Merton-type default risk and financial performance: the dynamic panel moderation of firm size

PurposeThe main purpose of this study is to evaluate the probability of default and examine the relationship between default risk and financial performance, with dynamic panel moderation of firm size.Design/methodology/approachThis study utilizes a total of 1,500 firm-year observations from 2013 to 2018 using dynamic panel data approach of generalized method of moments to test the relationship between default risk and financial performance with the moderation effect of the firm size.FindingsThis study establishes the findings that default risk significantly impacts the financial performance. The relationship between distance-to-default (DD) and financial performance is positive, which means the relationship of the independent and dependent variable is inverse. Moreover, this study finds that the firm size is a significant positive moderator between DD and financial performance.Practical implicationsThis study provides new and useful insight into the literature on the relationship between default risk and financial performance. The results of this study provide investors and businesses related to nonfinancial firms in the Pakistan Stock Exchange (PSX) with significant default risk's impact on performance. This study finds, on average, the default probability in KSE ALL indexed companies is 6.12%.Originality/valueThe evidence of the default risk and financial performance on samples of nonfinancial firms has been minimal; mainly, it has been limited to the banking sector. Moreover, the existing studies have only catered the direct effect of only. This study fills that gap and evaluates this relationship in nonfinancial firms. This study also helps in the evaluation of Merton model's performance in the nonfinancial firms.

CLIENT COMPANIES’ PERCEPTION TOWARDS CREDIT RISK OF PRIVATE SECTOR BANKS WITH REFERENCE TO ICICI, HDFC, AXIS BANK, IDBI, AND YES BANK

The banking sector at present is facing many issues; one among them is credit risk. Credit risk is termed as an estimate or forecast of the default of a borrower failing to recover his interest amount or borrowed amount. Currently, the banker or the lender is at risk of recovering the interest amount and principal amount, increasing their recovery costs. The present study makes an attempt to know the awareness of customers towards credit risk of private sector banks. The research objective is to analyze the significant association between client company’s perceptions with a view to credit risk. The study explains the major variation between client company’s perspectives towards Indian private sector. The study explains about the impact of credit risk on banks profitability. The present study helps banks to prevail over the problem of credit risk. The study analysis the objectives of research, hypothesis formulated, research methodology, findings and conclusions are discussed. The secondary sources for the study are through the websites of banks, Journals and client company’s websites. Primary data has been gathered from 285 client companies using convenience random sampling technique from private sector banks.

Digitalization of the Japanese Economy by the Example of the Banking Sector: Current Results, Prospects and Problems

Purpose: the purpose of this study is to examine the current state of Japan's digital transformation, with a focus on the banking sector, analyzing specifc examples, identifying obstacles that hinder the achievement of expected results.Methods: the article is based on the analysis of scientifc and analytical materials devoted to the problem of research, a set of general scientific methods is applied, including comparison, scientifc generalization, analogy, etc.Results: the article presents the main trends and current results of digitalization of Japanese banks, provides examples of projects, identifies problematic areas of the implemented policy. A hypothesis is put forward about the key role of the government in the development of new standards for the organization of work, taking into account the use of innovative technologies. For Japan, digitalization is chosen as a key tool to mitigate the current socio-economic situation. Digitalization is already being implemented in the healthcare sector, agriculture, etc. Another sector at the center of digitalization is the fnancial one. Financial technologies form new markets and products. Non-banking companies penetrate into the areas occupied by classical banks, competing and even displacing them.These processes are observed both in Japan and in other countries of the world, including Russia. Therefore, studying the Japanese experience of integrating digital technologies into the fnancial sector is important. Although Russia is among the leaders in the digitalization of the financial sector, it is difcult for fntech companies to break into the Russian market due to pressure from large classical banks, as well as the lack of trust in fntech companies from the population.Conclusions and Relevance: in contrast to the manufacturing sector, digitalization of non-manufacturing areas is slower in Japan. This is due to a shortage of qualifed personnel, fnancial risks, etc. Today, the priority for fnancial institutions remains to create the basis for the introduction of digitalization and improve management efciency. From the point of view of ensuring the stability of the fnancial system, it is expected that the Bank of Japan, together with the government, will encourage initiatives in the feld of fnancial development.

Financial performance of commercial banks in the emerging markets

In the economic growth of a country, the banking sector plays a significant role (Alam, Rabbani, Tausif, & Abey, 2021). The overall objective of the study is to investigate the financial performance of commercial banks in emerging markets. The study tried to see the impact of governance, exchange rate volatility, trade openness, and internet access on the financial performance of commercial banks in Ethiopia during the years from 2014 to 2019. The study employed a random-effects model using balanced panel data. The result indicated that composite governance index, trade openness, and internet access have a positive and statistically significant effect on the financial performance of commercial banks as measured by their return on assets. However, the exchange rate volatility has a negative and statistically significant effect on the financial performance of commercial banks. On the other hand, the result of bank-specific variables considered in the study such as profit margin, asset utilization, net interest margin, overhead efficiency, and numbers of branches have a positive and statistically significant effect on the financial performance of commercial banks. Contrarily, the equity multiplier ratio has a negative and significant effect on the financial performance of commercial banks

Country-level sustainability and cross-border banking flows

Purpose This paper aims to investigate the association between country-level sustainability scores and cross-border bank-to-non-bank flows within countries. Design/methodology/approach The authors analyze cross-border banking flows into the real sector firms of 26 developed countries from 2006 to 2017. The authors use a dynamic panel ordinary least square along with an instrumental variable and a generalized method of moments regressions to test the relationship between country-level sustainability scores and cross-border banking flows. Additionally, the authors apply Fama-MacBeth cross-sectional regression and non-parametric portfolio tests to obtain robust results. Findings The impact of country-level sustainability scores on cross-border banking flows is positive and significant. This finding is consistent with the signaling theory, which states that a country’s sustainability score is a signal to attract more international fund flows. Notably, the authors deduce that environmental sustainability is more important than the social and governance pillars. Practical implications The findings indicate that the real sector firms located in countries having higher sustainability scores can receive more international bank flows. Consequently, policymakers should focus more on country-level sustainability investments to improve the financing of resident firms. Social implications Policymakers should focus more on country-level sustainability investments to improve the financing of resident firms. Originality/value To the best of the authors’ knowledge, no existing study has investigated the signaling function of country-level sustainability scores in the cross-border banking flow conjecture. By investigating this relationship for real sector firms, this study portrays how the non-banking sector can benefit from such a policy that promotes sustainable practices at the country level.