Credit Stimulus, Executive Ownership, and Firm Leverage

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.

Ten Years of Evidence: Was Fraud a Force in the Financial Crisis?

This article synthesizes the large literature regarding the role of various players in residential mortgage-backed securities (RMBS) securitization at the center of the 2008–09 US housing and financial crisis. Underwriting banks facilitated wide-scale mortgage fraud by knowingly misreporting key loan characteristics underlying mortgage-backed securities (MBS). Under the cover of complexity, credit rating agencies catered to investment banks by issuing increasingly inflated ratings on both RMBS and collateralized debt obligations (CDOs). Originators who engaged in mortgage fraud gained market share, as did CDO managers who catered to underwriters by accepting the lowest-quality MBS collateral. Appraisal targeting and inflated appraisals were the norm. RMBS and CDO prices indicate that the marginal AAA investor was unaware of pervasive mortgage fraud and ratings inflation, but these factors were strongly related to future deal performance. The supply of fraudulent credit was not uniform, but clustered in certain geographic regions and zip codes. As these dubious originators extended credit to those who could not afford the loans, the credit expansion led to house price booms and subsequent crashes in these zip codes. Overall, a consistent narrative based on substantial research indicates that conflicts of interest, misreporting, and fraud were focal features of the financial crisis. (JEL G01, G21, G28, K42, R30)

Rural development issue: a case study in Banyuwangi District, East Java Province

Rural people, as well as the farmers, deal with capital access for their business activities. Formal credit offered by the banks is not easily accessed by rural people due to rigid administrative procedures and collateral requirements. This paper aims to analyze rural people’s access to formal credit offered by a Credit Union (CU) acting as the credit cooperative in Banyuwangi District, East Java. The study was conducted in 2020 in Banyuwangi District. Primary and secondary data collected were analyzed using a descriptive approach. Each debtor has to become a member of CU prior to borrowing credit with some requirements, e.g. paying principle and regular contributions, sufficient saving value as collateral, and willingness to pay an interest rate determined for a certain period depending on credit types. Types of business financed by CU are farm business, fresh fruit marketing, cow fattening, groceries, among others. Most of the rural businesses financed by CU were able to pay the credit on time. Each business feasibility was assessed carefully by the CU management prior to credit approval and responded quickly. CU members also get the advantage through receiving shared-profit distributed annually. The CU copes with limited capital as the members’ demand for credit increases. The CU also has to compete with the relatively lower interest rate of the official subsidized credit, i.e. KUR (People’s Business Credit), for its credit expansion. The government needs to encourage CU to grow in rural areas for rural people’s credit access through policy facilitation.

The system of objective economic laws in the realities of systematic-subjective economic lawlessness

The article reveals the differences of systemic action of the laws of the social form of material world from the action of the laws determining the motion of the four natural forms of matter. The author shows the difference between the consequences of violating natural and social laws. The meaningful understanding of the category "economic law" is deepened and the general list of the system of objective economic laws is specified. The author structurizes the main classification groups of laws, which are united based on the most typical features. According to the criteria of system weight, as well as essential content and spatio-temporal coordinates of the regulatory action, four block-type groups of laws are distinguished. The author singles out differentiated subgroups of laws, which are united by six system-specific features. The article shows the destructive nature of "scientific" dogmas of financial-and-debt "liberal-monetarism". Revealed the encouraging motivation that determines the dominant behavior of the current global monopoly capital, which is aimed at destroying the systemic action of the mechanisms of the laws of market economy. In particular, the author shows the ways of destruction of the mechanism of action of the law of value and laws of money circulation which provide the equivalent character of commodity production and exchange. Displayed specific manifestations of systemic and subjective lawlessness prevailing in the system of monetary and financial-debt relations at the global and national-state levels. The author assesses the consequences of financial and credit expansion for countries with different development levels in the capitalist mode of production leading to suffocation of national economies by the international monopolies by forming an unbearable burden of servicing foreign borrowings and withdrawal of invaluable land and other natural resources into private ownership of global corporate-monopolistic creditors.

Digital platformization of strategic management of Ukrainian economy

The aim of the study is to substantiate the role and capabilities of the national digital strategy platform in the institutionalization of the strategic management process in Ukraine. The organizational and structural logic of the study is based on the ascent from the abstract (digital economy as an uncontested target image of the future and strategic management as a universal tool for organizing economic activity) to the concrete (the state of digitalization and strategic management in Ukraine), as well as on the dialectical triad (thesis, antithesis, synthesis). As a thesis, a positive analysis is given and the historical conditionality (determinism) of the digitalization of the economy is substantiated. It shows its local efficiency at the entrepreneurial level, as well as the fundamental role of goal-setting and strategizing from the standpoint of economic theory. At the stage of antithesis, a number of contradictions were revealed: (1) between the historically conditioned nature of digital platformization within the framework of economic laws and the modern basis of digitalization in the form of credit expansion; (2) between the effectiveness of digitalization at the micro level and the absence of its positive impact on social and economic development at the national level; (3) between the weak, but growing, platform economy of Ukraine and the dominance of vertical integration of national business in traditional spheres, which lead to the existence of orders of limited access and extractive institutions; (4) between the digitalization of the “public sector”, on the one hand, and the business and consumer (household) sectors, on the other; (5) between a theoretically grounded model of the strategizing process and its current position in Ukraine; (6) between a higher level of digitalization of the control object and the predominantly pre-digital level of the control subject. At the stage of synthesis, the potential of partial removal of these contradictions by improving the process of strategizing the development of the Ukrainian economy and its institutionalization using the national digital platform of strategizing is justified. The requirements for the architecture of the national digital strategy platform are substantiated, its blocks, key users and their roles are determined.

Financial depth in the context of the relationship with economic growth

The generalization of quantitative and qualitative scientific approaches to the essence of financial depth enables to define it as a resulting characteristic that demonstrates the saturation of the economy with financial resources, that allows assessing the ability of the financial system to effectively mobilize and redistribute financial resources to achieve sustainable economic development. The retrospective analysis of empirical hypotheses linking the financial depth of the economy and economic growth suggests that while some scholars focus on the importance of financial depth in economic development, others emphasize the effects of financial crises caused by rapid financial deepening, in particular credit expansion. The focus of contemporary research is on the nonlinearity of the relationship between financial depth and long-term economic growth and on defining the limit of financial development, exceeding which inhibits economic growth or negatively impacts it. Among the positives of financial deepening is the expansion of access to financial resources (increase in the volume and diversification of financial instruments), reduction of income inequality and smoothing of consumption, diversification of production risks. Among the risks of financial deepening is the deterioration of the current account due to excessive lending, unproductive investment, growth in employment in non-productive sectors, limitation of the use of fiscal policy as an instrument of countercyclical policy. It is noted that formation of the financial depth of the economy depends on the characteristics of financial resources and as well in structural, macroeconomic, political and institutional factors of economic development. While the world tends to increase the ratio of financial assets, broad money, domestic credit provided by financial institutions, the capitalization of listed companies to GDP, in Ukraine since 2014 there has been a significant decrease in these indicators, which is not typical in comparison with countries with the same level of income and demonstrates the low level of financial depth of the domestic economy.

Comparison of factors influencing liquidity of European Islamic and conventional banks

Research background: The innovation in Shar??ah-compliant banking products has resulted in the rapidly increasing size of assets in Islamic banks worldwide. The assets of such banks have been growing twice as fast as those of conventional banks. Islamic banks do not depend on conventional interest, speculation, or complex derivatives stemming from banking operations. Instead, their actions in respect of profit/risk sharing, and the clarity of the contract are consistent with Islamic Shar??ah principles, which seek to promote a more equal society. Purpose of the article: This research aims to identify and compare factors influencing the liquidity of Islamic and conventional banks in Europe. Candidate factors are sought amongst profitability, credit quality, credit expansion and capital adequacy indicators. Methodology: First, relevant financial ratios for 249 observations on Islamic banks and 2,306 observations on conventional banks are selected and compared for the period 2013?2017. Second, liquidity is explained separately for each type of banks by panel data regression to identify its determinants in a comparative context. Findings & value added: The results indicate that the impact of the net interest margin on the liquidity ratio of Islamic banks is insignificant, which is obviously due to the prohibition of the use of interest (riba). To the contrary, in conventional banking a higher net interest margin results in a reduction in liquidity. Capital adequacy has a positive influence upon liquidity in both types of banks, but in Islamic banking, the influence is 5.4 times greater. The findings strongly suggest that the liquidity of Islamic and conventional banks is affected by different factors.