398,216 research outputs found

    Creditor Rights and Debt Allocation within Multinationals

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    We analyze the optimal debt structure of multinational corporations choosing between centralized or decentralized borrowing. We identify how this choice is affected by creditor rights and bankruptcy costs, taking into account managerial incentives and coinsurance considerations. We find that partially centralized borrowing structures are optimal with either weak or strong creditor rights. For intermediate levels of creditor rights fully decentralized (centralized) borrowing structures are optimal if managers have strong (weak) empire building dencies. Decentralized borrowing is more attractive for companies focussing on short-term profitability. Credits are rather taken in countries with better creditor rights and more efficient insolvency systems

    Decentralized Borrowing and Centralized Default

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    In the past, foreign borrowing by developing countries was comprised almost entirely of government borrowing. Recently, private firms and individuals in developing countries borrow substantially from foreign lenders. It is not clear whether the observed increase in private sector borrowing leads to overborrowing and frequent defaults by governments in developing countries. In this paper, we develop a tractable quantitative model in which private agents decide how much to borrow but the government decides whether to default. The model with decentralized borrowing increases aggregate credit costs and sovereign default risk, and reduces aggregate welfare, relative to a model with centralized borrowing. Private agents do not internalize the effect of their borrowing on economy-wide credit costs and thus would like to borrow more than the socially efficient level. Depending on the severity of default penalties, decentralized borrowing may lead to either too much or too little debt in equilibrium. The introduction of decentralized borrowing substantially improves the model's empirical fit in terms of matching observed debt levels and default rates.Sovereign Default, Sovereign Debt, Private Borrowing, Capital Flows

    IAS 23 Borrowing Costs - A Closer Look

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    The International Accounting Standards Committee issued the the International Accounting Standard 23, Borrowing Costs. The objective of IAS 23 is to prescribe the accounting treatment for borrowing costs. This standard requires the capitalisation of all borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. IAS 23 requires all borrowing costs capitalised as part of the cost of the asset, where the borrowing costs are directly attributable to the acquisition, construction or production of a qualifying asset. This article presents a closer look of the standard (objective, scope, definitions, capitalisation and disclosures).International Accounting Standard; Borrowing Costs; Qualifying Assets; IAS 23; IASC; IASB; FASB

    Firm Age and the Evolution of Borrowing Costs: Evidence from Japanese Small Firms

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    This paper investigates how a firm's borrowing cost evolves as it ages. Using a new data set of more than 200,000 bank-dependent small firms for 1997-2002, we find the following. First, the distribution of borrowing costs tends to become less skewed to the right over time, which can be partially attributed to "selection" (i.e., exits of defaulting firms reduce the total borrowing costs), but is mainly explained by "adaptation" (i.e., surviving firms' borrowing costs decline as they age). Second, the selection process is natural in that firms with lower quality are separated, charged higher borrowing costs, and eventually forced to exit, which contrasts with the results of previous studies on Japan's credit misallocations, such as Peek and Rosengren (2005). Third, in the adaptation process, we find an age dependence of firms' borrowing costs even if we control for firm size.firm age, borrowing cost, selection, credit allocation, reputation

    Just the Financial Facts Please! A Secret Survey of Financial Services in San Francisco's Mission District

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    Examines the costs and dynamics of borrowing $1,000 from various financial service providers in a historic immigrant community. Proposes Financial Facts labels and a Responsible Lending and Borrowing Checklist to increase residents' financial capability

    Do Deficits Crowd Out Private Borrowing? Evidence From Flow Of Funds Accounts

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    Heim (2010) found a strong negative relationship between deficits and private consumer and investment spending, controlling for other key variables. The study did not directly test the mechanism by which deficits were related to consumer and investment spending, only the result. Crowd out theory hypothesizes the mechanism is consumer and investment credit shortages induced by borrowing -financed government deficits. This paper examines that mechanism directly, testing to see if private borrowing is related to deficits. It uses Federal Reserve Flow of Funds accounts data on borrowing. The paper finds a strong negative relationship between deficits and private borrowing, with deficits reducing private borrowing dollar for dollar. The borrowing estimates are very similar to the Heim (2010) estimates of deficit effects on consumer and investment spending, suggesting crowd out effects work through the borrowing channel and fully offset the stimulus effects of deficits. Flow of Funds data on savings and investment, for accounting reasons, confirm the econometric findings of full crowd out, provided savings remain constant.

    Foreign Aid Reduces Domestic Capital Accumulation and Increases Foreign Borrowing: A Theoretical Analysis

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    In an infinite-horizon model with endogenous time preferences, foreign aid, foreign borrowing, and domestic capital accumulation, a permanent increase in foreign aid leads to a reduction in long-run capital accumulation, a rise in domestic consumption, and an increase in foreign borrowing. Short-run analysis shows that an initial increase in foreign aid leads to a rise in investment, and a reduction in consumption and external borrowing. On the other hand, a temporal increase in foreign aid results in an increase in consumption and foreign borrowing, and a reduction in investment.Foreign aid, Foreign borrowing, Capital accumulation

    Spending and borrowing

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    Budget deficits ; Government lending ; Expenditures, Public

    On the importance of borrowing constraints for house price dynamics

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    We study how a household borrowing constraint the the form of a down payment requirement affects house price dynamics in an OLG model with standard preferences. We find that in certain situations the borrowing constraint shapes house price dynamics substantially. The importance of the constraint depends very much on whether house price changes are driven by interest rate or aggregate income shocks. Moreover, because of the borrowing constraint, house price dynamics display substantial asymmetries between large positive and large negative income shocks. These results are related to the fact that the share of borrowing-constrained households is different following different shocks.house prices; dynamics; borrowing constraints; down payment constraint

    The Structure of Multiple Credit Relationships: Evidence from US Firms

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    When firms borrow from multiple concentrated creditors such as banks they appear to differentiate their allocation of borrowing. In this paper, we put forward hypotheses for this borrowing pattern based on incomplete contract theories and test them using a sample of small U.S. firms. We find that firms with more valuable, more redeployable, and more homogeneous assets differentiate borrowing more sharply across their concentrated creditors. We also find that borrowing differentiation is inversely related to restructuring costs and positively related to firmsā€™ informational transparency. This evidence supports the predictions of incomplete contract theories: the structure of credit relationships appears to be used as a device to discipline creditors and entrepreneurs, especially during corporate reorganizations.Credit Relationships, Multiple Creditors, Borrowing Allocation
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