Search Results (21)

Climate change risk has significant impacts on corporate financial activities. Using firm-level data from A-share listed companies in China from 2010 to 2022, we examine how climate risk affects corporate debt financing capacity. We find that climate change risk significantly weakens firms’ ability to raise debt, leading to lower leverage and higher financing costs. These results remain robust across various checks for endogeneity and alternative specifications. We also show that reducing corporate carbon emission intensity can mitigate the negative impact of climate risk on debt financing, suggesting that supply-side credit policies are more effective than demand-side capital structure choices. Furthermore, we identify three channels through which climate risk impairs debt capacity: reduced competitiveness, increased default risk, and diminished resilience. Our heterogeneity analysis reveals that these adverse effects are more pronounced for non-state-owned firms, firms with weaker internal controls, and companies in highly financialized regions, and during periods of heightened environmental uncertainty. We also apply textual analysis and machine learning to the measurement of climate change risks, partially mitigating the geographic biases and single-dimensional shortcomings inherent in macro-level indicators, thus enriching the quantitative research on climate change risks. These findings provide valuable insights for policymakers and financial institutions in promoting corporate green transition, guiding capital allocation, and supporting sustainable development. Full article

Information asymmetry between banks and enterprises in the credit market is essentially the microfoundation of financial risk generation. The frequent occurrence of corporate debt defaults, mainly due to the behavior of short-term debt for long-term use (hereinafter referred to as “SDLU”), further aggravates the contagion path from individual liquidity crisis to systemic repayment crisis. In order to test whether bank financial technology (hereinafter referred to as “BankFintech”) can mitigate SDLU and reduce the possibility of financial risks, this study matched the loan data of China’s A-share listed companies with the patent data of bank-invented Fintech from 2013 to 2022 to construct the BankFintech Development Index for empirical analysis. The empirical results show that the development of BankFintech can significantly inhibit SDLU. The mechanism test reveals that BankFintech reduces bank credit risk and liquidity risk by lowering firms’ risk-weighted assets, improving capital adequacy and liquidity ratios, tilts banks’ lending preferences toward duration-matched long-term financing, and “forces” enterprises to take the initiative to improve their financial health and information transparency, enhance their ability to obtain long-term loans, and realize the active management of mismatch risk. Heterogeneity analysis finds that the effect is more significant in non-state-owned enterprises and technology-intensive industries. Further analysis shows that the level of enterprise digitization, the intensity of financial regulation, and related financial policies significantly moderate the marginal effect between the two. This study verified the “Porter’s Risk Mitigation Hypothesis” of Fintech, providing empirical evidence for effectively cracking the financial vulnerability caused by debt maturity mismatch and deepening financial supply-side reform. Full article

As global climate change issues have become increasingly severe, green finance has gained widespread attention from governments and financial institutions as a crucial tool for promoting sustainable development. This paper explores the impact of green finance reform pilot zones on corporate debt default risks based on a difference-in-differences model. We found that green finance policies significantly increase corporate debt default risks by exacerbating financing constraints and reducing stock liquidity. A heterogeneity analysis revealed that polluting enterprises, non-state-owned enterprises, and companies in the Eastern region are more susceptible to the impacts of this policy. This paper suggests that the government should formulate differentiated green finance policies tailored to different types of enterprises and regional characteristics. Full article

This paper applies an empirical model of corporate capital structure, optimal debt, and overleveraging to estimate overleveraging measured as the difference between actual and optimal debt. Estimated using a sample of the twenty largest pharmaceutical firms, covering the time span from 2000 to 2018, the model sheds light on an industry-specific default risk. The analysis presented in this paper reveals a concerning trend in the pharmaceutical industry, with corporate excess debt steadily increasing over the past two decades, particularly peaking during the 2008 crisis and after 2013. These findings underscore the critical role of excess debt in exacerbating financial instability and highlight the pharmaceutical sector’s unique challenges, including high R&D intensity and regulatory pressures. By quantifying overleveraging and linking it to financial risk, the paper offers valuable policy implications, emphasizing the need for proactive management of optimal debt levels to mitigate default risks and enhance macroeconomic resilience. Full article

The concept of sustainability has developed significantly from an unrealistic abstract ideology to a framework that can measure companies’ environment, society and corporate governance (ESG) performance. While extensive research has established some relational impacts of ESG performance on debt capital cost (DCC), this paper contends that a comprehensive review of these impacts is incomplete without screening them through the lens of climate risk (CR). Companies are subjected to CR that comprises physical and transition factors resulting from climate change. This paper aims to unravel the missing link between CR and ESG performance, and the consequent impacts on DCC. This paper illustrates using Chinese companies that operate in an emerging economy with robust industrial activities under intense global scrutiny to achieve emission reduction and meet carbon neutrality goals. Through considering CR, the impacts of ESG performance on DCC are explained using panel data and mediation effect tests with A-share listed enterprises on the Shanghai and Shenzhen stock exchanges from 2016 to 2020. The findings show that ESG performance significantly and negatively affects DCC, with debt default risk playing a mediating role. The negative effect of ESG performance on DCC is more significant in non-polluting enterprises and non-state-owned enterprises. Full article

Improving the level of risk-taking is an important measure for enterprises to realize sustainable development; in this context, commercial credit financing has become an important type of transaction and an indispensable short-term financing method. In this work, we use a sample of A-share-listed companies listed from 2007 to 2021 to test the impact of commercial credit financing on corporate risk-taking. Research shows that commercial credit financing has a U-shaped relationship with corporate risk-taking, i.e., when there is a low level of commercial credit financing, it has an inhibitory effect on corporate risk-taking, and when the level of commercial credit financing is high, it has a promotional effect on corporate risk-taking. The main reason for this, based on substitute financing and buyer market theories, is that commercial credit financing has a “double-edged sword” effect. Further research has found that corporate financialization, debt default risk, and ownership form all have moderating effects on this U-shaped relationship. Heterogeneity analysis results show that among enterprises with good cash flow conditions, low financing constraints, and a low supply of commercial credit, commercial credit financing has a significant U-shaped impact on enterprise risk-taking. However, among enterprises with poor cash flow conditions, high financing constraints, and a high supply of commercial credit, commercial credit financing shows a solely inhibitory effect on enterprise risk-taking. This research innovatively clarifies the dual role of commercial credit financing in corporate risk-taking from the perspective of the supply chain, and these findings are pivotal in guiding enterprises to rationally allocate commercial credit financing and make informed risk investment decisions to realize the simultaneous sustainable development of enterprises and supply chains. Full article

Against the backdrop of economic transformation and sustainable development, this paper utilizes listed companies from the Shanghai and Shenzhen A-share markets from 2009 to 2021 as research samples, measures corporate leverage manipulation levels using the XLT-LEVM method, and employs a panel fixed effects model to empirically examine the impact of corporate ESG responsibility fulfillment on leverage manipulation behaviors and its underlying mechanisms. The results show that the performance of ESG responsibility can inhibit the leverage manipulation behavior of enterprises, and this effect is more obvious in enterprises with low analyst attention and excessive debt. Mechanism tests reveal that the fulfillment of ESG responsibilities by corporations exerts both reputational and informational effects, which, by mitigating financing constraints and enhancing information transparency, subsequently curtail corporate leverage manipulation. The analysis of economic consequences demonstrates that the inhibitory effect of ESG responsibility fulfillment on corporate leverage manipulation contributes to reducing the risk of corporate debt default. The research conclusions of this paper hold instructive significance for the positive governance role of ESG performance. Consequently, governments and regulatory bodies should guide and support enterprises in assuming ESG responsibilities, and corporations should increase their investments in ESG and enhance their ESG performance. Full article

This study aims to identify the model that best approximates the credit spread that should be fixed on debt instruments issued by both companies listed on the Mexican Stock Market, considering the particularities of the Mexican market. Five models were analyzed: Merton’s model, Brownian Motion Model, Power Law Brownian Motion Model, Bloomberg’s model, and the model presented in this paper, which includes the conformable derivatives, taking as a reference the change in the variable as other authors have done, and the Bloomberg corporate default risk model (DRSK) for publics firms. We concluded that the modified Merton model approximates, to a greater extent, the credit spreads that fix on a prime rate on the loans granted to Mexican non-financial companies. Full article

Chonsei, a Korean housing lease system, enables landlords to acquire direct housing purchase funds without mortgages and offers tenants a cost-effective rental option. However, public concerns have arisen about potential landlord defaults, causing financial distress for tenants. This study examined the risk of non-return of the Chonsei deposit and developed a default prediction model using Chonsei contract data from the Korea Housing and Urban Guarantee Corporation. Starting with the components from Merton’s bond pricing model, we included variables that reflect contract-specific factors, macroeconomic conditions, and the Korean Chonsei practices. The findings revealed that higher house price volatility, elevated debt-to-house value, and risk-free interest rates positively correlate with non-return risk. Meanwhile, certain factors, such as longer remaining maturity, favorable macroeconomic conditions, and rising market Chonsei price trends, demonstrated negative correlations with non-return risk. Consequently, a logistic regression-based default prediction model, with eight risk factors that predict the deposit non-return, was suggested. By identifying risk factors and predicting the non-return risk of deposits, this study contributes to an informed policy decision in planning and practicing Chonsei contracts in the Korean housing market. Full article

Empirical corporate failure studies focusing on specific economic activities are increasing in number, as this path can be a more precise investigation of default, although still there is a gap in the literature reviews at the sector level. The purpose of this study is to focus on the hotel sector and isolate the financial determinants linked to hotel default, as the approach of accounting-based models is the most frequent practice. To arrange the variety of outputs, a thorough design is applied based on specific inclusion and exclusion criteria, leading to 29 studies, which are further narrated, focusing mainly on the financial dimension. In addition, information on the study design is recorded in an aggregated table. The most frequent stylized results show that debt and liability measures increase the default risk, while measures of profitability and size in terms of total assets reduce the risk. This review addresses the calls for a sectoral focus and provides an up-to-date financial overview of hotel default assessments. It further aims to benefit academia, as it can act as a base for further development, as well as stakeholders involved in the financial sustainability of the hotel sector. Full article

Based on the perspective of investment and financing term structure, this study verifies that local government debt crowds out bank loans available to corporates, resulting in corporate maturity mismatch between investment and financing, namely, short-term financing for long-term investment. According to our heterogeneity analyses, the real impact of local government debt on maturity mismatch between investment and financing is more pronounced for non-state-owned enterprises and firms with high financing demand, located in cities with more local government debt and low financial development. Furthermore, our study reveals that local government debt and corporate maturity mismatch between investment and financing bring about underinvestment and default risk, which ultimately affects local sustainable economic development. This research contributes to the literature on Chinese-specific maturity mismatches. Full article

This paper analyzes the impact of the instability brought about by the change of directors on the risk of corporate debt default from the perspective of the fusion of old and new directors. Combining Ab-sorptive Capacity Theory and Embeddedness Theory, on the one hand, analyzes the threshold effect of the hard integration of directors on corporate debt default risk from the proportion of new directors; on the other hand, through the proportion of the number of well-integrated people, and from the perspective of ability-based role matching and cultural-based group matching between new and old directors, it is judging the individual and interactive effects of director soft fusion quality on firm debt default risk. Through the above two perspectives, we comprehensively judge the independent and interactive effects of directors’ smooth integration quality on corporate debt default risk and consolidate. The study found that the proportion of new directors positively correlates with the increase in the risk of corporate debt default. The weakening of the threshold effect shows that the hard integration of the number of new directors alone will reduce instability due to the increase in the number of new directors, thereby reducing the risk of corporate debt default. Regarding the smooth integration of directors, the role matching between old and new directors has a rejuvenating contribution to corporate debt default risk and has a significant threshold effect. At the same time, group matching positively correlates with corporate debt default risk but has no threshold effect. After the interaction between the two, group matching contributes to debt default risk. Full article

The rapid development of theoretical and practical innovations in corporate finance driven by supply chain finance has exacerbated the complexity of credit default risk contagion among supply chain enterprises. Financial risks in the supply chain greatly hinder its sustainable development; thus, strengthening financial risk management is necessary to ensure the sustainability of the supply chain. Based on the single-channel and dual-channel credit financing models of retailers in the supply chain, the purpose of this paper was to construct a model of the intensity of credit default risk contagion among supply chain enterprises under different credit financing models, and investigate the influencing factors of credit risk contagion among supply chain enterprises and its mechanism of action through a computational simulation system. The results were as follows: (1) there was a positive relationship between the production cost of suppliers and the contagion intensity of the supply chain credit default risk, and the contagion effect of the supply chain credit default risk increased significantly when both retailers defaulted on trade credit to suppliers; (2) the market retail price of the product was negatively related to the contagion intensity of the supply chain credit default risk, and the contagion intensity of the supply chain credit default risk increased significantly when both retailers defaulted on trade credit to the supplier; (3) the intensity of credit default risk contagion in the supply chain was positively correlated with both the commercial bank risk-free rate and the trade credit rate, and retailers’ repayment priority on trade credit debt was negatively correlated with suppliers’ wholesale prices and positively correlated with retailers’ order volumes, with retailers’ repayment priority positively affecting retailers’ bank credit rates and negatively affecting suppliers’ bank credit rates; and (4) retailers’ repayment priority on trade credit debt was negatively correlated with the intensity of supply chain credit default risk contagion, and the lower the retailer’s bank credit limit, the higher the trade credit limit, and the stronger the credit default contagion effect in the supply chain. Full article

This paper contributes to the supply chain finance literature with an agent-based Monte Carlo simulation model focusing on the bank’s point of view. Our theoretical model assesses how a bank should screen a supply chain (SC) member and whether that requires different considerations and monitoring systems compared with traditional corporate loans. In the model, the SC members may cooperate, reducing their bankruptcy risk considerably; thus, the chance for and extent of inter-entity financial aid are critical to consider when assessing bankruptcy risk. A cooperative SC member cannot just be financed from debt taken by other members, but it may also offer protection to other SC members using its operating cash flow. Thus, based on our results, bankruptcy risk is SC-specific, rather than a characteristic of an individual firm. Therefore, to finance an SC member is a quasi-joint decision of its peers, so particular care should be paid to estimating and monitoring the correlations between the operational cash flows of cooperative SC members. One of the key results is that of edge default exposure of the bank; it might be optimal to limit the amount of the loan made available to a given collaborative SC member instead of charging higher rates or financing the most attractive SC member only. Another SC member offering an additional guarantee with its assets will provide the remaining need for financing. As this solution also reduces the total bankruptcy risk of the SC, the SC itself should prefer this financing structure. Full article

Financial innovation vis-à-vis economic policy uncertainty (EPU) without due regards being given to debt financing. This paper fills this gap and unveils the dynamic role of national culture in defining debt financing via EPU. We use a sample of 3831 non-financial firms of Asian economies and employ the System Generalized Method of Moments to estimate the regression coefficients. Our findings reveal an inverse relationship between the EPU and debt financing, which suggests that debt finance mitigation strategies are successfully executed in the region. The potential reasons for this include the policies by businesses to reduce business activities and avoid the unfavorable rising financing cost through EPU. On the supply side, the rising EPU induces the banks to accelerate their interest rate due to increased default risk. Similarly, we observe that high uncertainty avoidance (UND) has a negative and significant link with debt financing due to an unpleasant behavior of corporate managers towards debt when they have an alternate source of financing instruments instead of accepting long-term obligations. However, we find that the UND and EPU interaction has a significantly positive impact on debt financing due to the rigid behavior of managers, which forces them to consider cultural traits and converts their risk-averse attitude into risk-friendly behavior. This implies that corporate managers should reflect the sensitivity of the national culture while considering debt financing. Full article