Search

We use the China Household Income Project (CHIP) data to evaluate the impact of the Housing Provident Fund (HPF) on income inequality in urban China. We find that urban residents differ significantly in their accessibility to and intensity of utilization of the HPF. Those who work in the public sector, in monopolistic industries, and possess managerial or professional occupations are more likely to benefit from the HPF, leading to further income inequality. Our research also emphasizes four mechanisms through which the HPF affects income inequality. The foregone interest due to compulsory HPF saving is the only mechanism that decreases the inequality, whereas the employer's match, personal income tax exemption on the HPF, and lower interest expense due to acquiring the HPF loan increase inequality. The evidence highlights the HPF's unintended redistributive impacts and thus the necessity of enhancing equity in the ongoing HPF reform.

The aim of this paper is to measure the relative efficiency of commercial banks in two developing countries, the Republic of North Macedonia and the Republic of Croatia under the operating (incomebased) approach by using the leading non-parametric methodology data envelopment analysis (DEA). We follow Banker et al. (2010) in the selection of the approach, variables (two inputs: interest expense and other operating expense, and two outputs: interest revenue and other operating revenue) and the model (output-oriented BCC DEA model) as in their first stage. The observed period is five years (2015-2019) and we use a balanced panel data for both samples (total of 65 Macedonian and 100 Croatian bank-year observations). Outliers are identified and excluded by using the Banker and Gifford (1988) super-efficiency procedure, and the BCC output-oriented model is rerun for both samples (total 55 Macedonian and 95 Croatian bank-year observations). We provide relative efficiency scores for each bank in both sectors, as well as an average score for the banking sectors. In addition, we analyse few banks for both sectors that have decreased or increased the efficiency, or show variable results over time. Besides, we explain how inefficient banks can improve the efficiency in future by setting targets for improvement. Our study provides valuable information for banking management and regulatory bodies.

O presente estudo tem como objetivo verificar a associação entre as empresas de auditoria independente e as escolhas contábeis. A amostra foi composta por 135 companhias de capital aberto brasileiras, listadas na B3, no período de 2010 a 2017. Foram avaliadas as escolhas contábeis relativas à mensuração de propriedades para investimentos, mensuração dos estoques, taxa de depreciação, método de depreciação, reconhecimento das parcelas do arrendamento mercantil operacional, reconhecimento das compras ou vendas regulares de ativos financeiros, classificação de juros pagos, classificação de dividendos e juros sobre o capital próprio pagos e dividendos e juros sobre o capital próprio recebidos. Essas escolhas foram selecionadas por estarem contidas explicitamente nas normas contábeis e, portanto, serem de fácil identificação nas demonstrações contábeis. Para testar a associação entre as empresas de auditoria e as escolhas contábeis foi utilizado o teste Qui-quadrado. Os resultados apontam a associação da mudança da empresa de auditoria com todas as escolhas contábeis investigadas, exceto a mensuração dos estoques e a classificação dos dividendos e juros sobre o capital próprio pagos. Adicionalmente, verificou-se que o fato de a empresa de auditoria ser uma Big Four está associado à mudança de práticas relativas à mensuração de propriedades para investimentos, mensuração de estoques e classificação de dividendos e juros sobre o capital próprio pagos. As evidências do estudo indicam que a auditoria pode ser um fator relevante para o entendimento das práticas contábeis adotadas pelas empresas.

Employees bear significant costs in bankruptcy. Theoretical models predict they will accept lower wages in the face of financial distress to avoid such costs. Using a natural experiment, I test this theory and find an exogenous increase in default risk causes a decrease in employee wages. The effect is economically meaningful: the reduction in aggregate annual wages equals 10% of the firm’s earnings and 33% of its interest expense. As expected, it is concentrated in financially vulnerable firms and those with fewer agency conflicts. Employees thus represent an important financial resource for firms in the midst of financial distress.

A decrease in interest rate in traditional view of monetary policy transmission is linked to a lower cost of borrowing which eventually results into a greater spending in investment and a bigger GDP. However, a decrease in interest rate is also linked to a decrease in interest income which, in turn, affects the aggregate demand and total GDP. So far, no concerted effort has been made to investigate this positive inter-relation between interest income and GDP in the existing literature. Here in the first place we intuitively describe the inter-relation between interest income and output and then provide a micro-foundation of our intuitive reasoning in the context of a small endowment economy with finitely-lived identical households. Then we try to uncover the impact of nominal interest income on the macroeconomy using multiplier theory for a panel of some 04 (four) OECD countries. We define and calculate the corresponding multiplier values algebraically and then we empirically measure them using impulse response analysis under structural panel VAR framework. Large, consistent and positive values of the cumulative multipliers indicate a stable positive relationship between nominal interest income and output. Moreover, variance decomposition of GDP shows that a significant portion of the variance in GDP is attributed to interest income under VAR/VECM framework. Finally, we have shown how and where our analysis fits into the existing body of knowledge.

Purpose This study aims to examine whether audit partner public-client specialization and busyness impact the cost of debt. Design/methodology/approach This paper uses data from companies in Thailand for the 1998–2016 period. To measure the cost of debt, this study uses the realized interest cost, measured as the total interest expense for the one year ahead divided by the average value of total debt outstanding during that year. Findings The results show a positive association between the cost of debt and two measures of public-client specialization and busyness, which are the number of public clients audited by an individual audit partner in each year and the proportion of the number of public clients divided by the number of total clients in an individual audit partner’s portfolio. Originality/value In the literature, there is a lack of research on whether a higher number of public clients in an audit partner’s portfolio leads to better or worse perceived audit quality. This study extends prior literature by examining whether creditors’ perception of audit quality depends on the audit partner specialization or busyness and specifically, on the number of public clients of the auditor. The findings indicate that public-client busyness of a particular audit partner, rather than the audit partner public-client specialization, matters in the cost of debt.

Purpose This study aims to explore the relationship between audit partner and firm industry specialization and board of director independence on the decision by Taiwanese firms to use International Financial Reporting Standards (IFRS) flexibility concerning reporting interest income and expense and dividends received in different sections of the statement of cash flows. This flexibility existed in Taiwan for the first time in 2013, the year that Taiwan switched from its own generally accepted accounting principle to IFRS. Design/methodology/approach Using 2013 data for a sample of 1,227 firms, 354 of whom changed their reporting classification, this study examined the interaction effect of board independence and partner-level and firm-level auditor industry specialization on the cash flow reporting decision using logistic regression. Findings The results show there is a substitute relationship between board independence and partner-level industry specialization on the change in cash flow reporting classification, but a complementary relationship between board independence and firm-level auditor specialization. Further, both partner-level and firm-level auditor industry specializations have a complementary (but negative) relationship with board independence as to whether the firm is likely to report interest expense paid in the operating or financing activities sections. Practical implications An important implication is that knowing the levels of audit firm and partner specialization and how independent the board is, is useful for researchers and regulators in investigating auditor-client relationships and understanding the influences of variables investigated here on the outcome(s) of accounting policy and regulatory changes. Originality/value This study improved the field’s understanding of the impacts of audit partner and firm specialization, board independence and relevant interactions on cash flow reporting choices.

Popular models for computing hurdle rates and valuation of companies were developed in the context of the USA tax code, which has two peculiar features. First, it computes taxes based on a nominal income basis. Second, it does not allow for integration between corporate taxes on earnings and personal taxes on dividends. Some Latin American countries do not share these characteristics of the USA tax regime. In this paper, we extend the standard formulas for valuation of companies to incorporate the effects of inflation on depreciation and interest expense tax shields, when they are computed under real versus nominal taxable earnings regimes. We also offer a modified, equivalent corporate tax rate formula that properly accounts for integration between corporate and personal taxes.

Mergers and acquisitions are expected to improve company performance. This study aims to determine the effect of mergers and acquisitions on company performance. This research is a descriptive quantitative research, using the case study approach method. The sampling technique is based on a sample that meets the criteria determined by the purposive sampling method. The data collection techniques used were documentation and interview techniques. The data analysis technique used is financial ratio analysis as a measure of performance. The results showed that after mergers and acquisitions, the company's performance has increased. This means that mergers and acquisitions have a positive impact on company performance. The positive impact on company performance is possible due to differences in company operating efficiency, utilization of tax savings facilities, changes in the amount of debt interest expense that must be paid by the company due to mergers and acquisitions.

The analysis employs data on Indian listed firms from 1996 to 2010 to explore several hypotheses relating to the costs of lending relationships. The evidence indicates that smaller, established, levered and high-growth firms charge higher interest rates. In addition, capitalized firms charge lower rates, and both bank and firm ownership do have a role to play in influencing borrowing costs.

This paper examines the factors that differentiate reorganized and delisted financially distressed firms in Malaysia. The results show that earnings before interest and tax to interest expense, cumulative average abnormal returns and the role the top 10 largest shareholders play are significant. The inclusion of firm-specific financial, market and institutional variables improve the estimation. The findings of this study suggest models incorporating these features can be used by creditors, regulators and investors to manage credit and financial market risk.

Bankovna stabilnost temelji se na povjerenju deponenata u bankovne institucije i cjelokupni bankovni sustav. Jedna od bazičnih mjera koje osiguravaju navedeno je sustav osiguranja depozita kao sastavni dio sigurnosne mreže svakog financijskog sustava. Njegova važnost posebno dolazi do izražaja u uvjetima nestabilnosti i kriza, dok se u tzv. „dobrim vremenima“ podcjenjuju brojni pozitivni učinci. Ipak, sustav osiguranja depozita rezultira i negativnim posljedicama u smislu većeg preuzimanja rizika od strane banaka, smanjenja tržišne discipline, problema moralnog hazarda i negativne selekcije te problema principala i agenta. Cilj rada je ispitati učinke sustava osiguranja depozita na bankovnu stabilnost u tri razdoblja: prije globalne financijske krize, za trajanja krize i nakon krize. Bankovna stabilnost aproksimirana je mjerama bankovnog rizika (z-score, nenaplativi krediti u ukupnim kreditima). Istraživanjem su obuhvaćene sve vrste kreditnih institucija (ukupno 1 453) zemalja članica EU-a i odabranih država JI Europe. Analiza je provedena dinamičkom panel analizom - GMM Arellano-Bond (AB) procjeniteljem u dva koraka. Rezultati empirijske analize ukazuju kako djelovanje sustava osiguranja depozita na bankovnu stabilnost mjerenu bankovnim rizikom ovisi o pojedinim obilježjima (karakteristikama) sustava odnosno o primijenjenom dizajnu sustava s obzirom na institucionalne, povijesne i pravne razlike među zemljama., Bank stability is based on the depositors’ trust in banks and the entire banking systems. One of the basic measures that provides these is the deposit insurance system as an integral part of the security network of each financial system. Its importance is particularly pronounced in times of instability and crisis, while in “good times” their positive effects are underestimated. Nevertheless, the deposit insurance system has also resulted in negative consequences in terms of bank risk mitigation, reduced market discipline, moral hazard risk, negative selection and principal-agent problems. The aim of the paper is to examine the effects of the deposit insurance system on bank stability in the pre-global financial crisis period, the crisis period and the post-global financial crisis period. The bank stability is approximated by measures of bank risk (z-score, non-performing loans in total loans) and deposit volatility (total deposits and interest expense of deposits). The research has included all types of credit institutions (1453) of the EU states and some selected SE European countries. The analysis has been verified by dynamic panel data analysis - GMM Arellano-Bond (AB) estimator in two steps. The empirical analysis results indicate that the effect of the deposit insurance system on banking stability, measured by bank risks and deposit volatility, depends on the system characteristics, i.e. the applied system design, in view of institutional, historical and legal differences among countries.

In this paper, we provide the first cross-country empirical evidence on the relationship between economic policy uncertainty (EPU) and banks’ interest income activities (measured using the net interest income). Using bank-level panel data of 3,252 banks in 16 economies over the period 2009-2018, we show that EPU has a negative and statistically significant effect on banks’ net interest income (NII). Specifically, we find that banks’ NII decreases as the level of EPU increases. We also show that this reduction is due to the reduction in other interest income which is only partially offset by the reduction in other interest expense. Finally, our results show that the reduction in banks' net interest income (associated with an increase in EPU) is stronger for banks located in countries where negative interest rates are in place.

Both the supply and demand for household credit associated with the housing crisis reflect cognitive biases, such as the recency bias, that drives borrower and lender expectations. Well-intended, but poorly proscribed, financial deregulation offered a field of experimentation that reinforced the housing crisis. Increases in household debt alone, tells us little about the true financial state of the household. A better approach is the comparison of assets/liabilities—the concept of household net worth. Income statement ratios, such as the interest expense to disposable personal income ratio, provide a view of household finance. This introduces the influence of changes in interest rates, credit availability, and the pace of employment/income growth. Since the financial crisis of 2007–2009, the household debt service ratio remains below the level of early 1980s—a structural break in the series intimates a new model of household supply and demand for credit.

What do small firms do when given an income tax cut? We address this question by examining the consequences of a sharp reduction in the corporate income tax rate for small- and micro-profit enterprises (SMPE) in China based on confidential tax returns. Utilizing the gradual increases in the qualifying threshold for SMPEs during 2010-2016, we find that newly qualified SMPEs with positive taxable income increased investment, interest expense and productivity. SMPEs in taxable losses did not respond to the tax cut. The tax cut induced more SMPEs to register, especially those in financially constrained sectors. Despite these positive effects, firms’ fixed asset growth slows down when they get closer to the SMPE threshold. Our study contributes to understanding the effect of tax preferences for small businesses.

This study explores the relationship between audit partner and firm industry specialization and board of director independence on the one hand and the decision by Taiwanese firms to take advantage of IFRS flexibility concerning reporting interest income and expense, and dividends received in the operating cash flow section of the statement of cash flows on the other. A sample of 1,227 Taiwanese firms were drawn for fiscal year 2013, the year that Taiwan switched from using its GAAP to using IFRS principles. Of these, 354 changed their cash flow reporting classifications. We examine the interaction effect of board independence and auditor industry specialization at both partner-level and firm-level on the cash flow reporting classification choices under IFRS. The results show there is a substitute relationship between board independence and partner-level industry specialization on the change in cash flow reporting classification, but a complementary relationship between board independence and firm-level auditor specialization. Further, both partner-level and firm-level auditor industry specialization have a complementary relationship with board independence in not changing a firm’s interest expense paid reported in operating activities to financing activities.

Introduction: The word “zombie” is associated with the “living dead” in our minds from horror movies we watch on TV. Recently, this concept has been used frequently to identify the firms that are still standing while they should have been closed long ago. Zombie firms are apparently active, but their cash flows are only used to compensate interest expense of their debts. Banks prefer to re-finance these firms and restructure their sunken loans rather than following their debts and moving them out of the bank’s balance sheets. However, these inefficient and unproductive firms also consume the capital that can be transferred to more productive firms. Therefore, these firms live as long as the cash inflow, which is considered as fresh blood and meat for the living dead-zombie, and they consume the resources of other living healthy firms. Purpose: The aim of this study is to investigate the existence of zombie firms which are listed in Borsa İstanbul manufacturing industry. Methodology: The research period is between the years 2008 and 2018, and interest coverage ratio (ICR) is used for Borsa İstanbul manufacturing firms. There are several explanations of zombie firms in the literature, which are commonly constructed on a scope of profitability of a firm. In this research, the OECD’s preferred explanation and classification of zombies is chosen which describes a zombie firm as having an ICR (operating earnings to interest expenses) which is less than 1 over three consecutive years. Findings: It has been noted from this research that ICRs differ in the research period of Borsa İstanbul manufacturing industry firms. About 62 of 109 firms traded on Borsa İstanbul manufacturing industry between 2008 and 2018 were classified as zombie firms because they had ICRs below one for three consecutive years or over. © 2020 Emerald Publishing Limited.

This paper examines the pricing of global syndicated loans during the COVID-19 pandemic. We find that loan spreads rise by over 11 basis points in response to a one standard deviation increase the lender’s exposure to COVID-19 and over 5 basis points for an equivalent increase in the borrower’s exposure. This renders firms subject to a burden of about USD 5.16 million and USD 2.37 million respectively in additional interest expense for a loan of average size and duration. The aggravating effect of the pandemic is exacerbated with the level of government restrictions to tackle the virus’s spread, with firms’ financial constraints and reliance on debt financing, whereas it is mitigated for relationship borrowers, borrowers listed in multiple exchanges or headquartered in countries that can attract institutional investors.

Using a production-based structural model, calibrated with data for the period 2001-2017, we find that for the typical firm the cap on the deduction of interest expense enshrined in the Tax Cuts and Jobs Act of 2017 reduces the tax benefits of debt by 1% of unlevered firm value. This impact differs across industries ranging from a decline of 0.3% to 3.7% of unlevered firm value. Industry specific capital to labor ratio is a key driver of these effects. The new tax provisions make firms’ current capital structure policies considerably less conservative - a typical firm’s marginal tax benefit declines from 14.3% to 7.8% of unlevered firm value because of the cap. A different structure of the interest rate cap can reduce its differential impact across industries while preserving limits on deductibility of interest expense, on average.

Using proprietary balance sheet data for Korean banks and a simultaneous equation model, we use a unique measure of the cost of new funding to document that increased funding costs lead to larger solvency risk (as measured by regulatory capital), which, in turn, leads to larger funding costs. When including the great financial crisis in the sample, our estimates imply that a 100 basis points (bp) increase in the cost of new funding (regulatory capital) is associated with a 265 (23) bp increase in regulatory capital (cost of new funding). We show these results are robust to alternative measures of solvency risk and that the traditionally used measure of average funding costs (interest expense over interest-bearing liabilities) does not properly capture this two-way negative feedback loop. The strength of this link is weaker during periods of monetary policy tightening, and is not affected by the specific funding business model chosen by banks. Our findings can inform macroprudential stress-tests calibration.

In 2015, the Slovak Parliament adopted the Law on Amendments to the Law on Value-Added Tax. This law came into force on January 1, 2016. One of the most significant changes was the introduction of a reverse-charge for the provision of construction works. A government statement of its positive influence on the business environment is inconsistent with the two-year experience in the building sector. The main goal of this paper is to establish the reason for the practical effects of the value-added tax reverse-charge mechanism on the construction companies. The hypothesis is that the negative effect on the cash flows of the construction companies increases ‘opportunity costs’ connected to excessive deductions. The paper focuses on evaluating and quantifying such an effect. It presents a comparison of the conditions before and after the adoption of the Act. No. 222/2004 Coll., as amended in 2016 and includes factors that influence costs and cash flows of construction companies. It but does not consider factors related to turnover and the economic situation. The reverse-charge mechanism affects the total of tax owing, the total deductible tax, the total excessive deduction, and the construction companies’ cash flows. In this study, the data from the information system of the Slovak Republic, under the condition of anonymity, are analyzed for the period 2014–2017. The effect of the value-added tax is quantified by way of financial interest expenses. These expenses depend on time limits for the excessive deduction, total of tax owing, and on the excessive deduction amount. Indicators of ‘Financial Burden 1’ and ‘Financial Burden 2’ are calculated. The results show that the Law on Amendments of Value Added Tax has significantly affected the constructions companies since January 2016. The reverse-charge system has not changed the delay in excessive deduction payments to the taxpayer’s bank account. It has changed the amount of excessive deduction expressed through money and the total tax owing. Based on the study results, this change markedly affects the financial burden of construction companies and provides an ‘opportunity cost’ Value Added Tax payers‘ construction company.

Accounting rules mandate that the cost of debt should be recorded as an expense, while the cost of equity does not appear in the income statement. Therefore, the amount of financing expense, and thus net income, in the income statements depends on how firms finance their business. Based on a clear, substantial trend of declining leverage since the 1990s, we examine how changes in capital structure might influence earnings attributes—the matching between revenues and expenses. We find that the contemporaneous relation between revenues and interest expense in US firms has decreased from 1972 to 2013, a result of both changes in leverage and the declining explanatory power of interest expense with respect to revenues. When we construct the weighted average costs of capital based on the costs of both debt and equity, we find the contemporaneous relation between revenues and the costs of capital has not significantly changed. Our results indicate that differential accounting treatment of the costs of debt and equity can affect earnings attributes through change in capital structure.

Purpose The purpose of this study is to use a steady-state model structure to investigate earnings management (EM) theoretically in the context of different expense theories. Empirically, the objective is to apply the theoretical model to investigate the implicit choice of expense theories for reporting expenses. The study aims to present a new approach to analyze EM. Design/methodology/approach The study makes use of ten-year time-series data originally from 1,015 Finnish public and private firms to estimate the parameters of the steady-state model, and to investigate which expense theories the firms implicitly follow in financial reporting. The parameters are estimated using the restricted least squares regression method. The final sample included data from 631 firms fulfilling restrictions for the consistency of estimates. Findings The paper provides empirical insights about expense theories that Finnish firms implicitly follow in financial reporting. Evidence shows that the reporting of expenses mainly follows the units-of-revenue and the rate-of-return theories. Only a small number of firms follow the interest expense theory. Research limitations/implications The study is based on a steady-state approach, and therefore, the research results may lack generalizability as only 62% of the original sample firms obtained consistent estimates. Therefore, researchers are encouraged to use more general models for further theoretical and empirical work. Practical implications The paper includes implications for a new approach to EM. It also gives implications how to analyze different expense theories in the context of EM both theoretically and empirically. Originality/value This paper develops a new approach to investigate EM.

Bu çalışmanın amacı Türkiye’deki bankacılık sektörünün verimliliğini ölçmektir. Çalışma özel, kamu ve yabancı sermayeli mevduat bankaları üzerine yapılmıştır. BCC (değişken ölçeğe göre getiri) ve CCR (sabit ölçeğe göre getiri) varsayımları altında 2008-2016 yılları arasında veri zarflama analizi sonuçları değerlendirilmiştir. Çalışmadaki girdiler mevduat, faiz giderleri ve personel sayısı iken çıktılar krediler ve faiz gelirleridir. VZA sonuçlarına göre, CCR varsayımı altında Deutsche Bank ve Arap Türk Bankası etkinliğe diğer bankalardan daha çok ulaşmıştır. Ayrıca, BCC varsayımı altında 2016 lambda değerleri bulunmuş ve seçilmiş bankaları etkin hale getirecek girdi ve çıktı değerleri hesaplanmıştır. The aim of this present study is investigation of Turkish banking sector efficiency. The research is conducted on private, public and foreign capital deposit banks. Under the assumptions of BCC (variable return to scale) and CCR (constant return to scale), Data Envelopment Analysis results are evaluated between the years of 2008 to 2016. Deposit, interest expense and numbers of employee as an input and loan and interest income as an output were used in the analyses. According to results of DEA, Deutsche Bank and Arap Türk Bankası reached fully efficient point more than other banks under the assumption of CCR. Furthermore, under the assumption of BCC, 2016 lambda values are found and inputs and outputs are recalculated for chosen banks in order to make them efficient.

Company activities can be financed from own and other sources of financing. The structure of the company's funding sources points to the company's safety in terms of financial independence. The paper will analyze the sources of financing of agricultural enterprises in AP Vojvodina in the period from 2006-2015. years. An analysis of the sources of finance for agricultural enterprises will be carried out on the basis of the following indicators: the ratio of liabilities and capital, indicators of interest expense coverage, the participation of long-term and short-term financial liabilities in total sources of financing, and the participation of long-term and short-term financial liabilities in other sources of financing. The results of the research should point to the level of indebtedness of agricultural enterprises in AP Vojvodini and to the possible modalities of improving financial independence.