A Comprehensive Survey on Enterprise Financial Risk Analysis: Problems, Methods, Spotlights and Applications

Enterprise financial risk analysis aims at predicting the enterprises' future financial risk.Due to the wide application, enterprise financial risk analysis has always been a core research issue in finance. Although there are already some valuable and impressive surveys on risk management, these surveys introduce approaches in a relatively isolated way and lack the recent advances in enterprise financial risk analysis. Due to the rapid expansion of the enterprise financial risk analysis, especially from the computer science and big data perspective, it is both necessary and challenging to comprehensively review the relevant studies. This survey attempts to connect and systematize the existing enterprise financial risk researches, as well as to summarize and interpret the mechanisms and the strategies of enterprise financial risk analysis in a comprehensive way, which may help readers have a better understanding of the current research status and ideas. This paper provides a systematic literature review of over 300 articles published on enterprise risk analysis modelling over a 50-year period, 1968 to 2022. We first introduce the formal definition of enterprise risk as well as the related concepts. Then, we categorized the representative works in terms of risk type and summarized the three aspects of risk analysis. Finally, we compared the analysis methods used to model the enterprise financial risk. Our goal is to clarify current cutting-edge research and its possible future directions to model enterprise risk, aiming to fully understand the mechanisms of enterprise risk communication and influence and its application on corporate governance, financial institution and government regulation

A dyadic perspective on retailer-supplier relationships through the lens of social capital

Social capital theory has received increasing attention as a lens through which to examine supply chain relationships and the value creation process. Despite the growing application of social capital and its three dimensions, namely cognitive, structural and relational capital, to inter-organizational research, few studies in reality have taken a dyadic perspective. Using a paired sample of retailer-supplier relationships from Korean fast-moving consumer goods sector, we explore the configuration of social capital dimensions, and the impact on strategic and operational performance. The results suggest three clusters of relationships, which differ significantly on at least two of the dimensions of social capital. Furthermore, these clusters show considerable differences with respect to both operational and strategic performance, particularly at the lower levels of social capital. We also examine the impact of a disparity between the retailer and supplier with respect to different dimensions of social capital, henceforth called dissonance. Of the four clusters that emerge, interestingly, only dissonance on the cognitive dimension is related to lower operational and strategic relationship performance. In investigating the implications of dissonance for the retailer and supplier individually, our results suggest that performance differs based on the magnitude and direction of the dissonance. Our results show that consequences of having social capital or not are not necessarily the same for the retailer and the supplier

Corporate environmental responsibility and financing patterns: Does firm size matter?

This article provides a comprehensive assessment of the impact of corporate environmental responsibility (CER) on financing patterns of working capital and fixed investment. Financing sources include internal funds, equity, different types of debt financing, and government grants. Specifically, this study examines differences in the impacts of CER on financing patterns for smaller and larger firms. Based on a sample of 15,082 firms covering 27 countries, our empirical findings indicate that environmentally responsible activities do not significantly affect financing patterns of working capital but affect the use of internal finance and almost all external sources for capital expenditures. Moreover, the impacts of environmentally responsible activities on capital expenditures vary across financial sources and depend on firm size. The revealed pecking order among financing sources and changes in the debt ratio offer valuable insights into the validity of capital structural theories for smaller and larger eco-friendly firms.publishedVersio

ADB–OECD Study on Enhancing Financial Accessibility for SMEs: Lessons from Recent Crises

During the era of global financial uncertainty, stable access to appropriate funding sources has been much harder for small and medium-sized enterprises (SMEs). The global financial crisis impacted SMEs and entrepreneurs disproportionately, exacerbating their traditional financing constraints. The financial conditions of many SMEs were weakened by the drop in demand for goods and services and the credit tightening. The sovereign debt crisis that hit several European countries contributed to further deterioration in bank lending activities, which negatively affected private sector development. The global regulatory response to financial crises, such as the Basel Capital Accord, while designed to reduce systemic risks may also constrain bank lending to SMEs. In particular, Basel III requires banks to have tighter risk management as well as greater capital and liquidity. Resulting asset preference and deleveraging of banks, particularly European banks with significant presence in Asia, could limit the availability of funding for SMEs in Asia and the Pacific. Lessons from the recent financial crises have motivated many countries to consider SME access to finance beyond conventional bank credit and to diversify their national financial system. Improving SME access to finance is a policy priority at the country and global level. Poor access to finance is a critical inhibiting factor to the survival and growth potential of SMEs. Financial inclusion is thus key to the development of the SME sector, which is a driver of job creation and social cohesion and takes a pivotal role in scaling up national economies. The Asian Development Bank (ADB) and the Organisation for Economic Co-operation and Development (OECD) have recognized that it is crucial to develop a comprehensive range of policy options on SME finance, including innovative financing models. With this in mind, sharing Asian and OECD experiences on SME financing would result in insightful discussions on improving SME access to finance at a time of global financial uncertainty. Based on intensive discussions in two workshops organized by ADB in Manila on 6–7 March 2013 and by OECD in Paris on 21 October 2013, the two organizations together compiled this study report on enhancing financial accessibility for SMEs, especially focusing on lessons from the past and recent crises in Asia and OECD countries. The report takes a comparative look at ADB and OECD experiences, and aims to identify promising policy solutions for creating an SME base that is resilient to crisis, from a viewpoint of access to finance, and which can help drive growth and development

FINTECHS AND THE NEW WAVE OF FINANCIAL INTERMEDIARIES

The financial services industry is undergoing a massive transformation similar to what was observed when other industries underwent digitization. The FinTech revolution has given rise to a vast number of technology-oriented market entrants who challenge many parts of the financial services industry. This research seeks to provide a better understanding of how FinTechs across various business functions fundamentally impact the value chain in this industry. To this end, we built on top of financial intermediation theory, and developed a taxonomy of FinTechs’ intermediating functions. The following hierarchical clustering analysis identified six archetypes of FinTech intermediaries as observed in the real world, i.e. the different ways in which FinTechs across business functions act as financial intermediaries by transforming assets, reducing transaction cost, and alleviating information asymmetries. Finally, we discuss how FinTechs impact financial intermediation in itself, and to what extent the notion of FinTechs disintermediating the financial value chain is accurate

Trade credit defaults and liquidity provision by firms

Using a unique data set on trade credit defaults among French firms, we investigate whether and how trade credit is used to relax financial constraints. We show that firms that face idiosyncratic liquidity shocks are more likely to default on trade credit, especially when the shocks are unexpected, firms have little liquidity, are likely to be credit constrained or are close to their debt capacity. We estimate that credit constrained firms pass more than one fourth of the liquidity shocks they face on to their suppliers down the trade credit chain. The evidence is consistent with the idea that firms provide liquidity insurance to each other and that this mechanism is able to alleviate the consequences of credit constraints. In addition, we show that the chain of defaults stops when it reaches firms that are large, liquid, and have access to financial markets. This suggests that liquidity is allocated from large firms with access to outside finance to small, credit constrained firms through trade credit chains

Too Interconnected To Fail: Financial Contagion and Systemic Risk in Network Model of CDS and Other Credit Enhancement Obligations of US Banks

Credit default swaps (CDS) which constitute up to 98% of credit derivatives have had a unique, endemic and pernicious role to play in the current financial crisis. However, there are few in depth empirical studies of the financial network interconnections among banks and between banks and nonbanks involved as CDS protection buyers and protection sellers. The ongoing problems related to technical insolvency of US commercial banks is not just confined to the so called legacy/toxic RMBS assets on balance sheets but also because of their credit risk exposures from SPVs (Special Purpose Vehicles) and the CDS markets. The dominance of a few big players in the chains of insurance and reinsurance for CDS credit risk mitigation for banks� assets has led to the idea of �too interconnected to fail� resulting, as in the case of AIG, of having to maintain the fiction of non-failure in order to avert a credit event that can bring down the CDS pyramid and the financial system. This paper also includes a brief discussion of the complex system Agent-based Computational Economics (ACE) approach to financial network modeling for systemic risk assessment. Quantitative analysis is confined to the empirical reconstruction of the US CDS network based on the FDIC Q4 2008 data in order to conduct a series of stress tests that investigate the consequences of the fact that top 5 US banks account for 92% of the US bank activity in the $34 tn global gross notional value of CDS for Q4 2008 (see, BIS and DTCC). The May-Wigner stability condition for networks is considered for the hub like dominance of a few financial entities in the US CDS structures to understand the lack of robustness. We provide a Systemic Risk Ratio and an implementation of concentration risk in CDS settlement for major US banks in terms of the loss of aggregate core capital. We also compare our stress test results with those provided by SCAP (Supervisory Capital Assessment Program). Finally, in the context of the Basel II credit risk transfer and synthetic securitization framework, there is little evidence that the CDS market predicated on a system of offsets to minimize final settlement can provide the credit risk mitigation sought by banks for reference assets in the case of a significant credit event. The large negative externalities that arise from a lack of robustness of the CDS financial network from the demise of a big CDS seller undermines the justification in Basel II that banks be permitted to reduce capital on assets that have CDS guarantees. We recommend that the Basel II provision for capital reduction on bank assets that have CDS cover should be discontinued.

Too Interconnected To Fail: Financial Contagion and Systemic Risk In Network Model of CDS and Other Credit Enhancement Obligations of US Banks

Credit default swaps (CDS) which constitute up to 98% of credit derivatives have had a unique, endemic and pernicious role to play in the current financial crisis. However, there are few in depth empirical studies of the financial network interconnections among banks and between banks and nonbanks involved as CDS protection buyers and protection sellers. The ongoing problems related to technical insolvency of US commercial banks is not just confined to the so called legacy/toxic RMBS assets on balance sheets but also because of their credit risk exposures from SPVs (Special Purpose Vehicles) and the CDS markets. The dominance of a few big players in the chains of insurance and reinsurance for CDS credit risk mitigation for banks’ assets has led to the idea of “too interconnected to fail” resulting, as in the case of AIG, of having to maintain the fiction of non-failure in order to avert a credit event that can bring down the CDS pyramid and the financial system. This paper also includes a brief discussion of the complex system Agent-based Computational Economics (ACE) approach to financial network modeling for systemic risk assessment. Quantitative analysis is confined to the empirical reconstruction of the US CDS network based on the FDIC Q4 2008 data in order to conduct a series of stress tests that investigate the consequences of the fact that top 5 US banks account for 92% of the US bank activity in the $34 tn global gross notional value of CDS for Q4 2008 (see, BIS and DTCC). The May-Wigner stability condition for networks is considered for the hub like dominance of a few financial entities in the US CDS structures to understand the lack of robustness. We provide a Systemic Risk Ratio and an implementation of concentration risk in CDS settlement for major US banks in terms of the loss of aggregate core capital. We also compare our stress test results with those provided by SCAP (Supervisory Capital Assessment Program). Finally, in the context of the Basel II credit risk transfer and synthetic securitization framework, there is little evidence that the CDS market predicated on a system of offsets to minimize final settlement can provide the credit risk mitigation sought by banks for reference assets in the case of a significant credit event. The large negative externalities that arise from a lack of robustness of the CDS financial network from the demise of a big CDS seller undermines the justification in Basel II that banks be permitted to reduce capital on assets that have CDS guarantees. We recommend that the Basel II provision for capital reduction on bank assets that have CDS cover should be discontinued.Credit Default Swaps; Financial Networks; Systemic Risk; Agent BasedCredit Default Swaps, Financial Networks, Systemic Risk, Agent Based Models, Complex Systems, Stress Testing

How and what kind of cities benefit from the development of digital inclusive finance? Evidence from the upgrading of export in Chinese cities

Employing Chinese customs data and the Peking University Digital Financial Inclusion Index of China, this paper studies the impact of China’s digital finance development on the upgrading of export at the city level and further explores the heterogeneity across cities and the mechanisms through which digital finance influences export upgrading. Benchmark results suggest that digital inclusive finance can significantly promote the upgrading of export. The heterogeneity analysis shows that cities with a smaller size, lower wage, higher human capital level, and better location advantage experience greater facilitating effects of digital inclusive finance on promoting export upgrading. It suggests that, compared with ‘icing on the cake’, the digital inclusive finance plays a better role in ‘offering fuel in snowy weather’, whereas full exertion of the inclusiveness of digital finance requires higher human capital and location advantage. Further mechanism analysis shows that innovation effect and market effect are the main channels where digital inclusive finance promotes the upgrading of a city’s export