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The latest financial crisis marks a milestone in the development of financial markets. It was a period when it was possible to observe a booming development in the stock markets.

Faced with such a phenomenon, theorists have agreed on the need to resume the debate on the validity of the predictability of stock market returns, which is considered to be the cornerstone of all financial theories. The purpose of this article is to examine the predictability of the bearish stock market using a number of variables widely used in forecasting stock returns. In particular, we focus on variables related to imperfect credit markets.

We revisit the predictability of the bearish market using variables that measure the External Funding Premium (EFP), such as the Default Yield Spread.As the EFP is the key indicator of the extent of credit market imperfections, it should therefore be linked to stock market dynamics and provide useful predictive content.

The main aim of this paper is to report on a comprehensive survey of corporate financing decision‐making process in Sri Lankan listed companies and to compare these results with those of similar studies conducted in developed markets.

The study was based on a survey questionnaire distributed among the chief executive officers (CEOs) of companies listed on the Colombo Stock Exchange, with the content of the questionnaire being based upon a review of theoretical and empirical literature in the field of finance.

The results demonstrate an adherence to a financial hierarchy, which appears to be the dominant financial policy among listed Sri Lankan companies. Corporate financing decisions seem to be influenced mostly by interest and tax considerations, while lesser weight is accorded to financial flexibility in determining the amount of funds to be raised externally through debt contracts. The evidence largely supports the propositions of the pecking order model, but also confirms some predictions found in static trade‐off theory.

Some of the most striking implications of the analysis relate to the under‐development of the local capital market, and the apparent need for an efficient financial system that spurs economic growth. An efficient capital market will in turn ensure that capital will be more easily channeled into financing investments.

This paper highlights how and why the determinants of capital structure decisions reported for developed capital markets may differ from those existing in transitional or emerging economies.

This study aims to analyze exchange rate risks and the choice of exchange rate policies in a small open economy indebted in foreign currency, incorporating the financial accelerator mechanism.

To examine discussions on the fear of floating, this study develops a dynamic stochastic general equilibrium model in which a small open economy model has an open economy financial accelerator mechanism as the external borrowing restriction. The author then compares and analyzes the macroeconomic dynamics in response to an exchange rate shock under different exchange rate systems.

The most interesting finding is that the currency peg for a foreign currency used in borrowing is more efficient than the trade-weighted currency basket policy, regardless of trade openness or trade share.

The result implies that in discussions on the fear of floating, more attention needs to be paid to exchange rate risks in finance. It also suggests that exchange rate policy used to mitigate exchange rate risks in finance stabilizes macroeconomic volatility more efficiently.

The paper provides an answer to the question: which is the more serious problem in the fear of floating and to what would the regime be anchored.

The paper assembles data on over 1,000 manufacturing and services firms in India for the entire post-reform period from 1992 through 2002 to examine the association between corporate governance and monetary policy. The findings suggests that: (a) public firms are relatively more responsive to a monetary contraction vis-à-vis their private counterparts; and (b) quoted firms lower their long-term bank borrowings in favour of short-term borrowings, post monetary tightening, as compared with unquoted firms. A disaggregated analysis based on firm size and leverage above a certain threshold validates these findings. The study concludes by analyzing the broad policy implications of these findings.

The goal of this paper is twofold. First, to examine the role of expectations in shaping agents' behaviour within an extended time frame which incorporates a prolonged harsh downturn of economic activity. Therefore, the authors allow for an indirect impact of economy-wide expectations operating via their coexistence with firms' balance sheet factors. Second, it is tested whether the behaviour of listed firms as regards to debt follows the pecking order theory.

The authors use the panel data methodology in the estimation of the financial structure models since unobservable heterogeneity is an important determinant towards the target leverage. A fixed effects estimation procedure, with robust intercepts allowed to vary across firms, was employed to examine the relationship between leverage and performance.

The findings offer evidence of patterns of pecking order behaviour and thus for the necessity of internal financing over external debt. The authors also extended the set of determinants by investigating the effect of macroeconomic conditions on the debt decision of firms. Contrary to the authors’ expectations, short-run beliefs of economic agents appear to play a negative role in leverage.

This paper contributes to the literature in a number of ways. First, following the growing literature of loan dynamics, the findings provide useful insights into corporate capital structure decisions in an economy in which businesses were almost excluded from external financing for over a decade. Second, in order to better understand corporate financing decisions, it is necessary to consider the overall economic framework in which companies and especially the listed ones operate.

The purpose of this study is to examine the impact of financial distress (FD) on investment-cash flow sensitivity (ICFS) of Indian firms.

The study uses the system generalized method of moments (GMM) technique to investigate the effect of FD on ICFS of Indian firms during the period from 2001 to 2019.

Using FD measures like Ohlson's bankruptcy method, Altman's Z-score model and financial-distress ratio, the researchers find that FD increases ICFS and negatively affects corporate investment. The researchers’ findings explain that FD increases restrictions on external financing, which makes cash flow more important for corporate investment. Additionally, the researchers find that the effects of FD on ICFS are weak (strong) for bigger and group affiliated (smaller and standalone) firms. The study’s findings are robust to several measures of FD, group affiliation and firm size.

First, the researchers find that FD affects the ICFS, therefore, financially distressed firms should have sufficient internal funds or external funds for investment. Second, lending agencies should also consider the firms' FD condition before providing funds to secure their money. Third, investors should be very careful while investing in a financially distressed firm as we find that financially distressed firms face a decline in their investment which might reduce firm profitability.

This study contributes to the existing literature by providing empirical evidence by analyzing the impact of FD on ICFS in the context of India. As per the authors’ knowledge, this is the first-ever attempt to examine the effect of FD on ICFS.

This paper aims to assess to what extent the COVID-19 shock is expected to create a debt crisis in emerging markets and developing economies (EMDEs) through two main questions: what are the main determinants of EMDEs external vulnerability? How vulnerable are EMDEs to the current COVID-19 shock compared to the global financial crisis (GFC)?

In addition to a descriptive analysis of the determinants of EMDEs external vulnerability, this paper designs two sub-indices of overindebtedness and financial fragility that capture EMDEs’ distinct characteristics. The two sub-indices together illustrate the overall external vulnerability to the current shock.

EMDEs are more vulnerable compared to the GFC era. Current debt threats arise mainly from debt architecture and the domination of volatile debt forms – primarily foreign currency-denominated bonds. Excessive fear of debt-deflation spirals after the GFC prompted EMDEs to expand their growth trajectories through a pattern of cheap private lending, loose measures and unmonitored fiscal expansion.

Conclusive post-crisis data are still unavailable.

EMDEs need to balance between temporary accommodative measures and a post-shock policy mix that prevent a deflation spiral without worsening indebtedness and financial fragility. Moreover, financial prudence in face of growing credit demand is crucial, particularly in light of the monetary expansion and injected liquidity.

The indices offer a framework for examining external vulnerability in EMDEs based on theoretical and historical revisions, IMF benchmarks and EMDEs specific debt characteristics. The indices components can be offered for empirical examination in separate future research once conclusive data become available.