Search Results (196)

Our study investigated the interaction of credit from suppliers (trade payables) and credit given to customers (trade receivables) in order to better understand how the reliance on credit from suppliers and credit given to customers interact with each other to affect firms’ performance. Using a sample of 26,731 firm-year observations from 28 European countries, we found new empirical evidence that both trade payables and trade receivables have a more positive effect on firm performance than would be the case if their individual effects were considered in isolation; thus, a complementarity may exist between the credit from suppliers and credit given to customers, affecting firms’ performance. Interestingly, our results showed greater sensitivity to certain firm-specific characteristics. In particular, the interaction effect of trade payables and trade receivables was stronger for young firms, firms with growth potential, and financially constrained firms. Further analysis also revealed that the interaction effect of trade payables and trade receivables was stronger for small- and medium-sized enterprises (SMEs), and firms in countries with French/German legal origins, or countries with more debt-reliant bank-based economies. Full article

How the maturity structure of corporate debt shapes firms’ capacity to withstand financial pressure remains understudied, particularly in bank-dependent emerging markets. This study examines whether greater reliance on short-term debt weakens firms’ ability to absorb financial shocks. Using quarterly panel data for non-financial listed firms on the Vietnamese stock market from 2015 to 2025, we construct an accounting-based measure of financial resilience (FR), defined as the ratio of earnings before interest, taxes, depreciation and amortization (EBITDA) to the sum of short-term debt and interest expense, and measure debt maturity structure (DMS) as the proportion of short-term debt in total interest-bearing debt. Firm fixed-effects models with quarterly time fixed effects and firm-clustered standard errors are used to estimate the relationship. The results consistently show that firms with a higher proportion of short-term interest-bearing debt exhibit significantly lower financial resilience across all model specifications. This negative relationship remains robust after controlling for alternative measures of financial leverage and using a logarithmic transformation of the dependent variable. The findings highlight the importance of debt maturity management as a key component of corporate financing strategy for firms and policymakers seeking to enhance financial resilience. Full article

Investors’ behavior in the auctions for government bonds is closely associated with the processing and valuing of information. This study explores investors’ behavior in relation to information in the context of the sovereign debt market in Armenia in August 2017 to December 2025. Armenia has a small financial market, which is relatively deep and involves only a small number of investors. This particular situation allows for testing the applicability of the rational inattention theory. While information in a small open economy can be abundant, it does not follow that information is valued in the same way. Investors in a small open economy focus their attention on monitoring some salient policy variables, including the central bank policy interest rate and headline inflation but ignore some more specific signals such as demand dynamics. We suggest that the spread between the cut-off yield and the weighted average yield in the auction can be used as a measure of information inattention. According to the rational inattention theory, investors allocate their attention strategically and focus on those signals that can be obtained easily and publicly. Therefore, our hypothesis is that the auction spread is consistent with partial information processing, whereby demand signals are underweighted relative to the policy rate. Indeed, the analysis suggests that the cut-off yield remains correlated with the policy rate, whereas the spread does not increase. This is consistent with the hypothesis that yield spreads reflect bounded rationality in attention allocation. During the periods of increased need for government borrowing, auctions become the key sources of signaling and thus need to be studied. Full article

With the broad application of machine learning (ML) and deep learning (DL) models in financial markets, it has become increasingly important to evaluate their performance compared with traditional methods, especially for credit risk scoring in financial services. This mechanism determines the probability of default (PD) for borrowers, in other words, how likely a client is to fail to repay their debt. With the rapid development and growing availability of ML/DL technologies, it is essential for banks, financial institutions, auditors and regulatory bodies to assess whether these approaches truly outperform traditional models in terms of accuracy, stability and interpretability or whether their complexity comes at a cost. A systematic review following PRISMA examined credit risk scoring models. From 520 initial articles, 117 were analyzed to compare ML/DL approaches with traditional methods. This review evaluates accuracy, stability and interpretability, offering guidance for model selection in real-world credit scoring. Logistic regression remains essential in regulated contexts requiring transparency, supporting informed decisions on balancing performance and explainability. Full article

Emerging economies face crucial challenges around fiscal stability, particularly servicing foreign debt and securing long-term financing arrangements. In this context, we investigated the relationship between the share of banking facilities allocated to various economic sectors, the growth of public revenues and the proportion of long-term loans relative to total foreign debt in Jordan. Using data from 2008: Q1 to 2022: Q4 and employing two regression models along with the Vector Error Correction model, key findings reveal that the share of banking facilities allocated to total financing positively impacts public income and reduces long-term liabilities (LRL). Additionally, the positive effect of direct credit from financial institutions on real GDP and public income is associated with a negative impact on LRL. Conversely, direct credit from financial corporations negatively influences real GDP and public income while positively affecting LRL. Direct credit from public sector financing exhibits an inverse relationship with economic growth and public income, leading to a positive association with LRL. The statistically significant error correction coefficients indicate that short-run deviations are corrected toward the long-run equilibrium, with the first model showing a faster but oscillatory adjustment process and the second model exhibiting a slower and more gradual return to equilibrium. These findings suggest that developing countries like Jordan must prioritize banking facilitation for sectors such as industry, tourism, and agriculture to facilitate debt repayment. Full article

This paper examines global equity market integration, commodity-price exposure, and volatility spillovers in Ghana’s frontier equity market. Using daily data from January 2011 to December 2025, we estimate a multi-factor asset pricing model nested within a GARCH framework for the Ghana Stock Exchange Composite Index (GSECI) and the Financial Sector Index (GSEFSI). The model jointly estimates first-moment return exposures and second-moment volatility spillovers from a global equity market and three key global commodity markets: gold, crude oil, and cocoa, while controlling for asymmetric volatility, return serial dependence, and domestic macro-financial shifts associated with banking sector recapitalization and the Domestic Debt Exchange Programme (DDEP). The Ghanaian equity market is exposed to the global equity market, indicating measurable but economically modest global integration, with stronger exposure in the financial sector. Commodity-price exposures are selective, with gold and crude oil exposures concentrated in the financial sector, whereas the cocoa factor is negatively associated with returns on both indices. The variance results show persistent volatility, inverse asymmetric volatility responses, and differentiated volatility spillovers from global equity and commodity markets. The DDEP period is associated with significant equity market repricing, particularly in the financial sector. These findings indicate that Ghana’s equity market dynamics are shaped jointly by global equity and commodity market information, frontier market frictions, and sovereign–bank conditions. Full article

Islamic banking is increasingly expected to align Sharia-based intermediation with sustainability objectives, yet empirical evidence remains limited on how sustainability disclosure links financing structures with bank performance. This study examines whether Islamic Sustainable Banking (ISB) functions as a mediating mechanism between profit-sharing financing, debt-based financing, and financial performance in Islamic banks in Indonesia and Malaysia. ISB is measured using an Islamic Sustainable Banking Disclosure Index that integrates Maqasid al-Shariah principles with SDG-oriented disclosure indicators. Using panel data from 23 Islamic banks over 2018–2023 and applying partial least squares structural equation modeling, mediation analysis, PLS-MGA, and permutation tests, the study finds that both profit-sharing and debt-based financing are negatively associated with ISB disclosure, while ISB is positively associated with net profit margin but not return on assets. The mediation results indicate statistically significant negative indirect associations through ISB, suggesting that sustainability disclosure operates as a conditional transmission mechanism rather than an automatic performance driver within the specified PLS-SEM model. Cross-country tests reveal significant differences between Indonesia and Malaysia, particularly in the associations between financing structures and profitability. The study contributes to Islamic sustainable finance by clarifying how Maqasid-oriented disclosure connects financing composition, governance capacity, and profitability, while offering practical implications for bank managers, regulators, and policymakers seeking to integrate sustainability into Islamic banking governance and financing decisions. Full article

The purpose of this paper is to investigate the firm-level determinants of the cost of debt in a bank-based emerging economy, where debt serves as the primary external financing mechanism, enabling firms to maintain operations, pursue growth opportunities, and ensure long-term financial sustainability. Using panel data from non-financial firms listed on the Casablanca Stock Exchange over the period 2018–2024, we document a robust nonlinear relationship between financial leverage and the cost of debt, whereby low and moderate debt levels reduce borrowing costs by signaling creditworthiness and financing capacity, while excessive indebtedness reverses this effect, with an optimal threshold estimated at approximately 34.8% of total assets. Firms with stronger growth prospects further benefit from more favorable financing conditions, as creditors interpret sustained asset expansion as a signal of financial strength and long-term viability. Financial performance is also found to reduce the cost of debt, although this effect is not fully robust to endogeneity controls. In contrast, asset tangibility, firm size, firm age, and liquidity do not emerge as significant determinants, suggesting that creditors in the Moroccan market adopt a financial health-oriented approach when assessing credit risk, placing greater emphasis on leverage and growth prospects than on collateral-based or reputational signals. Overall, the study highlights the coexistence of linear and nonlinear dynamics in debt pricing, thereby enriching the corporate finance literature and providing insights for managers and policymakers seeking to reduce borrowing costs, enhance access to debt financing, and support sustainable value creation. Full article

This paper studies the topic that has been rather less explored until now—the internal diversification of trading. Unlike looking at aggregate measures of financial development such as market capitalization and liquidity, the study focuses on trading diversification, defined as the portion of trading volume attributed to firms other than the ten most actively traded (VTX). The empirical analysis is based on the World Bank’s Global Financial Development database. It covers an unbalanced cross-country dataset of 2004–2021. Due to limited data availability, the resulting database became smaller and has an unbalanced panel structure. Four main independent variables in the core regression specification are related to financial structure (bank deposits) and financial integration (remittances, international public debt), as well as external measures of financial development (market capitalization, excluding firms within VTX). A broad range of control variables are introduced into the model to account for macroeconomic conditions, financial development, market size, liquidity, and participation. Lagged regressors are introduced to address persistence, delays, and potential endogeneity issues. The methodology relies on panel data econometrics, hierarchical clustering, and machine learning. The findings show that market structure and remittances positively affect trading diversification, whereas banks’ dominance and international public debt contribute to its concentration. The results persist across alternative specifications and robustness tests. The country-level analysis shows a core–periphery pattern, while machine learning demonstrates the critical importance of market structure. Full article

Prolonged downturns in the global economy have simultaneously increased banks’ credit risk exposures and intensified the need for effective liquidity management. This study develops a dynamic agent-based financial network comprising banks, depositors, firms, and the central bank to examine trade-offs in bank resolution under coupled liquidity and credit risks from the perspective of systemic stability. The simulation results show that, for liquidity risk management, when banks adopt the asset-sale strategy, both default probability and expected returns in the banking system exhibit a nonlinear pattern: they first decline and then rise as the asset depreciation ratio increases. Furthermore, at moderate levels of asset depreciation, the asset-sale strategy helps preserve heterogeneity within the banking system, thereby preventing excessive risk concentration, and performs better than the liability-expansion strategy. Regarding credit risk resolution, the debt-relief strategy significantly improves systemic stability, whereas the effectiveness of the debt-extension strategy depends critically on liquidity management conditions. Under liability-expansion scenarios, default risk initially declines but later rises as debt maturity is extended, whereas expected returns move in the opposite direction. Under asset-sale conditions, the debt-extension strategy enhances systemic stability only when the allowable number of debt extensions is sufficiently high. The analysis of strategic trade-offs indicates that combining the debt-relief strategy with the asset-sale strategy generates a positive synergistic effect and strengthens systemic resilience, whereas the interaction between the debt-extension and asset-sale strategies produces offsetting effects. These findings offer useful implications for banks and regulators in designing coordinated and adaptive frameworks for risk resolution and systemic stability. Full article

This study examines the nonlinear relationship between customer satisfaction (CS) and both the levels and growth of customer revenue (CR) at the individual level in the banking sector. Utilizing a unique data on 19,054 Swedish bank customers (2013–2017), the analysis combines subjective satisfaction measures with objective financial and demographic register data. Regression models test for diminishing returns at high satisfaction levels while assessing the persistence of these effects over a four-year period. The findings indicate that while CS is positively associated with both revenue level and revenue growth, the relationship with revenue level is nonlinear. Specifically, customers scoring 80–89 generate higher revenues than those scoring 90–100, providing weak evidence of a ceiling effect (at the 10% significance level) that is notably absent for revenue growth. Furthermore, CS explains less than 1% of revenue variation, highlighting the inherent limits of satisfaction-based revenue models. These ceiling effects are more pronounced among older, lower-income women without debt, whereas wealth has no observable impact. Finally, the nonlinear effects fade after one year, though gender remains a consistent moderator. These tentative findings suggest limited financial returns from maximizing satisfaction, thereby supporting the implementation of more differentiated customer segmentation strategies. Full article

This study develops a composite index of financial repression to overcome persistent gaps and inconsistencies in financial data across the CFA franc zones. The index aggregates proxies such as interest rate spreads, real interest rates, domestic credit to the private sector as a percentage of GDP, broad money supply as a percentage of GDP, and bank liquid-reserves-to-assets ratio, with inversion applied to align higher values with greater repression. Fixed-effects panel regressions reveal a significant negative impact of repression on gross capital formation, indicating a 2.8 percentage point reduction per unit increase, robust to controls including GDP per capita growth, trade openness, population growth, public debt, and inflation. Findings underscore repression’s role in impeding investment activity in CFA franc zones, where centralized controls crowd out private allocation amid fiscal dependencies. Policy implications advocate for gradual liberalization to enhance intermediation, while future research could extend to dynamic interdependencies via vector autoregression. This contribution advances repression measurement in African contexts, bridging theoretical distortions with empirical evidence for sustainable growth. Full article

This article studies why the same Bank of Canada tightening is reflected differently in provincial CPI inflation. It combines monthly provincial data from January 1991 to December 2024 with interacted local projections and public-data measures of common national monetary movements. The design estimates reduced-form provincial loadings in a common monetary environment, rather than structural responses to a single externally identified surprise. The main result is a housing-sensitive gap between headline inflation and inflation excluding shelter. Provinces with larger shelter weights and higher household debt–service exposure show a stronger headline response than non-shelter response after a common tightening. The evidence does not reduce to rent or to basket arithmetic alone: debt–service exposure is the more stable standalone component, while shelter weights tie the differential to measured CPI. Outside shelter, no single provincial characteristic dominates. Internal trade integration is associated with smaller baseline deviations from the national non-shelter response, but energy-related provincial composition is at least as informative in the competing-factor specifications. The paper therefore identifies shelter and household debt as the clearest sources of provincial incidence under one policy rate, while treating non-housing deviations from the national response as a broader provincial-structure result. Full article

We study the effect of financial liberalization, political connections, audit quality and the interaction of these factors on the cost of debt using a dataset for Vietnam for the period 2007–2024. Our findings show that firms were able to borrow at a lower cost after financial liberalization due to better access to capital and diversification opportunities. We test how financial liberalization moderates the relationship of auditor quality on the cost of debt and of political connections on the cost of debt. Following financial liberalization, the benefit of engaging a Big 4 auditor in reducing firms’ cost of debt diminishes. Greater transparency and reduced information asymmetry after financial liberalization help offset the need for the Big 4 auditor’s financial report quality certification. Hence, we find that financial liberalization moderates the effect of a Big 4 auditor on the cost of debt. We find that firms with political connections have a lower cost of debt, and this relationship is impacted by financial liberalization. Specifically, as liberalization deepens, the cost of debt declines more for firms with higher levels of political connections. Lastly, politically connected firms do not need to rely on high-quality auditor certification to secure lower borrowing costs due to their easier access to debt from state-owned commercial banks. The political connections moderate the relationship between auditor quality and the cost of debt. Full article

This study investigates the effects of liquidity regulation, specifically the liquidity coverage ratio (LCR), on the capital structure of South African banks, with a focus on debt maturity composition. Using panel data covering the period 2015–2024, the analysis applies the Generalized Method of Moments (GMM) estimator to address potential endogeneity concerns. The findings reveal a significant positive relationship between LCR and banks’ total and long-term debt ratios, indicating a shift towards more stable funding structures. In contrast, the LCR is negatively associated with short-term debt. These results suggest that stricter liquidity requirements encourage banks to rely less on short-term funding and more on long-term debt instruments. Although the analysis is limited to a small sample of leading South African banks, the findings provide important insights into the structural implications of liquidity regulation. The study highlights the need for regulators to consider how liquidity requirements shape banks’ financing decisions within broader macroprudential frameworks. By promoting stable funding structures, liquidity regulations enhance banking sector resilience, protect depositors, and support sustainable credit provision. This study contributes novel evidence from an emerging market and addresses a gap in the post-crisis financial regulation literature by linking liquidity regulation to debt maturity profiles. Full article