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Corporate leverage is an indicator of economic health, and this topic has attracted a great deal of attention since the international financial crisis of 2008. This paper constructs a model of enterprise decision-making under a digital government and theoretically analyzes how the government digital reform impacts corporate leverage and the mechanism of this impact. Theoretical analysis has previously shown that digital reforms by governments help to ease the information asymmetry between banks and enterprises, which in turn affects the actual economic activities of enterprises. Based on these findings, the "one-stop government service" natural experiment used in this paper and the empirical analysis using a multiphase difference-in-differences (DID) method show that digital government can inhibit the short-term debt financing of enterprises while improving their long-term debt financing. This study further finds that the digital government can improve the level of long-term debt for long-term use, thereby reducing corporate leverage. By enriching the theoretical and empirical research on government digital reform, this paper contributes significant theoretical and practical insights to the literature on corporate leverage in the context of government factors. [ABSTRACT FROM AUTHOR]

With the decrease in the heat of the real estate market, the structural problems of real estate enterprises have become increasingly prominent, which are mainly reflected in high inventory, high leverage and high cost. After analyzing the types and underlying factors of financial risks faced by real estate enterprises, this paper explains the “three red lines” policy of the deleveraging mechanism for real estate enterprises. Based on artificial intelligence technology, an intelligent financial data processing platform has been established, and PCA and K-Means algorithms are used to process financial data. The association rule mining was introduced to analyze the financial data. The deep meaning of the financial data was mined through the weighted Apriori algorithm. The deleveraging strategy of real estate enterprises was established in combination with the financial decision-support process. The application effect of Group W’s deleveraging strategy was analyzed by selecting it as the research object. In 2021, the current ratio was 0.03 times different from the industry average, the asset-liability ratio decreased to 75.69%, and the overall cash balance at the end of the period increased by 11.2 times. After 2018, the “three red lines” indicators were all met, and it successfully ranked among the green enterprises, with the highest cumulative excess rate of return reaching 5.46%. Based on intelligent financial data processing, it can provide decision-making support for real estate enterprises to optimize their structure and realize the deleveraging, downshifting, and efficiency increase of real estate enterprises.

Credible implementation of climate change policy, consistent with the 2 °C limit, requires a large proportion of current fossil‐fuel reserves to remain unused. This issue, named the Carbon Bubble, is usually presented as a required asset write‐off, with implications for investors. We embed the Carbon Bubble in a macroeconomic model exhibiting a financial accelerator: if investors are leveraged, then the Carbon Bubble might precipitate a fire‐sale of assets across the economy, and generate a large and persistent fall in output and investment, impairing the economy's ability to invest in the zero carbon assets it needs to produce output in the post‐climate‐transition world. We find a role for macroeconomic policy protecting investors' balance sheets in mitigating the macroeconomic effects of the Carbon Bubble, and enhancing welfare. [ABSTRACT FROM AUTHOR]

'Deleveraging' is an important objective of China's economic macro-control. Tax cuts are an important measure to promote enterprises' deleveraging and reduce operating costs and financial risks. This study employs the 2018 value-added tax (VAT) rate reduction by the Chinese government in a quasi-natural experiment with financial data from listed companies from 2016 to 2019 as research samples, applying the difference-in-differences (DID) model to analyse the policy's deleveraging effect. The results show that the VAT rate reduction significantly reduced the leverage and current debt ratios of enterprises in the treatment group but had no significant effect on long-term debt ratio. Further investigation shows that the VAT rate reduction's deleveraging effect was more significant for state-owned, highly leveraged companies, small and medium-sized enterprises and companies in eastern China. In western China, the total leverage ratio of enterprises experienced no significant change, current debt ratio increased, long-term debt ratio decreased and financial risks and financing constraints further intensified. This study's conclusions have significance as a reference for China and other developing countries to improve tax reduction policies, stimulate enterprise vitality, reduce enterprise financial risks and effectively navigate the economic recession. [ABSTRACT FROM AUTHOR]

Science and technology innovation plays a vital role in the sustainable development of enterprises, and even in the security and sustainable development of a nation. Against the background of China's structural "deleveraging" macro policy, the following two aspects are considered in this research: First, should operating leverage be removed, and how does it affect the innovation investment of enterprises? Second, what will be the impact of the implementation of equity incentives on the relationship between operating leverage and innovation investment? Using a longitudinal panel dataset of Chinese A-share listed companies from 2010 to 2020, this study empirically tested the impact and mechanism of operating leverage on enterprise innovation investment. The findings show that operating leverage significantly contributes to an increase in enterprise innovation investment in general, but the positive correlation trend decreases with the increase in operating leverage. The implementation of equity incentives plays a positive role in moderating the relationship between operating leverage and innovation investment. Further heterogeneity analysis shows that the promotion effect of operating leverage on innovation investment is significant only in non-state owned enterprises (SOE), and the positive regulating effect of equity incentives in non-SOEs is more significant than that of the overall sample. [ABSTRACT FROM AUTHOR]

Copyright of Economic Science / Jingji Kexue is the property of Economic Science Editorial Office and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

While the growth of household debt has been instrumental in the creation of the recent bubbles, debt disposal also plays an important role in shaping the scope and depth of busts. Much has been written about debt and leverage since the 2008 global financial crisis. Debt-downsizing, however, received little attention. Deleveraging has the potential to reinstitute stability but it can also create a drag on economic recovery. This paper investigates the spatial patterns of deleveraging for the first time in the context of English regions, Wales and Scotland based on a multi-level framework that should be applicable to countries and regions beyond these three countries. Using longitudinal household survey data and reconstituting space through this multilevel framework, we show that deleveraging has been highly uneven and short-lived across space and time. This outcome is shaped by three major factors: individuals’/households’ socio-economic position, how their regions are affected by the boom-and-bust cycle and how governments’ crisis management programmes take effect in each region. [ABSTRACT FROM AUTHOR]

To deleverage is one of the major tasks for the supply-side structural reform in China, and to steadily deleverage in order is the key to fending off and defusing financial risks. This paper uses the economic statistics of China around 2016 to depict the "expansion-contraction" fluctuations with Chinese macroeconomy during the deleveraging. In this realistic context, it constructs a financial business cycle model based on the financial accelerator theory and attempts to use default cost changes to introduce financial shocks and understand China's macroeconomic fluctuations in the deleveraging context in the perspective of unanticipated and anticipated shocks. Results of the numerical model simulation show that before and after the deleveraging, the fluctuations of credit, leverage ratio, credit spread and other major macroeconomic variables originate not only from the changes with unanticipated default cost. Anticipated changes with default cost can similarly explain the "expansion-contraction" macroeconomic fluctuations in recent years and offer a new perspective into the fluctuations during deleveraging. Accordingly, government, when practicing deleveraging policies, is advised to take into full consideration not only the actual changes with default cost, but also anticipated factors of financial institutions. [ABSTRACT FROM AUTHOR]

As Korea’s household debt has increased rapidly since the mid-2000s, concerns that its economy’s hard-wired leveraging may negatively impact economic activity have grown. Calls are being made for policy actions to return the economy to its long-run trend. Housing preferences and monetary shocks can both trigger deleveraging, as most household debt is profoundly connected to the housing market, and debt growth increases sensitivity to interest rates. Constructing a dynamic stochastic general equilibrium model with heterogeneous households and the housing production sector, we simulate and analyze the macroeconomic effects of deleveraging. Because a lower loan-to-value (LTV) ceiling limits the size of household debt, the deleveraging effect caused by borrowers’ re-optimization is alleviated as the LTV ceiling decreases. When the housing price is included as an additional operating target in an otherwise standard monetary policy (MP) rule, economy-wide welfare increases when the MP is proactive to demand shocks and inactive to supply shocks. These findings suggest that deleveraging risk can be attenuated by adopting a lower LTV ceiling and maneuvering MP asymmetrically depending on the source of a shock.

Purpose – This paper examines whether the successful bid rate of the OnBid public auction, published by Korea Asset Management Corporation, can identify and forecast the Korea business-cycle expansion and contraction regimes characterized by the OECD reference turning points. We use logistic regression and support vector machine in performing the OECD regime classification and predicting three-month-ahead regime. We find that the OnBid auction rate conveys important information for detecting the coincident and future regimes because this information might be closely related to deleveraging regarding default on debt obligations. This finding suggests that corporate managers and investors could use the auction information to gauge the regime position in their decision-making. This research has an academic significance that reveals the relationship between the auction market and the business-cycle regimes.

In this study, we present a novel measurement approach for systemic risk by considering an indirect network structure. In a departure from previous studies, this measurement method captures spillovers arising from deleveraging and price impact in financial systems and calculates the amplification of losses during the contagion process. We show the relationship between a bank's vulnerability and its network connections. Applying the model to Chinese banks, we evaluate the fire-sale loss of each bank and quantify the impact of each asset in different simulated stress scenarios. Using both theoretical and empirical evidence, we show the ability of network centrality to explain systemic risk contribution: a bank with more network connections is systemically more important. We also present an optimal strategy to mitigate and govern systemic risk. Our result implies that the systemic importance of a bank is based not only on its size but also on the kinds of assets it holds; it provides useful systemic risk monitoring tools complementary to those currently used by supervisors. [ABSTRACT FROM AUTHOR]

How does deleveraging affect the market liquidity of high-embedded-leverage securities issued by financial institutions and the funding constraints of these institutions? We use the forced deleveraging of structured mutual funds during the 2015 Chinese stock market crash to study the effects of deleveraging. Our regression-discontinuity analysis shows that deleveraging significantly reduces the market liquidity of the deleveraging funds' equity units. Moreover, our difference-in-differences analysis shows that deleveraging results in large decreases in subsequent fund flows, stock and cash holdings, and performance, with the impact channeled through the deterioration of the market liquidity of the fund's equity units. This paper was accepted by Victoria Ivashina, finance. [ABSTRACT FROM AUTHOR]

Copyright of Economic Science / Jingji Kexue is the property of Economic Science Editorial Office and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

According to recent macroeconomic evidence, the global financial crisis is still impacting the South African financial landscape more than 10 years later. In an effort to better understand the effect of the financial crisis, we examine household debt dynamics, with particular attention to deleveraging, following the financial cycle peak. Our analysis is predicated on the National Income Dynamics Study, the first wave of which was conducted adjacent to the beginning of the crisis. We apply standard regression analysis finding heterogeneity in debt and deleveraging at the household level, with both an uptick in short-term debt in the early stages of the crisis and a reduction in long-term debt, primarily mortgage debt, since. Overall, deleveraging was greatest amongst higher income households with relatively larger mortgage debt-to-income ratios, although that was partially offset in households with higher mortgage repayment costs relative to income. Long-term deleveraging was also more likely amongst households with higher vehicle debt-to-income ratios, but lower consumer debt-to-income ratios. [ABSTRACT FROM AUTHOR]

• This study examines the influence of the Green Credit Guidelines on corporate deleveraging and its underlying mechanisms. • This study takes the formal implementation of the 2012 Green Credit Guidelines as a quasi-natural experiment of exogenous shocks. • The green credit policy has a positive impact on enterprise deleveraging. • The green credit policy reduces corporate leverage ratio by increasing financing constraints and financial distress risk. • This effect is more pronounced on small-scale enterprises, lower external audit quality enterprises, capital-intensive enterprises, and enterprises in the eastern region. Green Credit Policy (GCP) plays a dual role in environmental protection and financial regulation. Its effectiveness in driving enterprises to deleverage is of great significance in accelerating the development transition. This paper uses the difference-in-differences method to investigate the impact of the Green Credit Guidelines (GCG) on corporate deleveraging in Chinese A-share listed companies between 2007 and 2021. The results show that GCP has a driving effect on enterprise deleveraging. The mechanism tests indicate that corporate leverage ratio can be reduced by increasing financing constraints and reducing the financial distress risk. The findings offer policy implications for promoting high-quality economic development. [ABSTRACT FROM AUTHOR]

In August 2018, Turkey experienced a major economic crisis when its exchange rate depreciated by around 40 percent in the course of just a few days. This led to a credit bust that soon dragged Turkey into a recession. This paper analysis Turkey’s predicament using the stock-flow consistent sectoral financial balances (SFB) model to delineate and evaluate the policy options open to Turkey at a juncture where the private sector has commenced a process of deleveraging or in other words, reducing its net financial accumulation of liabilities. Since the crisis erupted, Turkey has tightened both monetary and fiscal policies to control accelerating inflation and the depreciating lira, which would then – it is hoped – revive investment and exports. However, prevailing uncertainties on account of deteriorating Turkish-US relations may prove a dampener on the success of these policies.

This paper analyses the structure of the part of the global financial network that the banking systems of the Western Balkan countries belong to for the period 2007-2013. The data it uses is mostly from BIS consolidated banking statistics and the methodological tools used are based on network theory. It finds that a few features of the pan-European financial network strongly influence the likelihood of risk transfer to the Western Balkan area. First, the banking systems of the six Western Balkan countries are periphery nodes in the financial network. Second, the network is highly concentrated around a small number of nodes and all other nodes are weakly interconnected. Third, there are three nodes or regional common lenders that have dominant roles in the Western Balkan banking systems: the banking systems of Austria, Italy, and Greece. The conclusion is that in the case of financial distress anywhere in the financial network, risk could easily spread to Western Balkan banking systems, with the interconnections in the financial network having the effect of a risk transmitter. Wherever in the network the initial shock is sufficiently strong, financial contagion could easily spread to the Western Balkan area through the regional common lenders.

In this paper we explore lessons from the global liquidity crisis pertaining to the prudential supervision role of central bank in an open economy. The crisis validates the need for external debt management policy in emerging markets. Hoarding international reserves (IR) is a potent self-insurance mechanism. However, it is associated with relatively high costs and is also less efficient in absence of assertive external debt management policies. In the presence of congestion externalities associated with deleveraging, optimal external borrowing-tax-cum-IR-hoarding-subsidy reduces the cost as well as the scale of hoarding IR.

The policy Trilemma (the ability to accomplish only two out of three policy objectives –financial integration, exchange rate stability and monetary autonomy) continues to be a validmacroeconomic framework. The financial globalization during 1990s-2000s reduced theweighted average of exchange rate stability and monetary autonomy. An unintendedconsequence of financial globalization has been the growing exposure of developing countries tocostly capital flights and deleveraging crises. Emerging Markets responded by adding financialstabilityto the three Trilemma policy goals, coupling their growing financial integration withlarge hoarding of international reserves, as means of self-insuring their growing exposure tofinancial-turbulences.

This paper first reviews the developments in the size and composition of the European banking sectors' balance sheets since the Global Financial Crisis and then assesses the impact of foreign currency loan conversion programs on systemic risk. Aggregate data from 2009Q1 to 2019Q3 indicate three major developments. First, the deleveraging process in Europe has been sizeable, while credit growth may be hampered in several countries. Secondly, macroprudential measures and conversion programs have only partially achieved their goal of lowering financial dollarization in Central and Eastern Europe. Lastly, systemic risk remains elevated in the non-euro area. [ABSTRACT FROM AUTHOR]

This paper studies the degree to which Emerging Markets (EMs) adjusted to the global liquidity crisis by drawing down their international reserves (IR). Overall, we find a mixed and complex picture. Intriguingly, only about half of the EMs relied on depleting their international reserves as part of the adjustment mechanism. To gain further insight, we compare the pre-crisis demand for IR/GDP of countries that experienced sizable depletion of their IR, to that of courtiers that didn’t, and find different patterns between the two groups. Trade related factors (trade openness, primary goods export ratio, especially large oil export) seem to be much more significant in accounting for the pre-crisis IR/GDP level of countries that experienced a sizable depletion of their IR in the first phase of the crisis. These findings suggest that countries that internalized their large exposure to trade shocks before the crisis, used their IR as a buffer stock in the first phase of the crisis. Their reserves loses followed an inverted logistical curve – after a rapid initial depletion of reverses, they reached within 7 months a markedly declining rate of IR depletion, losing not more than one-third of their pre crisis IR. In contrast, for countries that refrained from a sizable depletion of their IR during the first crisis phase, financial factors account more than trade factors in explaining their initial level of IR/GDP. Our results indicate that the adjustment of Emerging Markets was constrained more by their fear of losing international reserves than by their fear of floating.

The onset of the US credit crisis in 2008, and its rapid globalization induced the FED to extend unprecedented swap-lines of 30 billion dollars to four emerging markets, and the proliferation of other cross-countries selective swap arrangements. This paper explores the logic for these arrangements, focusing on the degree to which financial and trade linkages, financial openness and credit risk history account for discerning the formation of swap arrangements to EMs. We also study the impact of the formation of these credit lines on the exchange rate and the financial spreads of the relevant countries. We find that exposure of US banks to EMs is the most important selection criterion for explaining the “selected four” swap-lines. This result is consistent with the outlined model, where we show that in circumstances of unanticipated deleveraging, emergency swap-lines may prevent or mitigate costly liquidation today, allowing investment projects to reach maturity and providing positive option value to both the source and the recipient countries. The FED swap-lines had relatively large short-run impact on the exchange rates of the selected EMs, but much smaller effect on the spreads (measured relative to that of other EMs that were not the recipients of swap-lines). Specifically, non-swap countries saw an average depreciation of 0.15% on the day after swap announcement, but swap countries saw their exchange rate appreciate on average, by about 4%. Yet, all the swap countries saw their exchange rate subsequently depreciate to a level lower than pre-swap rate, calling into question the long-run impact of the arrangements.

The paper highlights systematic deleveraging of firms in India and explores the factors contributing to such deleveraging. The paper further highlights that deleveraging is pervasive in manufacturing and non-manufacturing firms almost equally. The empirical findings of the paper suggest that most consistent theoretical determinants of corporate leverage fail to explain the decline in debt ratios of the firms. However, institutional deficiencies in the form of underdeveloped bond markets and decline in corporate investments were found to be significant in explaining the decline. The results suggest that firms could be credit rationed and hence losing value on account of such deficiencies.

The Fiscal Compact had seemed to be one of the lessons learned from the Euro crisis. It was supposed to ensure that member states follow more ambitious fiscal targets. First results however show that fiscal indicators have not substantially improved. Public debt is higher than at the beginning of the crisis and consolidation efforts were limited. The outook for European public debt and the stability of the Eurozone is thereby not promising. [ABSTRACT FROM AUTHOR]

This paper examines the drivers of the retrenchment in cross-border banking in the European Union (EU) since the global financial crisis, which stands out in international comparison as banks located in the euro area and in the rest of the EU reduced their cross-border claims by around 25%. Particularly striking is the sharp and sustained reduction in intra-EU claims, especially in the form of deleveraging from cross-border interbank loans. Examining a wide range of possible determinants, we identify high non-performing loans as an important impediment to cross-border lending after the crisis, highlighting the spillovers from national banking sector conditions across the EU. We also find evidence that prudential policies can entail spillovers via cross-border banking in the EU, albeit with heterogeneity across instruments in terms of direction, magnitude and significance. Our results do not point to a major role of newly introduced bank levies in explaining cross-border banking developments. [ABSTRACT FROM AUTHOR]

• We examine how macro-prudential policy affects their systemic risk. • Macro-prudential policy significantly reduces both dimensions of systemic risk in China. • Deleveraging and lowering inter-firm risk correlations are two plausible channels. Using data of listed real estate firms (REFs) in China, we examine how macro-prudential policy affects their systemic risk. Employing a two-dimensional measure of systemic risk contribution and vulnerability, we find that macro-prudential policy reduces both dimensions of systemic risk. Deleveraging and lowering risk interconnectedness are two plausible channels. Asset-based policy instruments, including loan-to-value limits, are more effective than capital- and liquidity-based instruments. Moreover, rational use of macro-prudential tools helps stablize REFs' operating performance by reducing their systemic risk. Our findings highlight the critical role of macro-prudential policy in balancing risk prevention and economic growth. [ABSTRACT FROM AUTHOR]

This essay uses recent methodology for estimating capital shortfalls of financial institutions during aggregate stress to assess the evolution of financial sector health since 2007 in the United States, Europe, and Asia. Financial sector capital shortfalls reached a peak in the end of 2008 and early 2009 for United States and Europe; however, they declined thereafter steadily only for the United States, with Europe reaching a similar peak in the fall of 2011 during the sovereign crises in the southern periphery. In contrast, the financial sector in Asia had little capital shortfall in 2008–2009 but the shortfall has increased steadily since 2010, notably for China and Japan. These relative patterns can be explained on the basis of the regulatory responses in the United States, the lack thereof in Europe, stagnation in Japan, and the bank-leverage-based fiscal stimulus in China.

BRIC – Brazil, Russia, India and China – were, in the recent past, not only considered to be the largest and fastest growing economies amongst the emerging markets but also the engines of global economic growth. However, since 2012 cracks have emerged in this narrative. With negative, decelerating and insufficient GDP growth, the BRIC countries are floundering. This paper attempts to identify the causes, policy responses and challenges emanating from these policies for each of the BRIC economies using the post- Keynesian, Structural Financial Balances framework. The study draws attention to the importance of fiscal policy as a short-term macroeconomic policy option.

Following the approaches of Fisher, Koo, and in particular Minsky, this article describes recent developments in the Spanish economy. These authors’ theories of financial fragility, and the extension of analysis of the recession to also include the expansionary period, are very useful when it comes to understanding the boom (1994-2008) and subsequent collapse of the Spanish economy. Both processes are part of the same phenomenon: the binomial relation between debt and the asset bubble, amplified by the use of external financing, and the subsequent process of slow deleveraging. Alongside said analytical elements, and considering Spain’s membership in the Eurozone monetary union system, this characterisation of the euphoria and subsequent balance-sheet recession further identifies specific features of the Spanish economy that informed current outcomes.

Even after one of the most severe multi-year crises on record in the advanced economies, the received wisdom in policy circles clings to the notion that high-income countries are completely different from their emerging market counterparts. The current phase of the official policy approach is predicated on the assumption that debt sustainability can be achieved through a mix of austerity, forbearance and growth. The claim is that advanced countries do not need to resort to the standard toolkit of emerging markets, including debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression. As we document, this claim is at odds with the historical track record of most advanced economies, where debt restructuring or conversions, financial repression, and a tolerance for higher inflation, or a combination of these were an integral part of the resolution of significant past debt overhangs.