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The aim of this paper is to analyse the relationship between public debt, corporate debt service costs and private capital formation in South Africa.

To capture the long-run characteristic of investment, the study adopts the Fully Modified Ordinary Least Squares approach and tests for cointegration using Hansen (1992)'s Parameter Instability test.

We find that private capital formation increases in domestic debt and decreases in external debt during the pre-crisis period. However, during the period post the Global Financial Crisis, we find evidence of domestic public debt crowding out private capital formation, whereas external debt crowds-in capital formation. Debt service costs are found to reduce investment due to the effect of the debt overhang throughout the period under analysis.

The paper has important implications for macroeconomic policy. In particular, there is need for deleveraging and allocation of a higher proportion of debt to public infrastructure expenditure which has complementary effects on private investment.

Debt overhang signal that South African firms could be over-leveraged, which hinders future growth prospects. Firms that face high levels of debt should consider debt restructuring.

Empirical studies undertaken to explore this relationship have yielded contradicting results suggesting that the relationship between public debt and private investment is heterogeneous depending on a given economy or prevailing macroeconomic environment. In particular, existing research does not provide evidence on whether recent increases in public debt in South Africa have led to crowding-in or crowding-out of private investment. This paper therefore contributes to empirical literature on the impact of public debt on private investment within a small open economy.

The purpose of this paper is to investigate whether a firm’s undertaking of a bond IPO influences the monitoring of the private loans granted to the firm by private lenders. If it does, in which direction the monitoring changes?

The author uses both univariate and multivariate analyses to test the hypothesis. For the purposes of this research, the author’s primary data sources are LPC Dealscan, which provides data on private loans; Mergent FISD, which provides data on public bond issues; and the Compustat Industrial Annual Database, which provides the required financial data for the sample firms. The author’s sample covers non-financial US firms for the period of 1991-2010. The author’s final sample consists of nearly 23,000 private loans granted to about 5,500 non-financial US firms.

The major finding of this research is that private lenders increase their degree of monitoring of loans that they extend to a firm after it issues a bond IPO. The results of the two-stage bond IPO anticipation model further strengthen the findings. The evidence suggests that as the firm issues public debt for the first time, private lenders get concerned about the potential increase of agency problems and leverage, and consequently, find it valuable to increase the degree of monitoring of loans. Also, the magnitude of change in monitoring is strongly influenced by the degree of information asymmetry, leverage, profitability, and potential to waste free cash flow.

This paper enhances one’s understanding of the contracting dynamics between private lenders and the firm as it issues in the public debt market. The findings can aid firms anticipate the borrowing conditions they will face if they undertake a bond IPO. Further, the cross-sectional analysis on covenant changes from pre- to post-bond IPO period identifies specific firm characteristics that impact the magnitude of change of covenant intensity and comprehensiveness. As a result, uncertainty regarding post-bond IPO outcomes is reduced for borrowing firms.

The equation of unified knowledge says that S = f (A,P) which means that the practical solution to a given problem is a function of the existing, empirical, actual realities and the future, potential, best possible conditions of general stable equilibrium which both pure and practical reason, exhaustive in the Kantian sense, show as being within the realm of potential realities beyond any doubt. The first classical revolution in economic thinking, included in factor “P” of the equation, conceived the economic and financial problems in terms of a model of ideal conditions of stable equilibrium but neglected the full consideration of the existing, actual conditions. That is the main reason why, in the end, it failed. The second modern revolution, included in factor “A” of the equation, conceived the economic and financial problems in terms of the existing, actual conditions, usually in disequilibrium or unstable equilibrium (in case of stagnation) and neglected the sense of right direction expressed in factor “P” or the realization of general, stable equilibrium. That is the main reason why the modern revolution failed in the past and is failing in front of our eyes in the present. The equation of unified knowledge, perceived as a sui generis synthesis between classical and modern thinking has been applied rigorously and systematically in writing the enclosed American‐British economic, monetary, financial and social stabilization plans. In the final analysis, a new economic philosophy, based on a synthesis between classical and modern thinking, called here the new economics of unified knowledge, is applied to solve the malaise of the twentieth century which resulted from a confusion between thinking in terms of stable equilibrium on the one hand and disequilibrium or unstable equilibrium on the other.

This study aims to examine whether debt financing creates incentives for private firms to engage in earnings management via classification shifting. Especially, the authors examine whether debt-induced financial reporting incentives differ depending on the type of debt (i.e. public bonds versus private loans) and whether such incentives are influenced by the characteristics of external auditors (i.e. initial audits and auditor size).

The study uses data on 93,427 Korean private firms from 2001 to 2016. Classification shifting is measured by the positive correlation between non-core expenses and unexpected core earnings estimated with ordinary least squares.

The empirical analyses reveal that private firms engage in classification shifting as do public firms. Importantly, classification shifting is observed only in private firms that have outstanding debt, but not in private firms without debt. Among debt-financing private firms, classification shifting is more prevalent for firms that issue public debt than for firms that only use private debt. In addition, classification shifting of debt-financing private firms is more successful when they are audited by new auditors that are one of the non-Big 4 firms.

The study provides evidence of classification shifting in private firms, which is novel to the literature. However, the inferences in the study depend on the validity of the model for detecting classification shifting.

This study helps lenders enhance their understanding on the financial reporting behaviors of borrowing firms. The results in this study suggest that lenders should be cautious in using core earnings for their investment decisions.

This study contributes to the literature by providing novel evidence of classification shifting in private firms. In addition, the authors contribute to the literature on debt-induced incentives for financial reporting.

We examine the maturity structure in private placements of debt and relate it to contracting, signaling, tax, and liquidity risk considerations for firms. We find that firms with higher tax rates issue private placements of debt with longer maturities, consistent with the tax hypothesis. However, our results do not support the contracting, signaling, and liquidity risk hypotheses. In addition, the results are confined to the smaller firms in the sample, firms without a public debt rating, and debt issues not pursuant to Rule 144A. The evidence is consistent with smaller firms issuing private placements of debt to avoid monopoly rent extraction from banks.

This chapter discusses the evolution of German views on public debt 1850–1920, referring to three strands of secondary literature: (1) German retrospectives on public finance, (2) the historical literature with a public choice perspective, and (3) contributions to public/constitutional law, mainly referring to Lorenz von Stein. The skeptic view of public debt endorsed by authors of the second half of the period is shown to be related to politico-economic issues of state agency combined with new state functions, rather than to the rejection of Dietzel’s Proto-Keynesian macroeconomic reasoning.

The purpose of this paper is to investigate how the innovative firm’s proprietary information has an impact on its debt financing preference. This study also examines the impact of industry-level competition on the debt financing orders and investigates how two exogenous shocks impacted on innovative firms’ financing policies.

This paper uses the three types of debt data, including bonds, private debt placements and bank loans and patent application data, in the USA from 1987–2008. The number of patents applications and industry-level competition are used as proxies for a firm’s innovation and industry-level sensitivity. In addition, to minimize endogenous concern, this study uses the propensity score matching analysis and difference-in-differences.

The patents are the primary determinants for innovative firms to choose the debt types. The paper shows that innovative firms have the debt preference order – public debt, private placement and bank loans. However, as competition increases, innovative firms devise the order reverse. Finally, the paper provides evidence that the American Inventor’s Protection Act (AIPA) and the tech bubble crash made investors depend more on firms with more patents.

This paper is the first to study the impact of the AIPA on innovative firms’ financial policies using the propensity score matching analysis. The findings imply that both patents and industry-level competition are important factors to understand the capital structures for innovative firms.

Recent studies on the use of private, non-bank, debt have given conflicting results. Instead of a fixed order of preference between various choices of debt as suggested by previous studies, this study postulates that there is a life cycle of debt choice, and as firms move through the cycle, their preferences change. For stable, mature firms, when given a choice, non-bank private debt would fall in between the two extremes of bank debt and public debt. We provide empirical as well as anecdotal evidence from the trade press to support this view. We jointly model the decision to choose a debt source as well as the amount of debt on data from a current database to focus on the “intentional” change in debt levels, rather than those due to unintentional changes. We find that there are significant interdependencies between the decision to borrow from a particular source, as well as the amount of loan, and that taxes, as well as lender reputation, degree of renegotiability and financial flexibility required by the borrower, are key factors that influence the choice of private debt source.

The main goal of the study is to explore the long run relationship between public debt and domestic investment in West Africa. Essentially, a study of this nature is to proffer major inroads into addressing low investment levels plaguing the region and securing critical fiscal policy measures.

The study examines the long-run relationship between public debt and domestic investment in 13 West African countries between 1986 and 2018 with the use of Panel Dynamic Least Squares (DOLS) and Panel Fully Modified Least Squares (FMOLS), and causality test based on Toda and Yamamoto.

Public debt (% of GDP) and external debt stocks have an insignificant effect on domestic investment in the long run, suggesting the negligible effect of public debt on the level of investments in the region. Further evidence shows that domestic investment Granger causes public debt indicators, implying that there is unidirectional causality. This suggests that any investment-generation policy could engender a rise in public borrowing, although such public loans might not be effective when there is pervasive mismanagement of public funds, as public debts need to be well managed for ensuring improved investment.

The study suggests that maintaining a strong and effective debt-investment nexus requires fiscal consolidation efforts across countries, as such could lead to enhanced institutional capacity and sustainable investment-generation policy.

Since panel regression techniques used by the previous studies (Fixed and Random effects) could be susceptible to possible statistical errors due to endogeneity issue and might not be well suited for explaining long-run effect or capturing the part of investment sustainability, their conclusions could be misleading and remain untenable in West Africa' s context. Hence, the study adopts techniques (DOLS and FMOLS) which could account for endogeneity issue and provide better elucidations for long-term effects.

The authors examine how the major board reforms recently implemented by countries around the world affect firms' choice of debt.

Using a quasi-experimental setting of major board reforms around the world that aim to improve board-related governance practices in various areas, this study investigates the impact of effective board monitoring on corporate debt choice. The authors employ difference-in-differences-type quasi-natural experiment method and path analysis for hypotheses testing.

The authors find that the implementation of board reforms is positively associated with firms' preference for public debt financing over bank debt. However, this effect tends to weaken after the fourth year following the implementation of board reforms. In additional analyses, the authors find that “rule-based” reforms have a more pronounced effect on firms' choice of debt than do “comply-or-explain” reforms. Both (1) strengthened firm-level internal governance practices that address concerns about the agency cost of debt and (2) reduced information asymmetries play important roles in facilitating firms' debt choice, but the evidence suggests that the former is the economic mechanism through which country-level reforms affect corporate debt choice.

The study extends the literature examining the heterogeneity of corporate debt choices in a global setting and the literature on the consequences of corporate governance reforms.

The findings demonstrate the effectiveness of the corporate board reforms implemented in countries around the world, addressing concerns from critics about their potential harm or ineffectiveness.

The results indicate that country-level board reforms reduce the extent to which shareholder–creditor conflicts harm shareholders.