A Mathematical Demonstration of the Viability of Profit/Loss Sharing as a Debt Alternative in Presence of Market Frictions

2018 ◽  
Vol 17 (3_suppl) ◽  
pp. S327-S343
Author(s):  
Franziska Wolf ◽  
Munirul H. Nabin ◽  
Sukanto Bhattacharya
Keyword(s):  
Emerging Economies ◽  
Jel Classification ◽  
Debt Financing ◽  
Matching Theory ◽  
Nash Bargaining ◽  
Market Frictions ◽  
Mathematical Demonstration ◽  
Methodological Tool ◽  
Potential Alternative

We posit a simple mathematical model to show that a profit-and-loss sharing contract can be formed between a capital seeker and capital provider as a potential alternative to institutional debt financing. The major methodological tool used is that of Nash bargaining; utilising the matching theory proposition of Pissarides (2000). Our posited model demonstrates that a ‘match’ between a capital seeker and a capital provider can occur even in the presence of embedded market frictions arising out of information asymmetries as are especially rife in the emerging markets. This is an important result especially for marginal borrowers in emerging economies and we present supporting empirical evidence that indicates profit-and-loss sharing being increasingly seen as an effective alternative financing to long-term borrowing. JEL Classification: C78, D53, G23

Economic Institutions and Growth Nexus: The Role of Governance and Democratic Institutions—Evidence from Time Varying Parameters’ (TVPs) Models

2016 ◽  
Vol 55 (4I-II) ◽  
pp. 675-688
Author(s):  
Ghulam Murtaza ◽  
Muhammad Zahir Faridi
Keyword(s):  
Structural Changes ◽  
Jel Classification ◽  
Economic Institutions ◽  
Time Varying ◽  
Democratic Institutions ◽  
Main Hypothesis ◽  
Dynamic Relationship ◽  
Rolling Window

The present study has investigated the channels through which the linkage between economic institutions and growth is gauged, by addressing the main hypothesis of the study that whether quality of governance and democratic institutions set a stage for economic institutions to promote the long-term growth process in Pakistan. To test the hypothesis empirically, our study models the dynamic relationship between growth and economic institutions in a time varying framework in order to capture institutional developments and structural changes occurred in the economy of Pakistan over the years. Study articulates that, along with some customary specifics, the quality of government and democracy are the substantial factors that affect institutional quality and ultimately cause to promote growth in Pakistan. JEL Classification: O40; P16; C14; H10 Keywords: Economic Institutions, Growth, Governance and Democracy, Rolling Window Two-stage Least Squares, Pakistan

The Influence of Growth, Asset Tangibility, Cost of Debt, Profitability and Business Risk On Debt Capital

2019 ◽  
Vol 4 (4) ◽  
pp. 120-127
Author(s):  
Erika Jimena Arilyn ◽  
Beny Beny
Keyword(s):  
Firm Growth ◽  
Stock Exchange ◽  
Panel Data Analysis ◽  
Developed Countries ◽  
Jel Classification ◽  
Cost Of Debt ◽  
Market Condition ◽  
Business Risk ◽  
Debt Capital

Objective –The aims to identify the significant factors that influence a company’s decision to use debt capital. Methodology/Technique – This study uses 5 independent variables namely; firm growth (growth rate in total gross assets), asset tangibility (ratio of net fixed assets to total assets), cost of debt (interest before tax / long term debt), profitability (Earnings Before Interest and Taxes (EBIT) / Total Asset), and business risk (standard deviation of EBIT to total assets). The dependent variable in this study, debt capital, is measured by the ratio of long-term debt to total assets. A purposive sampling method is used to select 11 out of 18 textile and garment companies listed on the Indonesian Stock Exchange between 2014 and 2018 that report their annual financial positions. A quantitative method, panel data analysis technique and SPSS tools were also used in this study. Findings – The results show that debt capital is influenced by profitability, while the remaining factors do not influence debt capital. Novelty – This study adds to the existing literature on internal factors, market condition as an external factors, and debt capital in developed countries. The benefit of this study is to explore the potential capabilities of the industry in using its profit to minimize the use of debt as a source of capital to decrease business risk. Type of Paper: Empirical Keywords: Profitability; Growth; Cost of Debt; Business Risk; Tangibility; Capital Structure. Reference to this paper should be made as follows: Ariyln, E., J; Beny; 2019. The Influence of Growth, Asset Tangibility, Cost Of Debt, Profitability and Business Risk On Debt Capital, Acc. Fin. Review 4 (4): 120 – 127 https://doi.org/10.35609/afr.2019.4.4(4) JEL Classification: G23, G32.

Reshaping the Economic Structure in Argentina: The Role of External Debt during the Macri Administration (2015–2019)

2021 ◽  
pp. 048661342097642
Author(s):  
Juan E. Santarcángelo ◽  
Juan Manuel Padín
Keyword(s):  
External Debt ◽  
Economic Structure ◽  
The United States ◽  
Jel Classification ◽  
Financial Capital ◽  
Economic Policies ◽  
Right Wing ◽  
Long Term Effects

Argentina’s right-wing shift in the 2015 presidential election concluded twelve years of center-left rule. The elected president, Mauricio Macri, claimed that the economy would experience normalization of existing imbalances and recover its strength in a “new political era.” However, the new administration quickly restored the dominance of neoliberal economic policies through a comprehensive set of initiatives, which centrally included the return to international financial debt and equity markets and submission to the International Monetary Fund’s (IMF) rules. This article analyzes Argentina’s external-debt-growth process and discusses its objectives and long-term effects. This paper posits that the indebtedness process carried out by the Macri administration—and its modality—not only increased the relevance of financial capital in the Argentine economy but also structurally conditioned any future nonorthodox alternative path of development. This outcome cannot be understood without taking into account the deliberate role of the United States, the IMF, and the top companies that operate in Argentina, as well as the complicity of many political sectors. JEL Classification: H63, F34, F63

Mitigating Legal Risks in Nigeria's Project Finance Market

2017 ◽  
Vol 25 (3) ◽  
pp. 442-455
Author(s):  
Olufemi Soyeju
Keyword(s):  
Debt Financing ◽  
Project Finance ◽  
Infrastructure Development ◽  
Public Infrastructure ◽  
The Public ◽  
Fund Development ◽  
Legal Risks ◽  
Project Risks ◽  
Infrastructure Project

Project finance is a subset of financial techniques used traditionally in raising long-term debt financing for projects particularly in the energy and mining sectors of the economy. However, over the years, it has proved helpful in raising the required funds to drive public infrastructure projects through the public private partnership framework. By its nature, project finance is either non-recourse, or of limited recourse, to the project sponsors and hence identifying the various risks and determining who should bear these risks is the overarching essence of project finance technique. These uncertainty and risks may have significant impact on outturn costs or benefits of a particular infrastructure project. Generally, typical project finance transaction is fraught with many project risks which sometimes overlap. However, among these inherent risks there are some that are legal in nature and hence they are referred to as legal risks. So, this article seeks to interrogate the related legal risks in project finance as a financing technique to fund development of infrastructure and in particular, the procurement of critical public infrastructure assets in Nigeria and the various ways by which these risks can be mitigated to drive infrastructure development in the country.

Capturing the effects of changing capital-intensity on Long-term growth in the major emerging economies

2017 ◽  
Vol 39 (4) ◽  
pp. 729-740
Author(s):  
Fred Campano ◽  
Lucio Laureti ◽  
Dominick Salvatore
Keyword(s):  
Emerging Economies ◽  
Capital Intensity

Debt financing puzzle and internationalization

2019 ◽  
Vol 13 (1) ◽  
pp. 33-56 ◽  
Author(s):  
Karren Lee-Hwei Khaw
Keyword(s):  
Multinational Corporations ◽  
Emerging Market ◽  
International Perspective ◽  
Debt Financing ◽  
Primary Concern ◽  
Firm Risk ◽  
Content Type ◽  
Financial Decisions ◽  
Business Operations

PurposeThis study aims to examine the relation between long-term debt and internationalization in the presence of the agency costs of debt and business risk.Design/methodology/approachSample firms consist of 517 non-financial listed firms in Malaysia, with 4,197 firm-year observations from the year 2000 to 2014. This study uses panel data regressions and a series of robustness tests to examine the hypotheses.FindingsThe results show that multinational corporations (MNCs) are more likely to sustain less long-term debt than domestic corporations (DCs) to mitigate the costs related to agency problem and firm risk. Meanwhile, foreign-based MNCs maintain less long-term debt than local-based firms, and the finding is more significant at a higher degree of internationalization. Robustness tests confirm the negative relations.Research limitations/implicationsThe findings indicate that the ongoing debate on the debt financing puzzle can be explained by internationalization. Moreover, the findings suggest that in addition to the systematic differences between MNCs and DCs, studies on the debt financing and internationalization should also account for the systematic differences among MNCs such as the local-based MNCs, foreign-based MNCs and DCs that later expand their business operations abroad.Practical implicationsMNCs have to be responsive to the diverse institutional environments as they diversify their business operations geographically. When the adverse effects of internationalization outweigh the benefits, MNCs could use the long-term debt financing decision to mitigate the costs of doing business abroad. This is because debt financing is also a primary concern in the corporate financial decisions for the maximization of shareholders’ wealth.Originality/valueThis study contributes to the debt financing literature from the international perspective by providing evidence from an emerging market. In addition, this study highlights the importance of recognizing firms by their firm-specific characteristics, such as internationalization, given the systematic differences among firms.

scholarly journals The business cycle: a definition

2021 ◽  
pp. 205-262
Author(s):  
Tuur Demeester
Keyword(s):  
Business Cycle ◽  
Jel Classification ◽  
Austrian School ◽  
Methodological Framework ◽  
The Core ◽  
Palabras Clave ◽  
The Business Cycle ◽  
Necessary And Sufficient ◽  
Counter Argument

The goal of this article is to properly define the economic phenomenon of the business cycle. The text is rooted in the tradition of the Austrian School of Economics, and the methodological framework builds on concepts developed by Aristotle and Thomas Aquinas. This leads to the development of a few new methodological concepts, such as a re-interpretation of «inflation» and «deflation», and the re-introduction of «imaginary goods» as an important social phenomenon. The core observation of the article is that the business cycle is in fact a subclass of another kind of cycle, the «fraud cycle». Our conclusion is that in order to produce a business cycle, the occurrence of institutional fraud in the sphere of money and banking are both necessary and sufficient. The counter-argument that honest banking can also produce business cycles is refuted in Appendix I. We believe this article is significant in two ways: 1) it provides an unambiguous recipe for the long term extermination of the business cycle; and 2) it helps expand the scope of the Austrian School beyond economics into fields of law and morality. Key words: Business Cycle, Fraud Cycle, Austrian School, money and banking. JEL Classification: B53, B49, D01, K13. Resumen: El objetivo de este artículo es definir apropiadamente el fenómeno económico del ciclo económico. El resto está enraizado en la tradición de la Escuela Austriaca de Economía, y el marco metodológico parte de los conceptos desarrollados por Aristóteles y Tomás de Aquino. Esto conduce al desarrollo de algunos conceptos metodológicos nuevos, tales como la reinterpretación de la «inflación» y la «deflación», y la reintroducción de los «bienes imaginarios» como un fenómeno social importante. La observación central de este artículo es que el ciclo económico es de hecho una subclase de otro tipo de ciclo, el «ciclo del fraude». Nuestra conclusión es que para producir un ciclo económico, la existencia de un fraude institucional en la esfera del dinero y la banca es una condición necesaria y suficiente. El Apéndice I refuta el contra-argumento de que una banca honesta también puede producir ciclos económicos. Creemos que este artículo es significativo por dos motivos: 1) ofrece una receta clara para la eliminación del ciclo económico; y 2) ayuda a expandir el ámbito de la Escuela Austriaca más allá del campo de la Economía hacia los campos del Derecho y la Moralidad. Palabras clave: Ciclo económico, ciclo del fraude, Escuela Austriaca, dinero y banca. Clasificación JEL: B53, B49, D01, K13.

scholarly journals How Does Debt Financing Affect Financial Performance? A Study of Transport Companies Listed in Pakistan

2020 ◽  
Vol 2 (2) ◽  
Author(s):  
Ulfat Abbas ◽  
Sohail Aziz ◽  
Samina Khan
Keyword(s):  
Financial Performance ◽  
Debt Financing ◽  
Annual Reports ◽  
Transport Sector ◽  
Return On Assets ◽  
Secondary Sources ◽  
Earnings Per Share ◽  
The Impact ◽  
Retained Earnings

  Purpose: The purpose of this paper investigates the impact of debt financing on airline’s (transport) sector performance of Pakistan. Design/Methodology/Approach: We gathered the data from secondary sources. In this study, we used a data sample of 11 years from 2008-2018 by using companies annual reports. Due to unavailability of data, only 3 transport companies have been taken for analysis. The software which we used in analysis is SPSS (Statistical Package for Social Science). Findings: The findings of the study suggests that there is opposite relationship between debt financing and financial performance of airlines. Debt is measured from three ratios, short term debt to total assets, long term debt to total assets and total debt to total assets ratio. For the measurement of performance, we used return on assets and earnings per share. We concluded on the basis of findings that the companies should focus on retained earnings which is cheaper source of finance and use less level of debt. As the more level of debt use by the companies, the performance of companies’ decrease. Implications/Originality/Value: There is only one study is available in Pakistan which used transport sector in Pakistan in debt financing context                                                          

scholarly journals Schumpeterian aspects of growth and its correlative classical and neoclassical approaches

2021 ◽  
pp. 85-117
Author(s):  
Sergio A. Berumen
Keyword(s):  
Economic Growth ◽  
Important Determinant ◽  
Jel Classification ◽  
Central Concept ◽  
Goods And Services ◽  
Palabras Clave ◽  
Standards Of Living ◽  
Capital Humano ◽  
Sustainable Economic Growth

Economic Growth is a central concept in Economic Theory. Most of the modern societies regard growth as an important determinant for rising standards of living. Their effects can be observed not only in more goods and services but also in brand new processes. Investment in human capital is re-garded as the very source of long-term, sustainable Economic Growth. The purpose of this paper is to provide a brief description of Economic Growth, how to approach its measurement, and to provide a brief review of the Schum-peterian thought and the main schools that have undertaken from the Classical and Neoclassical Approaches. Key Words: Economic Growth; Schumpeterian Thought; Classical and Neo-classical Approaches. JEL Classification: B12, B13, B52, O43, O49. Resumen: El crecimiento económico es un concepto fundamental de la teoría económica. La mayoría de las sociedades modernas consideran el crecimiento como una determinante importante para el incremento de los niveles de vida. Sus efectos se pueden observar en el aumento de bienes y servicios, pero también en la disponibilidad de nuevos procesos. En este escenario, la inver-sión en capital humano es, de hecho, la fuente original del crecimiento económico a largo plazo y de manera sostenible. El objetivo del presente trabajo consiste en explorar los principales rudimentos del crecimiento económico, de su preceptiva medición y de mostrar las aportaciones originales alcanzadas desde el Pensamiento Schumpeteriano, así como de su contrastación con las perspectivas Clásicas y Neoclásicas. Palabras clave: Crecimiento económico; Pensamiento Schumpeteriano; aproxi-maciones Clásica y Neoclásica.

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