Credit Stimulus, Executive Ownership, and Firm Leverage

2021 ◽  
Author(s):  
Rajdeep Chakraborti ◽  
Sandeep Dahiya ◽  
Lei Ge ◽  
Pedro Gete

We show that executive ownership is a significant driver of the demand for credit following credit expansion policies. Our focus on credit demand is in contrast to most studies that have focused on credit supply factors such as bank capital. Our identification exploits the large and unexpected Chinese credit expansion in 2008. This setting offers a unique advantage as in 2008 the Chinese government had almost complete control over the banking sector and it directed the banks to increase credit supply. Thus, in this setting, demand, rather than supply, largely drives the observed changes in firms’ borrowing. We provide extensive robustness tests to validate our results. This paper was accepted by Kay Giesecke, finance.

2020 ◽  
Vol 23 (1) ◽  
pp. 83-102
Author(s):  
K. Batu Tunay ◽  
Hasan F. Yuceyılmaz ◽  
Ahmet Çilesiz

Crediting in the banking sector plays an important role in all developed and developing countries. For this reason, it is monitored continuously by public authorities and measures are taken to control credit supply in economic growth periods. On the other hand, in an economic slowdown, when banks are reluctant to increase their credit portfolio, public credit guarantee programs are put into use to increase the credit supply. In this study, a sample covering 26 advanced and emerging economies was analyzed, and the effects of credit gap, credit guarantees and economic growth on credits and arising credit risks were investigated. The findings show that both credits and non-performing loans, an important measure of credit risk, are affected by credit gap, credit guarantees, and economic growth. On the one hand, public credit guarantees positively affect economic growth. On the other hand, though they are widely used for supporting small and medium-sized enterprises, our findings suggest that such expansive credit policies might negatively affect the riskiness of the credit portfolios and soundness of the banking sector.


2020 ◽  
Vol 15 (3) ◽  
pp. 70-80
Author(s):  
Iryna Skliar ◽  
Hanna Saltykova ◽  
Svitlana Pokhylko ◽  
Nataliia Antoniuk

According to an inclusive growth framework, the top objectives of the economic policy shift from increasing incomes themselves to well-being. While banking sector development has conventionally been considered a growth factor, there is no clear understanding of its impact on inclusive growth. This article explores how the banking sector’s qualitative development, measured in dimensions of the services availability, lending supply, stability, and reliability of banking activity, relates to inclusive growth. To define the relations between banking system development and inclusive growth, the panel regression was employed for a sample of 46 economies selected based on the prescribed principles of sources reputability, methodology consistency, limits in data blanks, and differentiated into groups according to the World Bank’s classification. The regressions’ assessment and involved tests show evidence of the quality of constructed models and present the following results. The banking availability, approximated with the number of automated teller machines, fosters inclusive growth regarding all groups of countries. In contrast, the increase in the number of commercial banking branches has inverse relations between high-income and upper-middle-income countries, and direct for lower-middle-income countries. The bank credit expansion negatively influences the inclusive growth for high income and lower-middle-income countries. The banking sector stability approximated with bank capital to assets ratio matters in terms of inclusive growth for high-income countries only, while this indicator for upper middle and lower middle economies is statistically insignificant.


2021 ◽  
Vol 15 (1) ◽  
Author(s):  
Xiaonan Li ◽  
Chang Song

AbstractAfter the opening up of the banking sector to domestic and foreign capitals which is approved by the Chinese government, the China Banking Regulatory Commission (CBRC) has permitted city commercial banks to diversify geographically. Since this deregulation in 2006, city commercial banks began to geographically diversify to occupy the market and acquire more financial resources. To examine the causal relationship between geographical diversification and bank performance, we construct an exogenous geographical diversification instrument using the gravity-deregulation model and a policy shock. We find that bank geographical diversification negatively affects bank performance. Moreover, we conduct some mechanism tests in the Chinese context. We find that the target market with several large- and medium-sized banks and a high level of local protectionism in the target market decreases the performance of city commercial banks. Finally, cross-sectional analyses show that the impact of geographical diversification on banks’ performance is more notable among city commercial banks that are younger, and have a lower capital adequacy ratio and a higher non-performing loan ratio.


Author(s):  
David O'Brien

The Uyghur (alternatively spelled Uighur) are the largest and titular ethnic group living in the Xinjiang Uyghur Autonomous Region, a vast area in northwestern China of over 1.6 million sq. km. According to the 2010 census Uyghurs make up 45.21 percent of the population of Xinjiang, numbering 8,345,622 people. The Han, the largest ethnic group in China, make up 40.58 percent in the region with 7,489,919. A Turkic-speaking largely Muslim ethnic group, the Uyghurs traditionally inhabited a series of oases around the Taklamakan desert. Their complex origin is evidenced by a rich cultural history that can be traced back to various groups that emerged across the steppes of Mongolia and Central Asia. Uyghur communities are also found in Uzbekistan, Kyrgyzstan, and Kazakhstan, with significant diaspora groups in Australia, the United States, Germany, and Turkey. In the first half of the 20th century, Uyghurs briefly declared two short-lived East Turkestan Republics in 1933 and again in 1944, but the region was brought under the complete control of the Chinese state after the Communist Party (CCP) came to power in 1949. Within China they are considered one of the fifty-five officially recognized ethnic minority groups, who, along with the Han who constitute 92 percent of the population, make up the Chinese nation or Zhonghua Minzu中华民族. However, for many Uyghurs the name “Xinjiang,” which literally translates as “New Territory,” indicates that their homeland is a colony of China, and they prefer the term “East Turkestan.” Nevertheless, many scholars use Xinjiang as a natural term even when they are critical of the position of the Communist Party. In this article both terms are used. In the early years of the People’s Republic of China (PRC) Uyghurs numbered about 80 percent of the population of Xinjiang, but large-scale government-sponsored migration has seen the number of Han in the region rise to almost the same as that of the Uyghur. This has led to an increase in ethnic tensions often caused by competition for scarce resources and a perception that the ruling Communist Party favors the Han. In 2009, a major outbreak of violence in the capital Ürümchi saw hundreds die and many more imprisoned. The years 2013 and 2014 were also crucial turning points with deadly attacks on passengers in train stations in Kunming and Yunnan, bombings in Ürümchi, and a suicide attack in Tiananmen Square in Beijing, all blamed on Uyghur terrorists. Since then the Chinese government has introduced a harsh regime of security clampdowns and mass surveillance, which has significantly increased from 2017 and which, by some accounts, has seen over one million Uyghurs and other Muslim ethnic minorities imprisoned without trial in “reeducation” camps. The Chinese government insist these camps form part of an education and vocational training program designed to improve the lives of Uyghurs and root out “wrong thinking.” Many Uyghurs believe it is part of a long-term project of assimilation of Uyghur identity and culture.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Navendu Prakash ◽  
Shveta Singh ◽  
Seema Sharma

PurposeThis paper empirically examines the short-term and long-term associations between risk, capital and efficiency (R-C-E) in the Indian banking sector across 2008–2019 to answer the presence of causation or contemporaneousness in the R-C-E nexus.Design/methodology/approachThe paper focuses on three objectives. First, the authors determine short-term causality in the risk–efficiency relationship by studying the simultaneous influence of a wide array of banking risks on DEA-based technical and cost efficiency in static and dynamic situations. Second, the authors introduce bank capital and contemporaneously determine the interplay between R-C-E using seemingly unrelated regression equation (SURE) and three-staged least squares (3SLS). Last, the authors assess stability in inter-temporal associations using Granger causality in an autoregressive distributed lag (ARDL) generalized method of moments (GMM) framework.FindingsThe authors contend that high capital buffers reduce insolvency risk and increase bank stability. Technically efficient banks carry lesser equity buffers, suggesting a trade-off between capital and efficiency. However, capitalization makes banks more technically efficient but not cost-efficient, implying that over-capitalization creates cost inefficiencies, which, in line with the cost skimping hypothesis, forces banks to undertake risk. Concerning causal relationships, the authors conclude that inefficiency Granger-causes insolvency and increases bank risk. Further, steady increases in capital precede technical and cost efficiency improvements. The converse also holds as more efficient banks depict temporal increases in capitalization levels.Originality/valueThe paper is perhaps the first that acknowledges the influence of the “time” perspective on the R-C-E nexus in an emerging economy and advocates that prudential regulations must focus on short-term and long-term intricacies among the triumvirate to foster a stable banking environment.


Author(s):  
Anna Sergeevna Konopiy ◽  
Boris Andreevich Borisov

The subject of this research is digital national currencies of the People's Republic of China and the Russian Federation. The advent of the new digital era entails inevitable, objectively dictated digital transformations of all spheres of social life. The financial and banking sector in Russia, China, and other countries, is in need for legislative-digital regulation by implementing digital fiat currency. One of the most promising vectors of development is the creation and introduction of new forms of currencies into circulation, which would be recognized by public authority as a legal means of payment, as well as subject to effective oversight by government bodies. The novelty of this research lies in the comparative legal analysis of the experience, as well as the stages of implementation of digital national currency in the Russian Federation and the People's Republic of China. The article raised a pressing issue on feasibility of introducing digital ruble into the Russian reality, and thus, discusses successful experience of the Chinese government that a millennium ago was first to invent paper currency, and now is one of the world leaders to introduce digital currency alongside cash money. The concept of “digital currency” is often identified with cryptocurrencies and payment systems, which prompted the authors to conduct a comparative analysis of these terms. The analysis of Russian and Chinese legislation in the area of digital currency, as well as the established practice of implementing a new monetary form into the country’s economy, allowed outlining the pros and cons of such innovation.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yusuf Dinc ◽  
Rumeysa Bilgin

Purpose Firms prefer to have more than one bank relationship to secure the flow of funds for their operations, particularly in bank-based economies. On the other hand, banks lean toward expanding their customer base with firms already in the credit market. The purpose of this study is to investigate the effect of the number of bank relationships as a firm-specific determinant of capital structure and to discuss its impact on the banking sector. Design/methodology/approach A two-step system generalized method of the moments estimation method is used in this study. The sample comprises 213 Turkish non-financial, publicly listed firms with a positive shareholder’s value for the 2012–2017 period. Findings The findings show that the number of bank relationships increases the leverage of sample firms while the concentration in the banking sector decreases it. These rather intriguing findings are attributed to an under-the-counter credit policy that causes a high-risk shift and a curse of mainstream banks. Once the mainstream banks allocated credit to the firm, its credibility is consumed by the following banks, which is implied by the significantly negative relationship between bank concentration and firm leverage. This problem is defined as the mainstream bank curse in the study. Originality/value The previous literature focuses on the effects of the number of bank relationships on firm profitability, cost of debt and shareholder wealth. However, its impact on the capital structure has not yet been systematically investigated. To the authors’ knowledge, this is the first study to critically analyze the effect of the number of bank relationships on the capital structure. The findings will be of immense benefit to the banking sector and the regulatory bodies.


Author(s):  
Concetto Elvio Bonafede

A statistical model is a possible representation (not necessarily complex) of a situation of the real world. Models are useful to give a good knowledge of the principal elements of the examined situation and so to make previsions or to control such a situation. In the banking sector, models, techniques and regulations have been developed for evaluating Market and Credit risks, for linking together risks, capital and profit opportunity. The regulations and vigilance standards on the capital have been developed from the Basel Committee founded at the end of 1974 by the G10. The standards for the capital’s measurement system were defined in 1988 with the “Capital Accord” (BIS, 1988); nowadays, it is supported from over 150 countries around the world. In January 2001 the Basel Committee published the document “The New Basel Capital Accord” (BIS, 2001), which is a consultative document to define the new regulation for the bank capital requirement. Such a document has been revisited many times (see BIS, 2005). With the new accord there is the necessity of appraising and managing, beyond the financial risks, also the category of the operational risks (OR) already responsible of losses and bankruptcies (Cruz (Ed.), 2004; Alexander (Ed.), 2003; Cruz, 2002).


2019 ◽  
Vol 9 (2) ◽  
pp. 1-23
Author(s):  
Tobias Aloisi Swai

Learning outcomes The case introduces student to basic understanding of banking sector in Tanzania as well as the strategies and struggle to raise capital through shareholders’ funds. Application of Banking theory and Pecking order theory is evidenced from the case. The case outlines why the bank struggled to raise capital and what triggers the capital raising strategies. It also give students an opportunity to think about applicable theories of capital structure and bank capital, and strategies the bank could use to rescue its capital crunch in the future. Case overview/synopsis The case provides details of how the Capital Community Bank (CCB) raised its capital through strategic financial engineering which enabled it to raise the minimum regulatory capital required to be licensed as a financial institution unit, to a regional financial institution, to a fully fledged commercial bank. The bank started with a paid up capital of TZS 472.3m in 2002, involving four Local Government Authorities and individual investors. Capital raised to TZS 31.3bn in 2014 and down to TZS 20.6bn at the end of 2016. The minimum regulatory capital required is TZS 15bn, while paid up capital was 16.9bn. With the change of the management team in 2017, the bank is looking for avenues to raise further capital to meet the regulatory limits and continue to survive as a commercial bank, given dramatic changes in the banking sector in Tanzania. Complexity academic level The case is suitable for third year students in Bachelor of Commerce/Economics specializing in banking/financial services. It also suits postgraduate/master's students seeking a Postgraduate Diploma or Master of Business Administration in financial institutions/banking course. Supplementary materials Teaching Notes are available for educators only. Please contact your library to gain login details or email [email protected] to request teaching notes. Subject code CSS 1: Accounting and Finance.


2019 ◽  
Vol 20 (1) ◽  
Author(s):  
Derrick Kanngiesser ◽  
Reiner Martin ◽  
Laurent Maurin ◽  
Diego Moccero

Abstract While the global financial crisis revealed a need for macroprudential policy tools to mitigate the build-up of risk in the financial system, the impact of such policies on the banking sector and the macroeconomy remains largely uncertain. We contribute to the empirical literature that estimates the impact of shocks to bank capital buffers on bank lending and the macroeconomy by estimating a Bayesian VAR model identified with sign restrictions. We use bank-level data for large euro area listed banks to construct an aggregate bank capital buffer for the euro area, which is included as another variable in the model. We estimate three shocks affecting the euro area economy, namely a demand shock, a monetary policy shock and a shock to bank capital buffers. We find that banks curtail lending and reduce their relative exposure to riskier assets in response to a shock to the bank capital buffer. Historical shock decomposition analysis shows that shocks to bank capital buffers have contributed to impair bank lending growth and to widen bank lending spreads, hence depressing economic activity.


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