study is to address this research gap.

Design/methodology/approach

The authors randomly sampled 3,204 debt collection calls from a large consumer finance company in East Asia. To rule out alternative explanations for the findings, such as consumers' previous experience of being persuaded by debt collectors or repeated calls, the authors selected calls made to delinquent customers who had not been delinquent before and were being called by the company for the first time. The authors transformed the unstructured voice and textual data into structured data through automatic speech recognition (ASR), voice mining, natural language processing (NLP) and machine learning analyses.

Findings

The findings revealed that (1) both moral appeal (carrot) and social warning (stick) strategies decrease repayment time because they arouse mainly happy emotion and fear emotion, respectively; (2) the legal warning (stick) strategy backfires because of decreasing the happy emotion and triggering the anger emotion, which impedes customers' compliance; and (3) in contrast to traditional wisdom, the combination of carrot and stick fails to decrease the repayment time.

Originality/value

The findings provide a valuable and systematic understanding of the effect of carrot strategies, stick strategies and the combinations of them on repayment time. This study is among the first to empirically analyze the effectiveness of carrot strategies, stick strategies and their joint strategies on repayment time through unstructured vocal and textual data analysis. What's more, the previous studies open the “black box” through psychological mechanism. The authors firstly elucidate a behavioral mechanism for why consumers behave differently under varying debt collection strategies by utilizing ASR, NLP and vocal emotion analyses.

Details

Journal of Service Theory and Practice, vol. 31 no. 6
Type: Research Article
ISSN: 2055-6225

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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…

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1678

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

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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…

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1150

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

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