Abstract

The application of big data technology to global tax management is becoming increasingly widespread. China has been implementing increasingly mature technologies for tax governance using big data systems in recent years. By collecting data through web scraping on the earliest implementation times of big data tax administration in various provinces of China, we explore the relationship between big data tax administration and corporate bank credit in emerging markets. Our results show that big data tax administration enhances firms’ ability to obtain bank loans. Mechanism tests indicate that big data tax administration improves the quality of corporate information disclosure, facilitating access to bank credit loans. We find that big data tax administration improves the corporate financing environment, enhancing the efficiency of resource allocation in the credit market.

Introduction

The digital economy has expanded rapidly around the world. Driven by continuous upgrades in Internet functionality and the widespread application of big data, significant changes are occurring in governments, corporate business models and in people’s daily lives (Chen and Srinivasan, 2024). Taxation departments provide a good example of such changes, as big data technology is expanding the traditional auditing model. “Big data tax administration” combines big data with tax auditing; it involves acquiring big data from Internet platforms and integrating and comparing multiple sources of data (Bassey et al., 2022). Its implementation, which has become a new trend in national tax governance, reflects the modernization of national governance capabilities and systems within the tax system and significantly enhances the efficiency of governments’ tax collection (Canares, 2016). A key question is whether, looking beyond strict tax enforcement, modernized tax governance can guide firms to improve the quality of their information disclosure, thereby enhancing the efficiency of resource allocation in capital markets? Examining this question yields insights relevant to governments worldwide who are implementing governance based on big data technology.

Bank loans are an important financial resource and whether they are allocated in a timely and appropriate manner is an important issue from both theoretical and practical perspectives. An extensive body of research discusses the various factors that influence firm credit, including corporate characteristics and the policy environment. However, few studies explore whether innovations and modernizations within the tax governance system can improve the financing environment for firms. Studying the effects and mechanisms of big data tax administration on corporate bank credit enhances the understanding of the social effects of modernized governance and provides empirical evidence for the motivational impact of “tax administration with data” on firms.

Conclusions and implications

The widespread adoption and application of the Internet and big data have reduced the cost of information flow, and the multi-party storage and sharing of big data has gradually become a new form of social capital. The use of big data by tax authorities not only improves the capabilities and efficiency of tax collection but also promotes the rational allocation of financial capital at the national level and facilitates enterprise financing. We investigate the effects of big data tax administration on corporate credit and find that implementing big data tax administration (1) has a positive impact on corporate bank credit; (2) improves the quality of corporate information, thereby promoting corporate credit and (3) has a more pronounced effect on enterprises with stronger (vs. weaker) financial constraints. The conclusions of our study are beneficial because they enhance academic understanding of the economic consequences of big data tax administration, and also have practical significance for tax authorities actively seeking external forces to improve tax collection procedures. Based on our theoretical and empirical analyses, we put forward the following policy recommendations.

First, the government should enhance cooperation between tax authorities and third-party online platforms, synchronously strengthening tax administration under the “delegation, management and service” framework. We show that by enhancing information collecting capabilities, big data tax administration improves the quality of corporate information disclosure, thereby optimizing corporate financing efficiency. In the context of the digital transformation of enterprises and the increasing application of big data in society, tax inspection departments should make full use of the data at the societal level, engaging in cooperation with online platforms and online assessment agencies. By utilizing the correlation between multi-party data and the data provided by enterprises, tax inspection departments can strengthen their verification of corporate information. This will help eliminate the corporate practices of inflating projects and manipulating information disclosure, and encourage and guide firms to improve their information quality.

Abstract

We examine the correlation between bank loan approval standards and accounting conservatism. Using the bank loan approval index in the People’s Bank of China as measure of loan standard, we show that accounting conservatism improves when bank loan approval standards are tightened. We then conduct further tests to address the endogeneity and robustness, yielding highly consistent results. Finally, both ownership and the banking connection significantly moderate the relationship between bank loan approval standards and accounting conservatism. Our findings provide policy implications on controlling loan approval standards, which may effectively reduce credit risks and promote accounting conservatism.

Introduction

Credit risk uncertainty for banks has increased since the global financial crisis in 2008 and the 2019 outbreak of the Coronavirus disease 2019 (COVID-19) pandemic. This heightened credit risk uncertainty has led commercial banks to focus more on loan issuance, increasing difficulties for enterprises to secure financing (Goodell, 2020). From the perspective of commercial banks, enterprise solvency is a crucial factor in determining whether to lend, reflected in the disclosure of accounting information. Accounting conservatism, an important indicator of accounting information quality, is often considered to reduce credit risks for commercial banks when approving loans. From the perspective of enterprises, bank loan approval standards indicate the availability of loans and determine the loan interest rate and amount, which directly affect the financing costs of enterprises. Therefore, exploring the influence of bank loan approval standards on enterprises’ accounting conservatism can reduce information asymmetry between commercial banks and enterprises, decrease credit risk for commercial banks, and help high-quality enterprises obtain more credit support.

This study examines the relationship between bank loan approval standards and corporate accounting conservatism to fill the research gap. Previous studies mainly examine the measurement method of accounting conservatism (Basu, 1997), the causes (Watts, 2003), the determinant factors (Shaw et al., 2021), and the economic consequences (Bonetti et al., 2017). Among them, the earnings-stock return measurement method proposed by Basu (1997) is the most widely used, and its measurement results are more accurate than other measurement methods. Other scholars have also adopted the accrual and NI models based on the accrual basis proposed by Ball and Shivakumar (2005). Watts (2003) found that most extant studies focus on contractual relationships, shareholder litigation, accounting control, and government tax, among which debt contract is the most concentrated research.

Conclusions

This paper presents an empirical analysis of the impact of bank loan approval standards on firms’ accounting conservatism. The research findings reveal the following insights.

1. Bank loan approval standards can affect firms’ accounting conservatism, and these two variables have a significant negative correlation. As bank loan approval standards increase in stringency, commercial banks exhibit a declining willingness to lend, consequently reducing the success rate of enterprise loan approvals. To obtain the required loans, enterprises must enhance the quality of accounting information and improve accounting conservatism.

2. State-owned enterprises demonstrate a higher level of accounting conservatism. State-owned enterprises possess unique characteristics and relatively strong creditworthiness, resulting in lower credit risks for banks than non-state-owned enterprises. Given their social responsibilities, capital requirements, and the desire to maintain favorable access to bank loans, state-owned enterprises proactively adopt more robust financial reporting methods to ensure higher-quality accounting information.

3. The background of senior executives in the banking sector can influence the integrity of corporate accounting practices to a certain extent. When corporate executives possess banking experience, their inclination toward accounting conservatism tends to be weaker than executives from other industries. Executives with banking experience foster higher trust between banks and enterprises, leading to relaxed lending requirements and expanded loan availability. As a result, accounting conservatism decreases in these circumstances.

Abstract

     The objective of this study is to examine the role of CEO duality in audit quality of Chinese firms. To address the effect of CEO duality, this study considered four characteristics of CEO duality; corporate audit culture, audit committee independence, decision making through enormous power and single leadership. The indirect effect of audit committee decision is considered between CEO duality and audit quality. A questionnaire survey is carried out to collect primary data. A questionnaire was designed to collect data from Chinese firms. Respondents of the study were the CEO’s and directors of Chinese firms; therefore, questionnaires were distributed among them by using online survey. 135 valid questionnaires were used in data analyses which is carried out by using Partial Least Square (PLS)-Structural Equation Modeling (SEM). Results of the study highlighted that; CEO duality has both positive and negative effect on audit quality. Due to the single leadership style and supportive corporate audit culture, the audit quality may be improved. However, CEO duality influences negatively on audit committee independence which has negative effect on audit committee decisions. Similarly, CEO duality allows to enjoy enormous power which may affect negatively on the decision making. Thus, decision-making through enormous power has negative effect on audit committee decisions. Finally, while making the strategies to enhance audit quality, the practitioners can consider the important points highlighted by the current study to promote audit quality.

Introduction

     CEO duality is a phenomenon where the chief executive officer (CEO) of a company occupies the chair of the company’s board of directors, along with his/her regular management position (Oak & Iyengar, 2009; Voinea et al., 2022). This phenomenon is considered by the several previous studies. Several studies have examined the CEO duality among the business organizations through several aspects (Azhari et al., 2020; Voinea et al., 2022). Therefore, CEO duality remained the intention of the researchers as well as practitioners. The advantages and disadvantages are comprehensively discussed by the previous studies among different business organizations (Ramdani & Witteloostuijn, 2010). However, the phenomenon of CEO duality is still under discussion and its role among the organizations is not clear (Aghmiuni et al., 2020). The role of CEO duality among the companies is still unclear in the performance of organizations. Few studies show the positive effects of CEO duality, on the other hand, few studies highlighted the negative effects of CEO duality. Therefore, CEO duality is still a problematic area for the management of business organizations as well as academicians. In this way, the current study examined the role of CEO duality among Chinese firms. Particularly, this study is attempted to observe the role of CEO duality in audit quality among Chinese firms (Dhiman & Arora, 2020).

Discussion and conclusion

     The objective of this study was to observe the role of CEO duality in audit quality among the Chinese firms. Therefore, the current study carried out a survey among the Chinese firms and data analysis is carried out by using statistical tool. To achieve the study objective, the current study proposed various direct effects and indirect effect hypotheses. In this way, this study proposed 9 direct hypotheses and four indirect hypotheses based on audit committee decision. The results of the study fulfilled the objective of the present study and clearly highlights the effect of CEO duality on audit quality among Chinese firms.

     The direct hypothesis 1 is considered between corporate audit culture and audit committee decision. This hypothesis shows the positive effect of corporate audit culture on audit committee decision. It indicates that if the CEO duality exist among the Chinese companies, it can promote corporate audit culture which can enhance the audit committee decisions. Therefore, in this way the audit quality has significant positive role in audit practices. However, the effect of corporate audit culture on audit quality is not significant. There is no effect of corporate audit culture on audit quality. In this way, the audit quality is influenced by indirect way from corporate audit culture, however, the corporate audit culture has not direct effect on audit committee decision. The effect of corporate audit culture on audit quality is considered in hypothesis 2. The hypothesis 3 highlighted the connection between audit committee independence and audit committee decision. Outcomes of this study highlighted that audit committee independence has positive effect on audit committee decision. It indicates that CEO duality in form of audit committee independence has effect on audit committee decisions. However, this relationship is not positive which indicates that audit committee independence has negative effect on audit committee decisions. All the previous studies have highlighted that audit committee independence has positive effect on audit practices (Alderman & Jollineau, 2020; Cohen et al., 2008; Toumeh et al., 2020), however, results are not consistent with previous studies. In relation to the CEO duality,

Abstract

     Our investigation of 46 conventional and 22 Islamic banks from the Gulf Cooperation Council (GCC) countries during 2008–2021 reveals that sectoral diversification effects on stability are nonlinear and different for the two bank types. While Islamic banks’ stability is worsened only by moderate levels of diversification, conventional banks’ stability is enhanced by high levels and impaired by low levels of diversification. Furthermore, diversification acted as a stabilizer during the global financial crisis but exacerbated the adverse effects of the Covid-19 pandemic. Although regulators usually call for bank diversification, our results imply that it can be a double-edged sword.

Introduction

     Due to dependence on oil and gas revenue and their price plunge caused by the Global Financial Crisis (GFC) in 2008, the governments of the Gulf Cooperation Council (GCC) countries started introducing various policies aiming at developing diversified real and financial sectors.1 While oil and gas production still represents over 40% of the GDP in GCC countries, with the exception of Bahrain and UAE, (Esam, 2021) shows that there has been significant diversification away from hydrocarbon revenue since 2010 in all GCC countries, particularly in Saudi Arabia, UAE and Bahrain. Given the low development of capital markets and non-bank financial institutions in these countries, banks play a pivotal role in assisting the execution of these national diversification policies by providing financing to support investments in the existing and ‘new’ sectors. The proponents of diversification in banking would see this as an opportunity for banks to spread their loans and financing2 across different sectors and thus reduce bank default, liquidity, and bankruptcy risks (Diamond, 1984; Demsetz and Strahan, 1997; Rose and Hudgins, 2006), vulnerability to economic downturns and financial crises (Tabak et al., 2011; Doumpos et al., 2016), and become safer and more stable (Saunders and Walter, 2012). On the contrary, the opponents of diversification would argue that banks are better off by focusing on a single sector or a few sectors as that allows them to leverage their screening and monitoring knowledge and expertise in these sectors and thus reduce the unnecessary complexity, agency problems, overhead expenses (Klein and Saidenberg, 2010), earnings volatility (DeYoung and Roland, 2001), and write-downs and write-offs (Jahn et al., 2013) that usually come with diversification.

Discussion and conclusion

     Against the backdrop of the GCC countries’ ongoing economic diversification policies and banks being the primary financiers of the projects brought about by these policies, we investigate (i) if and how diversification of loans and financing across economic sectors impacts the stability of GCC banks, (ii) if the effects are the same on conventional and Islamic banks, and (iii) if diversification helps banks navigate smoothly through economic downturns such as the 2008 global financial crisis and the ongoing Covid-19 pandemic.

     anks navigate smoothly through economic downturns such as the 2008 global financial crisis and the ongoing Covid-19 pandemic. Analyzing a unique panel dataset of 46 conventional and 22 Islamic banks, we find that there is no one-strategy-fits-all even within these seemingly similar countries. Diversification effects on bank stability are nonlinear and different for Islamic and conventional banks. While Islamic banks’ stability worsens at moderate levels of diversification, conventional banks’ stability thrives at high levels and erodes at low levels of diversification. Given that the diversification measure is an inverse measure of concentration, this means that a high concentration of loans on one or a few economic sectors also benefits conventional banks. Lastly, we observe a temporal dimension of our results which suggests that diversification supported bank stability against the destabilizing effects of the global financial crisis but amplified the adverse effects of the Covid-19 pandemic.

Highlights

Abstract

Keywords

1. Introduction

2. Background

3. Research methods

4. Findings

5. Discussions

6. Conclusion

Declaration of competing interest

References

Abstract

During the last years, the impacts caused by digital transformation on companies have been disruptive. Contrarily to prior technological revolutions, the current scenario is characterized by the rapid growth of innovation that has impacted organizations differently. In particular, an increasing number of organizations revised their management control systems to adequate their business models to the external pressures made by competitors and regulators. The research aims consist of a bibliometric analysis about the impacts caused by digital transformation on managerial auditing. The research reveals the existence of four independent research area: continuous auditing (Green Cluster), fraud detection (Blue Cluster), data analytics (Yellow Cluster) and technological innovation (Red Cluster). Finally, we developed a research agenda in order to address future research.

1 Introduction

In this paper, we investigate the incidence of borrower discouragement in innovative small- and medium-sized enterprises (SMEs). Innovative start-ups and SMEs are crucial for job creation, innovation and productivity growth (Hall & Lerner, 2010). A crucial issue facing many innovative SMEs is their ability to access external fnance, an issue made even more salient in the wake of the global fnancial crisis (Lee et al., 2015; Lee & Brown, 2017). Consequently, how SMEs are fnanced is a central policy issue given that access to appropriate levels of funding has signifcant implications for frm growth, performance and long-term survival.

Despite growth in alternative forms of fnance such as venture capital, business angel investment and equity crowdfunding in recent years, bank debt continues to represent the primary source of external fnancing for the vast majority of SMEs (Lee & Brown, 2017; Robb & Robinson, 2014). Extant research suggests there are signifcant structural impediments, in the form of informational asymmetries, asset intangibility and skewed returns, which face innovative SMEs seeking bank funding (Berger & Udell, 1998; Cassar, 2004). Limited collateral and unstable cash fows further exacerbate access to external bank fnance for innovative SMEs (Hall & Lerner, 2010; Lee et al., 2015). Indeed, negative expectations regarding the likelihood of obtaining external fnance can be so acute that some SMEs become discouraged from applying altogether (Cowling et al., 2016).1

We model the behaviour of a mortgagor considering to evade the real estate transfer tax. We build an observable measure of over-appraisal that is inversely related to tax evasion and conclude that the tax authority could focus auditing efforts on low-appraisal transactions. Our empirical analysis confirms the predictions using a unique database for Spain, where we directly observe: real payment, value declared to the authority and appraisal. We also argue that individual characteristics (e.g. education of the buyer) and local characteristics (e.g. local levels of corruption and trust) explain part of the observed heterogeneity in evasion. The theoretical model is augmented with guilt and stigma to be consistent with the observed heterogeneity.

Introduction

Transfer taxes (i.e. taxes on real property transactions) are common in most OECD countries and yet they remain understudied (Best and Kleven 2018). More generally, the empirical literature on tax evasion has been facing the challenge of obtaining reliable data.1 Difficulty understanding and observing fraud has obvious consequences on the effectiveness of audits performed by tax authorities. Our paper aims to help fill these gaps by focusing on home buyers’ strategic behaviour, whereby we test our prediction and provide some policy recommendations. To this end, we present a model where a mortgagor decides their housing expenditure, together with the share of the latter they declare to the tax authority. By under-declaring to the tax authority, buyers can reduce their expected tax burden. However, when they are short on assets, they may also have an interest in inflating the declared appraisal of the house, in order to facilitate obtaining a mortgage. The model exploits the tension between obtaining a larger mortgage and paying fewer taxes and it uncovers the relationship between tax evasion, access to cash (or other untraceable payment systems) and housing declared over-appraisal (that is, the ratio between declared appraisal and declared transaction).2 In particular, when agents are liquidity-constrained, potential mortgagors and financial institutions have an incentive to collude and inflate the appraisal that is declared. Typically, those same potential mortgagors are unlikely to fraud.3 Our result has an interesting policy implication: declared over-appraisal is observable, hence the tax authority could use it as a screening device to determine which transactions to audit.

1- Introduction

2- KART countries: natural resource abundance and the World Bank Lending

3- Literature review

4- Model specification

5- Data and methodology

6- Results and discussion

7- Conclusion

References

Abstract

This study investigates the roles of the World Bank lending and abundance of natural resources in fostering the financial development of Kazakhstan, Azerbaijan, Russia, and Turkmenistan during the period from 1992 to 2017. Empirical findings confirm co-integration between the variables being investigated. The results of the dynamic ordinary least squares test indicate that in the long-run the World Bank lending and an abundance of natural resources positively affects financial development. We also confirm that excessive borrowing from the World Bank and faulty management of loans and credits from the bank negatively affect financial development. Empirical findings show that institutional quality has an impact on how effectively natural resources are managed. We discuss the policy implications of our study in detail in the conclusion section.

Introduction

Financial development constitutes an integral part of the World Bank’s strategy to contribute towards the long-term economic growth and poverty reduction in developing countries. The World Bank’s loans/ credits are one of the most essential instruments towards realizing this strategy (Bayer, 2004). These loans/credits1 to the member states are directed mainly towards improving financial and private sector, public sector governance, rural and human development (e.g., World Bank, 2016; World Bank, 2017). Some of the World Bank member states are natural resource abundant countries (e.g., Nigeria, Mongolia, Kazakhstan, Azerbaijan, Russia, Turkmenistan) borrowing towards enhancing the natural resource management and environment, and improving resource mobilization (e.g., World Bank, 2016; World Bank, 2017). The concern is whether these loans/credits are managed efficiently. The natural resource abundant member states have weak macroeconomic developments and may endure rent-seeking activities resulting in diminishing not only economic growth (see e.g., Auty, 1994; Sachs and Warner, 1995; Gylfason et al., 1999; Ross, 2001; Torvik, 2002; Watts, 2004; Rustamov and Adaoglu, 2018), but also impacting negatively the financial development (Auty, 2001; Gylfason, 2001). This phenomenon is known as the resource curse hypothesis (Auty, 1993). Collier (2006) compares loans/credits to natural resources and considers both as “rents.” Hence, the same negative consequences arising from the abundance of natural resources because of rent-seeking activities can also be stemming from the borrowed loans/credits from multilateral institutions (Morrison, 2007; Svensson, 2000; Smith, 2008; Collier, 2006).

1- Introduction

2- Stylized facts

3- Theoretical framework

4- Empirical literature

5- Empirical strategy

6- Results

7- Conclusion

References

Abstract

Purpose – The sharp rise in non-performing loans (NPLs) with its associated effect on financial institutions in Ghana has become very alarming. This has led to the collapse of distressed institutions and associated repercussions such as loss of private savings, investments, businesses and livelihoods. The purpose of this paper is to test the hypothesis that the monetary policy rate can be used to influence NPLs in Ghana.
Design/methodology/approach – Using quarterly data spanning from 2000 to 2016, the authors used the autoregressive distributed lag econometric approach to estimate the effect of monetary policy on the percentage growth of NPLs in Ghana. The results are presented for both short-run and long-run periods.
Findings – In the short run, the authors find evidence of no statistically significant effect of monetary policy on the percentage growth of NPLs. However, in the long run, the authors find a statistically significant effect of monetary policy on the percentage growth of NPLs.
Practical implications – The authors recommend that policymakers should focus on building a strong financial environment, so that monetary policy can be used to influence the commercial bank’s interest rate. In effect, this will help reduce the growth of NPLs, reduce risk and attract competitors into the financial market, increase asset base, increase credit to support viable ventures and subsequently boost economic growth in Ghana.
Originality/value – The paper shows its value by using quarterly data whereas most literature have considered annual data. Also, the paper includes a policy variable measured by the Monetary Policy Rate (MPR) as the key variable of interest which is normally not the case with most studies.

Introduction

In most developing countries, such as Ghana, a key problem that has beset the main sectors of the economy has been access to loanable funds. Many strategic financial institutions had been established to help ameliorate this problem by making loanable funds available to support both the private and the public sectors. However, with the rise in the rate of non-performing loans (NPLs), a sizeable number of these financial institutions became distressed. For banks, in the last quarter of 2017, this problem – the rise in the rate of NPLs – has contributed to the taking over of Capital and UT Banks by the Ghana Commercial Bank. More recently (i.e. first quarter of 2018) Unibank has been taken over by the Bank of Ghana and given to Klynveld Peat Marwick Goerdeler (KPMG) to manage. Again, in the second quarter of 2018, five banking institutions were collapsed and consolidated into one bank by the Central Bank of Ghana for various reasons. A major causal factor of these infringements was rising levels of NPLs. For microfinance or deposit/savings financial institutions, the Bank of Ghana since 2008 has moved to close a greater number of such distressing institutions (Belnye, 2012). Given the absence of deposit insurance in Ghana, the severity of the repercussions of such fold-ups on savings, businesses and livelihood cannot be overemphasized (Boateng et al., 2016).

This paper reviews studies that have examined how accounting information impacts commercial lending judgments. Issues discussed involve the usefulness of accounting data in lending decisions, effects of different accounting methods on lenders’ judgments, bankruptcy and default judgments, and decision processes pertaining to the use of accounting information in lending decisions. Additionally, the paper reviews the research on how audits and other forms of assurance influence commercial loan officers’ judgments. Topics include the way perceived auditor independence influences loan officers’ judgments, the impact of financial statement audits and audit opinions on lending decisions, how internal control reports and other CPA firm reports influence loan decisions, ways in which audit report disclosures and wording impact lending decisions, how perceived auditor quality affects lending decisions, and the effects of limited assurance engagements on loan officers’ judgments.

IMPACT OF ACCOUNTING INFORMATION ON LENDING

Usefulness of Accounting Data General Issues Some studies have addressed very general issues involving the usefulness of accounting data in lending decisions. These issues include reliability of accounting data, the use of generally accepted accounting principles (GAAP), aggregation of accounting data, and interactions of accounting data valence with borrowers’ character traits. Holder-Webb and Sharma (2010) show that lenders’ perceived reliability of financial reports is a factor in their lending decisions. As well, DeZoort, Holt, and Taylor (2012) demonstrate the financial reporting reliability is negatively related to lenders’ assessments of loan default risk. These results are hardly surprising. Interestingly, however, Holder-Webb and Sharma (2010) find that the perceived reliability of financial reports is not affected by the applicant’s corporate board strength or by its financial condition. Financial reporting reliability is generally viewed as being enhanced when financial reports adhere to established standards. Gopalakrishnan, and Parkash (1995) find that 90 percent of the lenders they surveyed indicated that lending agreements consistently refer to GAAP. Williams, Chen, and Tearney (1991) found that three of four GAAP accounting standards examined (accounting for leases, deferred taxes, and compensated absences) were significantly more relevant to bankers than their respective non-GAAP alternatives. In contrast, the accounting for interest on construction loans did not matter as to whether GAAP was followed. No studies have examined issues unique to International Financial Reporting Standards. Some studies have examined various characteristics of accounting information. AbdelKhalik (1973) examined the effects of aggregated versus disaggregated accounting information on lending decisions. Results showed that when the financial situation of the borrower is marginal, the disaggregation of its financial information provides lenders with better risk indicators, so more detailed financial reports are preferred. Addressing the valence of accounting information, Beaulieu (1994) found that when accounting facts are positive (i.e., supporting loan approval), the rate of loan approvals is affected by borrowers’ character traits, but when accounting facts are negative, loan approval rates are unaffected by character traits.

Introduction

In 2007 the Italian government passed new legislation, granting households the right to refinance their mortgage at no cost, regardless of the contractual prepayment fee that had been agreed upon at the time of mortgage origination. Other than prepayment fees, all other costs associated with mortgage refinancing (e.g., notary fees, registration fees, etc.) were also eliminated. This intervention has produced a break in the previously rigid Italian mortgage market, where the overall cost of refinancing was extremely high (from 5 to 8 percent of the principal). Consequently, fixed-rate mortgage (FRM) borrowers have experienced the opportunity to cash in a sizeable gain from the sharp interest rate drop which has since occurred. In this paper, we employ a large proprietary dataset of approximately 147 thousand FRMs issued by a primary Italian bank, and we estimate that the cross-section average refinancing gain for fixed-rate borrowers has reached 15 percent of the average principal balance. This figure corresponds to a €112 reduction of the monthly instalment and an annual saving slightly lower than the average monthly income in our sample (about €1.5k). Despite this important gain, we document that only a scant minority of FRM borrowers (about 13 percent) has taken advantage of this opportunity in the 8 and a half years following the introduction of the new legislation. Two main possible financial motivations may explain this sluggish behavior. First, the economic convenience of refinancing an FRM only arises if the new prevailing market conditions are more favorable than those at the loan’s inception. This gap depends on both the evolution of base interest rates and credit spreads, and the point in time at which the mortgage originated. For approximately one-tenth of households in our sample this difference is on average negative. Second, since both the subprime and the European sovereign debt crises fall in our investigation period, we capture the effects of the credit crunch, when banks generally tightened credit supply. A stricter lending policy might have excluded some borrowers who would otherwise have been willing to capture the gain offered by the new law.

I- INTRODUCTION

II- THE ANALYTICAL FRAMEWORK

III- MACROECONOMIC EQUILIBRIUM

IV- COMPARATIVE STATICS

V- CONCLUDING REMARKS

REFERENCES

ABSTRACT

This paper endogenizes the debt-equity ratio and embodies financial leverage in a cash-in-advance model of endogenous growth. Our analysis finds that the debt-equity ratio is positively related to the balanced-growth rate, since it serves as a ‘financial accelerator’ to stimulate investment projects. Compared to previous studies, this positive relationship gives rise to an additional balancesheet effect, which substantially affects the macroeconomic consequences of monetary and taxation policies. Due to the existence of the balance-sheet effect, we also find that the Friedman rule is not necessarily optimal.

INTRODUCTION

What is the role played by firms’ capital (financial) structures in economic growth? This is an old, but important, question. Modigliani and Miller (1958) propose that the average cost of capital for any firm only reflects the capitalization rate of a pure equity stream of its class and that the capital structure does not matter to the firm’s market value. This implies that capital accumulation is completely independent of firms’ capital structures and financial policies are separated from firms’ investment decisions. Due to the ‘irrelevance of the capital structure’, the early literature on macroeconomics and monetary economics has mostly overlooked the related issue and conducted the growth analysis by simply taking the firms’ capital structure as exogenously given (e.g., Lucas, 1967; Tobin, 1969; Sidrauski, 1967; Lucas, 1980; Kimbrough, 1986;Wang and Yip, 1992; Gomme, 1993; and Mino, 1997).While ‘finance is a veil’ has become widely accepted in the macroeconomics literature, it has not been supported by empirical studies.

Literature Review and Hypothesis Development

Research Design

Sample Selection and Descriptive Statistics

Empirical Results

Conclusion

Reference

1- Introduction

2- Literature and hypotheses

3- Research design

4- Empirical results

5- Additional analyses

6- Conclusion and implications

References

Abstract

Using data for Chinese commercial banks from 2000 to 2014, this paper examines the effects of economic policy uncertainty (EPU) on banks’ credit risks and lending decisions. The results reveal significantly positive connections among EPU and non-performing loan ratios, loan concentrations and the normal loan migration rate. This indicates that EPU increases banks’ credit risks and negatively influences loan size, especially for joint-equity banks. Given the increasing credit risks generated by EPU, banks can improve operational performance by reducing loan sizes. Further research indicates that the effects of EPU on banks’ credit risks and lending decisions are moderated by the marketization level, with financial depth moderating the effect on banks’ credit risks and strengthening it on lending decisions.

Introduction

As an emerging and transforming economic power, China’s government plays an important role in business activities. To realize the goal of social governance, governments use economic policies (e.g., fiscal, monetary, industrial and administrative) to adjust and control the economic operation and behavioral patterns of market participants. Following the 2008 financial crisis, the Chinese government proposed and implemented a set of intensive policies to stimulate the economy and alleviate the pressure generated by the economic downturn. These policies efficiently addressed the economic decline, but they also objectively aroused tremendous economic policy uncertainty (hereinafter referred to as EPU). Fan and Xu (2015) survey 1041 CEOs in domestic and foreign enterprises operating in China, and find that 57% and 66% of CEOs in domestic and foreign enterprises, respectively, explicitly treat the condition that laws and regulations are ambiguous, changeful and selectively executed as their biggest concern. Facing a high level of EPU in China, market participants must dynamically rectify their operational strategies and actions. As important participants in the Chinese market, commercial banks possess the same essential attributes as general corporations, but one of their special functions is channeling the effects of governmental macroeconomic control. Specifically, given advancing marketization, commercial banks are becoming more similar to general enterprises, exhibiting more market-orientated behavioral modes and operating goals. Governments also intensively adjust deposit rates and reserve requirement ratios to indirectly achieve economic regulation and control. This suggests that commercial banks are a key loop in the transmission mechanism of official macroeconomic policies. The operating businesses of commercial banks are at enormous risk and inherently possess great influence. Given these characteristics, we assume that the effects of EPU on commercial banks are particularly complex. Therefore, there is an urgent need to investigate whether EPU affects commercial banks. In particular, it is important to uncover the mechanism by which EPU operates, and the solutions for mitigating its effect on commercial banks. To answer these issues, we pursue an understanding of commercial banks’ behavioral patterns in dealing with the shock generated by EPU within emerging economies.