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1 – 10 of over 2000Jahanzaib Alvi and Imtiaz Arif
The crux of this paper is to unveil efficient features and practical tools that can predict credit default.
Abstract
Purpose
The crux of this paper is to unveil efficient features and practical tools that can predict credit default.
Design/methodology/approach
Annual data of non-financial listed companies were taken from 2000 to 2020, along with 71 financial ratios. The dataset was bifurcated into three panels with three default assumptions. Logistic regression (LR) and k-nearest neighbor (KNN) binary classification algorithms were used to estimate credit default in this research.
Findings
The study’s findings revealed that features used in Model 3 (Case 3) were the efficient and best features comparatively. Results also showcased that KNN exposed higher accuracy than LR, which proves the supremacy of KNN on LR.
Research limitations/implications
Using only two classifiers limits this research for a comprehensive comparison of results; this research was based on only financial data, which exhibits a sizeable room for including non-financial parameters in default estimation. Both limitations may be a direction for future research in this domain.
Originality/value
This study introduces efficient features and tools for credit default prediction using financial data, demonstrating KNN’s superior accuracy over LR and suggesting future research directions.
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Sakshi Khurana and Meena Sharma
This study aims to examine the impact of intellectual capital (IC) on default risk in Indian companies listed on the National Stock Exchange.
Abstract
Purpose
This study aims to examine the impact of intellectual capital (IC) on default risk in Indian companies listed on the National Stock Exchange.
Design/methodology/approach
This study applies panel data regression analysis to derive a relationship between IC and default risk for the sample period 2013–2022. The value-added intellectual coefficient (VAIC) of Pulic (2000) has been applied to measure IC performance, and default risk is estimated using the revised Z-score model of Altman (2000).
Findings
The results revealed a positive association between Z-score and VAIC. It implies that a higher value of VAIC improves financial stability and leads to a lower likelihood of default. The findings further suggest that new default forecasting models can be experimented with IC indicators for better default prediction.
Practical implications
The findings can have implications for investors and banks. This paper provides evidence of IC performance in improving the financial solvency of firms. Investors and financial institutions should invest their resources in a healthy firm that effectively manages and invests in their IC. It will eventually award investors and creditors high returns through efficient value-creation processes.
Originality/value
This study provides evidence of IC performance in improving the financial solvency of Indian high-defaulting firms, which lacks sufficient evidence in this domain of research. Numerous studies exist examining the relationship between firm performance and IC value, but this area is inadequately focused and underresearched. This study, therefore, fills the research gap from an Indian perspective.
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Asish Saha, Lim Hock-Eam and Siew Goh Yeok
The authors analyse the determinants of loan defaults in micro, small and medium enterprises (MSME) loans in India from the survival duration perspective to draw inferences that…
Abstract
Purpose
The authors analyse the determinants of loan defaults in micro, small and medium enterprises (MSME) loans in India from the survival duration perspective to draw inferences that have implications for lenders and policymakers.
Design/methodology/approach
The authors use the Kaplan–Meier survivor function and the Cox Proportional Hazard model to analyse 4.29 lakhs MSME loan account data originated by a large bank having a national presence from 1st January 2016 to 31st December 2020.
Findings
The estimated Kaplan–Meier survival function by various categories of loan and socio-demographic characteristics reflects heterogeneity and identifies the trigger points for actions. The authors identify the key identified default drivers. The authors find that the subsidy amount is more effective at the lower level and its effectiveness diminishes significantly beyond an optimum level. The simulated values show that the effects of rising interest rates on survival rates vary across industries and types of loans.
Practical implications
The identified points of inflection in the default dynamics would help banks to initiate actions to prevent loan defaults. The default drivers identified would foster more nuanced lending decisions. The study estimation of the survival rate based on the simulated values of interest rate and subsidy provides insight for policymakers.
Originality/value
This study is the first to investigate default drivers in MSME loans in India using micro-data. The study findings will act as signposts for the planners to guide the direction of the interest rate to be charged by banks in MSME loans, interest subvention and tailoring subsidy levels to foster sustainable growth.
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Jamil Jaber, Rami S. Alkhawaldeh and Ibrahim N. Khatatbeh
This study aims to develop a novel approach for predicting default risk in bancassurance, which plays a crucial role in the relationship between interest rates in banks and…
Abstract
Purpose
This study aims to develop a novel approach for predicting default risk in bancassurance, which plays a crucial role in the relationship between interest rates in banks and premium rates in insurance companies. The proposed method aims to improve default risk predictions and assist with client segmentation in the banking system.
Design/methodology/approach
This research introduces the group method of data handling (GMDH) technique and a diversified classifier ensemble based on GMDH (dce-GMDH) for predicting default risk. The data set comprises information from 30,000 credit card clients of a large bank in Taiwan, with the output variable being a dummy variable distinguishing between default risk (0) and non-default risk (1), whereas the input variables comprise 23 distinct features characterizing each customer.
Findings
The results of this study show promising outcomes, highlighting the usefulness of the proposed technique for bancassurance and client segmentation. Remarkably, the dce-GMDH model consistently outperforms the conventional GMDH model, demonstrating its superiority in predicting default risk based on various error criteria.
Originality/value
This study presents a unique approach to predicting default risk in bancassurance by using the GMDH and dce-GMDH neural network models. The proposed method offers a valuable contribution to the field by showcasing improved accuracy and enhanced applicability within the banking sector, offering valuable insights and potential avenues for further exploration.
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Alessandro Gabrielli and Giulio Greco
Drawing on the resource-based view (RBV), this study investigates how tax planning affects the likelihood of financial default in different stages of the corporate life cycle.
Abstract
Purpose
Drawing on the resource-based view (RBV), this study investigates how tax planning affects the likelihood of financial default in different stages of the corporate life cycle.
Design/methodology/approach
Collecting a large sample of US firms between 1989 and 2016, hypotheses are tested using a hazard model. Several robustness and endogeneity checks corroborate the main findings.
Findings
The results show that tax-planning firms are less likely to default in the introduction and decline stages, while they are more likely to default in the growth and maturity stages. The findings suggest that introductory and declining firms use cash resources obtained from tax planning efficiently to meet their needs and acquire other useful resources. In growing and mature firms, tax aggressiveness generates unnecessary slack resources, weakens managerial discipline and increases reputational risks.
Practical implications
The results shed light on the benefits and costs associated with tax planning throughout firms' life cycle, holding great significance for managers, investors, lenders and other stakeholders.
Originality/value
This study contributes to the literature that examines resource management at different life cycle stages by showing that cash resources from tax planning are managed in distinctive ways in each life cycle stage, having a varied impact on the likelihood of default. The authors shed light on underexplored cash resources. Furthermore, this study shows the potential linkages between the agency theory and RBV.
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Guangping Liu, Kexin Zhou and Xiangzheng Sun
The aim of this study is to analyze the influence mechanism of real estate enterprises' status on debt default risk and explore the heterogeneity effect of the characteristics of…
Abstract
Purpose
The aim of this study is to analyze the influence mechanism of real estate enterprises' status on debt default risk and explore the heterogeneity effect of the characteristics of enterprises.
Design/methodology/approach
Against the background of the “three red lines” regulation of the financing of real estate enterprises and the COVID-19 pandemic, the authors select 123 real estate enterprises listed on China's Shanghai and Shenzhen A-shares markets from the first quarter of 2021 to the second quarter of 2022 as a research sample. The social network analysis method and Z-score financial risk early warning model are used to measure real estate enterprises' status and debt default risk. The authors construct a panel regression model to analyze how the status of real estate enterprises influences their debt default risk.
Findings
The results show that the status of real estate enterprises negatively and significantly affects their debt default risk. Economic policy uncertainty and financing constraints play negative moderating and mediating roles, respectively. Further research has found that the effect of real estate enterprises' status on debt default risk is characterized by heterogeneity in equity characteristics, i.e. it is significant in the sample of nonstate-owned enterprises but not in the sample of state-owned enterprises.
Practical implications
It is helpful for real estate enterprises to attach importance to the value of social networks, and the authors provide policy suggestions for real estate enterprises to constantly improve their risk management systems.
Originality/value
Using economic policy uncertainty as the moderating variable and financing constraints as the mediating variable, the authors analyze how the status of real estate enterprises influences debt default risk, which contributes to a better understanding of the formation of the debt default risk of real estate enterprises.
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This paper aims to study the default risk of small and medium-sized enterprises in the construction sector.
Abstract
Purpose
This paper aims to study the default risk of small and medium-sized enterprises in the construction sector.
Design/methodology/approach
An unbalanced sample of 2,754 Portuguese companies from the construction sector, from 2008 to 2020, is analysed. Companies are classified in default or compliant following an ex-ante criterion. Then, using the stepwise analysis, the most relevant variables are selected, which are later used in the logit model. To verify the robustness of the results, a sample of legally insolvent companies is added (mixed criterion) and the initial sample is split into two subperiods.
Findings
Financial variables are the most relevant to predict the pattern for this sample. The main conclusions show that smaller and older companies, more indebted, with more liquidity and with higher EBIT have a higher probability of default. These conclusions are confirmed using a mixed criterion to classify companies as default or compliant and including a macroeconomic dummy.
Practical implications
This work not only contributes to enlarging the literature review but also makes relevant contributions to practice. Companies from the construction sector can understand which indicators must control to avoid financial problems. The government also has relevant information that can help in adapting or creating regulations for recovering or revitalizing companies.
Originality/value
This study proposed an ex-ante criterion that can be used for all types of companies. Most works use a legal or a mixed criterion that does not allow for detecting signs of financial problems in advance. Moreover, the sample used is almost unexplored – SMEs from a sector with great mortality rate.
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Isabel Abinzano, Lucia Garcés-Galdeano and Beatriz Martinez
The purpose of this paper is to examine the effect of female CEO board members on listed family firms’ corporate default risk, integrating upper echelons theory with social role…
Abstract
Purpose
The purpose of this paper is to examine the effect of female CEO board members on listed family firms’ corporate default risk, integrating upper echelons theory with social role theory and the socio-emotional wealth approach and proxying default risk with the Black–Scholes–Merton model. It also searches for possible differences attributable to the type of female CEO.
Design/methodology/approach
This study is applied to a longitudinal sample of listed US family firms. After a preliminary analysis of the main descriptive, several models are estimated with the system GMM estimator, which is a panel data estimator. The models are dynamic, including the lagged value of the dependent variable. In addition, the model estimation is repeated with a different measure of default risk, for robustness.
Findings
This research findings show that default risk diminishes in the presence of a female CEO, whose reduction is even greater if she is a family member. The results are proven to be robust to the measure for proxying default risk.
Originality/value
This study primarily contributes to the existing literature by exploring a possible link between female CEOs, particularly those with a family affiliation, and a lower level of default risk in family firms. It also provides practical implications for policymakers, who would be advised to promote conditions enabling women to contribute towards family business viability. In addition, this study offers encouragement for family business owners to value the potential of their female family members in company succession processes.
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Julien Dhima and Catherine Bruneau
This study aims to demonstrate and measure the impact of liquidity shocks on a bank’s solvency, especially when the bank does not hold sufficient liquid assets.
Abstract
Purpose
This study aims to demonstrate and measure the impact of liquidity shocks on a bank’s solvency, especially when the bank does not hold sufficient liquid assets.
Design/methodology/approach
The proposed model is an extension of Merton’s (1974) model. It assesses the bank’s probability of default over one or two (short) periods relative to liquidity shocks. The shock scenarios are materialised by different net demands for the withdrawal of funds (NDWF) and may lead the bank to sell illiquid assets at a depreciated value. We consider the possibility of second-round effects at the beginning of the second period by introducing the probability of their occurrence. This probability depends on the proportion of illiquid assets put up for sale following the initial shock in different dependency scenarios.
Findings
We observe a positive relationship between the initial NDWF and the bank’s probability of default (particularly over the second period, which is conditional on the second-round effects). However, this relationship is not linear, and a significant proportion of liquid assets makes it possible to attenuate or even eliminate the effects of shock scenarios on bank solvency.
Practical implications
The proposed model enables banks to determine the necessary level of liquid assets, allowing them to resist (i.e. remain solvent) different liquidity shock scenarios for both periods (including eventual second-round effects) under the assumptions considered. Therefore, it can contribute to complementing or improving current internal liquidity adequacy assessment processes (ILAAPs).
Originality/value
The proposed microprudential approach consists of measuring the impact of liquidity risk on a bank’s solvency, complementing the current prudential framework in which these two topics are treated separately. It also complements the existing literature, in which the impact of liquidity risk on solvency risk has not been sufficiently studied. Finally, our model allows banks to manage liquidity using a solvency approach.
Details
Keywords
- Liquidity shock scenarios
- Bank solvency
- Probability of default (over one and two periods)
- Net demand for the withdrawal of funds (NDWF)
- Liquid and illiquid assets
- Second-round effects
- Probability of the occurrence of second-round effects
- Internal liquidity adequacy assessment process (ILAAP)
- C30
- G01
- G21
- G33
Awais Ur Rehman, Saqib Farid and Muhammad Abubakr Naeem
Motivated by lack of empirical research on sukuk (Islamic bonds) defaults and factors influencing the credit risk in sukuk industry, the study investigates the impact of corporate…
Abstract
Purpose
Motivated by lack of empirical research on sukuk (Islamic bonds) defaults and factors influencing the credit risk in sukuk industry, the study investigates the impact of corporate governance (CG) practices and corporate social sustainability (CS) disclosures on default risk of Islamic bonds in an emerging market.
Design/methodology/approach
In the Malaysian context the authors use generalized method of moments (GMM) to examine the mitigating effect of CG structure and CS disclosures on distance to default (DD) of sukuk issuers.
Findings
The results show that although both CG and CS have a significant and positive relationship with distance to default, the contribution of CS to augment DD is higher. Moreover, different CG variables have a varied relationship with distance to default, while the association is positive for all three pillars of CS, videlicet economic, social and environmental sustainability.
Practical implications
The findings of the study hold important implications for issuers, subscribers and regulators in the sukuk industry.
Originality/value
Limited research investigates the relationship between CG, CS and default risk of Islamic bonds. In light of this, the study attempts to fill the theoretical void in literature by examining the relationship among the underlying variables.
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