Bank switching of US small businesses: new methods and evidence

Despite being informationally opaque, small firms often switch from their primary financial institution to transactional lenders, with the relationship banking theory invoking the holdup problem as a culprit explanation. Using US evidence and an estimation strategy that overcomes traditional shortcomings in small business research, our study captures the determinants and, for the first time, the ex post effects of the switching decision. We find that switching is less likely when the primary financial institution is a nearby bank associated with quality services and connected to the firm via other business or social relationships. Small firms become more loyal as they grow in size and pursue nonmortgage credit. Outside the primary relationship, both loan approval and borrowing cost are adversely impacted, however loan maturities are longer. Moreover, the likelihood of pledging collateral remains unaffected, provided that the type of collateral is least sensitive to the borrower’s information environment. Jointly, our findings describe a trade-off inconsistent with the holdup problem, and an opportunity for banks to enhance customer loyalty by improving aspects of the relationship unrelated to the terms of credit.

Real earnings management and borrowing costs: The moderating effect of the directors’ and officers' liability insurance

The purpose of this paper is to investigate the effects of real earnings management on firm borrowing cost of public-listed in Taiwanese manufacturing industry during 2010 to 2017, and also examines the moderating effect of the directors’ and officers’ liability insurance (D&O insurance) on real earnings management and borrowing costs. The empirical results show that borrowing cost is positively related to real earning management but negatively related to D&O insurance purchase. Therefore, the firms with D&O insurance than those without have lower borrowing costs, but the higher the D&O insurance amount, the higher the borrowing costs. Furthermore, D&O insurance has a moderating effect between the real earnings management and borrowing costs. Our findings suggest the relationship between D&O insurance and real earning management, which through the D&O insurance purchasing decision to impact on corporate borrowing costs. JEL classification numbers: G22, G32, M41. Keywords: Real earnings management, Directors’ and officers' liability insurance, Borrowing costs, Moderating effect.

Loan-to-value and the price-rent ratio

Purpose The purpose of this paper is to highlight the relation between the loan-to-value (LTV) ratio and the price-rent (PR) ratio. The paper intends to relate the PR-ratio to housing return and the potential for a leverage gain in housing investments by considering the funding structure of housing investments. Design/methodology/approach Combining a PR-ratio approach with the housing return in the case of mortgage-financed housing, as presented by Borgersen and Greibrokk (2012), this paper relates LTV to the PR-ratio. Findings When formalising the relationship between leverage and housing return, as given by Muellbauer and Murphy (1997), the paper finds the effect of a higher LTV on the user cost of housing as the net effect of a higher borrowing cost and the associated leverage gain. The latter depends on the relationship between house price growth and the mortgage rate and, because the leverage gain has an ambiguous effect on the user cost of housing, the relation between the LTV-ratio and the PR-ratio is context-specific. Originality/value The paper aims to contribute to the literature on PR ratios in two ways. First, by explicitly including the LTV-ratio in the user cost of mortgage financed housing and, correspondingly, in the PR-ratio derived from the user cost. Second, by including the funding structure of housing investments the expression for the capital gain, which often is discussed in the PR-ratio literature, is related to the funding structure and includes both a price gain and a leverage gain.

The Reluctance of Capitalizing the Borrowing Costs A Recent Study of Residence Development in the Province of Jawa Barat

The emerging trend of emerging business occurs due to the consciousness of society regarding to the long-term investment. Many property developers are currently being aware of creating new spaces for society, as well as preparing their company to face new era of the pricing competition of property. This research focuses on the decision of property developers in pricing decision in the scope of construction cost reporting in which the bank loan would likely affect the financial leverage, project acceleration, and selling price which result in volume of profit. Based on the applicable accounting standards (PSAK no.26), companies are tocapitalize all borrowing costs to the construction costs at the same time. Using quantitative method, this research attempts to find relationship between construction cost and borrowing cost towards stock market performance. In this study, EPS is assumed to be a parameter for stock performance measurement. The study suggests that constructioncosts does not impact on the stock performance in the market. On the other hand, borrowing costs give significant impact to EPS. This research also finds that in any level of rate, interest would be influencing the EPS.

Cheap Talk and Strategic Rounding in LIBOR Submissions

Interbanking rates were, until recently, based on judgmental estimates of borrowing costs. We interpret this as a cheap-talk game that allowed banks to communicate nonverifiable information about their opportunity cost to potential counterparties. Under normal market conditions there is a welfare maximizing equilibrium where banks truthfully disclose their borrowing cost, but, in times of financial stress, only “coarse” equilibria survive. We take this prediction to the data and show that banks round more frequently if the risk of the bank increases. Rounding is also more frequent for the more liquid short-term rates and certain benchmark maturities. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

The Reluctance of Capitalizing the Borrowing Costs A Recent Study of Residence Development in the Province of Jawa Barat

The emerging trend of emerging business occurs due to the consciousness of society regarding to the long-terminvestment. Many property developers are currently being aware of creating new spaces for society, as well aspreparing their company to face new era of the pricing competition of property. This research focuses on the decisionof property developers in pricing decision in the scope of construction cost reporting in which the bank loan wouldlikely affect the financial leverage, project acceleration, and selling price which result in volume of profit. Based onthe applicable accounting standards (PSAK no.26), companies are tocapitalize all borrowing costs to the constructioncosts at the same time. Using quantitative method, this research attempts to find relationship between constructioncost and borrowing cost towards stock market performance. In this study, EPS is assumed to be a parameter for stockperformance measurement. The study suggests that constructioncosts does not impact on the stock performance in themarket. On the other hand, borrowing costs give significant impact to EPS. This research also finds that in any levelof rate, interest would be influencing the EPS.

The impact of public debt on state borrowing cost in the US bond market before the great recession

Purpose The purpose of this paper is to use data on municipal bond sales in the US primary market for the period 1984–2007 to explore the effect of debt levels on the cost of borrowing for state governments. Design/methodology/approach This paper employs OLS and two-stage least squares regression model using instrumental variables. Findings The empirical analysis finds that despite the steady increase of state debt in recent years, there is no evidence that the market penalizes states with high-debt levels relative to other states. Originality/value The findings urge states to exercise prudence when making borrowing decisions because high-debt levels have the potential to crowd out spending for essential services and can lead to budget imbalances in the long term.

Economic coercion and the problem of sanctions-proofing

Although sanctions generate economic costs, target states may “sanctions-proof” their regime by borrowing capital from abroad. While some targets obtain interest-free capital from black knight states, others may need to borrow with interest from international credit markets. These interest rates may sometimes make borrowing cost-prohibitive, giving targets no choice but to acquiesce to the demands of the sender. However, since senders cannot observe if black knight states are assisting target states, targets have an incentive to misrepresent their source of external capital. In an effort to deter sanctions, targets that must borrow at high interest rates may signal that they have black knight support and are sanctions-proofed. We formally and empirically demonstrate that in this uncertain environment, senders are more likely to impose sanctions on targets with low credit ratings, but only do so if the target places a relatively low value on uninterrupted economic transactions with the sender.