Search results

The purpose of this paper is to analyse the effects of the maturities of credit‐enhanced debt contracts on the value of an insurer's loan‐guarantee portfolios.

The paper proposes a contingent‐claims model and uses as measure of credit insurance risk, the market value of the private guarantee, which accounts for projects' and guarantor's specific risks, correlations as well as financial leverage.

The results indicate that in the case of insuring the debts of two parallel projects with different specific risks, one high‐risk and the other low‐risk, the tradeoff between maturities of the guarantees increases with the projects' expected losses, hence the maturity choice decision is crucial for portfolios subject to high expected losses. For a two sequential projects loan‐guarantee portfolio, the paper finds that, regardless of the order of execution of the projects, it is the maturity of the debt supporting the high‐risk project that drives the risk exposure of the portfolio.

Since the management of portfolios of guarantees is of significant importance to many organizations both domestically and internationally, this paper proposes a simple and tractable model to gauge the impact of maturity choices for loan‐guarantee portfolios.

This is a first attempt at modeling multiple maturities in the context of portfolios of vulnerable loan guarantees.

In this paper, we study the role of government financial guarantees as catalyst for project finance (PF). On the one hand, the government's incentive compatibility and participation constraint determine the optimal portion of the loan to be backed. On the other, the borrowing interest rate satisfies the debtholders’ participation constraint. The project's sponsor may choose to underinvest or overinvest depending on its own capital contribution, the risk technology, the risk measurement errors, and the proportion of guarantee provided by the government. We derive the project optimal investment level as well as the government partial loan guarantee coverage. We also discuss the impact of the risk measurement errors on the project's credit spreads.

We identify a novel concept of discretionary idiosyncratic volatility proxied by the idiosyncratic volatility component not related to the non-systematic industry volatility as a source of agency problems that have implications for firms’ cash holdings and their investment decisions. We find that firms with low discretionary idiosyncratic volatility, which likely captures discretionary effort and risk-taking by managers, have smaller cash reserves. Moreover, while high discretionary idiosyncratic volatility firms spend cash internally (internal capital building), low discretionary idiosyncratic volatility firms use it for external acquisitions, consistent with the “quiet life” hypothesis. Our findings thus indicate a need for reinforcement of existing regulations and corporate laws to control for agency costs, which could in turn reduce firm risk and the probability of financial meltdown at the aggregate level.

For the developing countries involving in the Belt and Road Initiative (BRI) with China as the main source of foreign development investment (FDI) and development as the top priority, it appears to attract more and more attention on how to make the best use of China’s outward foreign development investment. However, the contradictory evidence in the previous studies of FDI spillover effect and the remarkable time-lag feature of spillovers motivate us to analyze the mechanism of FDI spillover effect. The paper aims to discuss this issue.

The mechanism of FDI spillovers and the unavoidable lag effect in this process are empirically analyzed. Based on the panel data from the Belt and Road developing countries (BRDCs) and China’s direct investments (CDIs) from 2003 to 2017, the authors establish a panel vector autoregressive model, employing impulse response function and variance decomposition analysis, together with Granger causality test.

Results suggest a dynamic interactive causality mechanism. First, CDI promotes the economic growth of BRDCs through technical efficiency, human capital and institutional transition with combined lags of five, nine and eight years. Second, improvements in the technical efficiency and institutional quality promote economic growth by facilitating the human capital with integrated delays of six and eight years. Third, China’s investment directly affects the economic growth of BRDCs, with a time lag of six years. The average time lag is about eight years.

Based on the analysis on the mechanism and time lag of FDI spillovers, the authors have shown that many previous articles using one-year lagged FDI to examine the spillover effect have systematic biases, which contributes to the research on the FDI spillover mechanism. It provides new views for host countries on how to make more effective use of FDI, especially for BRDCs using CDIs.

Financial experience is very important in today’s dynamic world of constant globalization with the upsurge in sophisticated financial products entering the financial markets, especially in developing countries. This is because it helps the illiterate unbanked poor women owners of micro businesses to make wise financial judgments and options guided by psychology and cognition. This paper aims to ascertain how financial experience can promote microfinance lending and the continued existence of women micro businesses in rural Uganda through an intervening role.

The paper employs a structural equation model through SmartPLS software to ascertain how financial experience can promote microfinance lending and the continued existence of women micro businesses in rural Uganda through an intervening role.

The empirical findings from this study indicated that financial experience, as a significant and positive mediator, improves microfinance lending and the continued existence of women micro businesses in rural Uganda.

Owing to the geographical ambit of the current study and sample source from only one developing country, future studies may collect data from other regions of the world for comparative analysis to give more insights on the role of financial experience in rural financial markets.

The government of Uganda should promote financial literacy to enhance the financial experience of women owners of micro businesses to help them make better financial judgements in the rural financial markets. This may increase microfinance lending and the continued existence of vibrant women micro businesses in rural areas. As a result, this could lead to the creation of more jobs for the ever-growing younger population in Uganda.

This study is motivated by the lack of understanding and experience about key financial concepts among more than 3.5 billion adults, mostly women. It applies the Experiential Learning Theory grounded in psychology and cognition to show how the financial experience of women who run micro businesses derived from repeated retrieval of knowledge and reflection, can help them to make sound financial judgments to become financially included by rural-based microfinance institutions. Learning-by-doing allows women owners of micro businesses to repetitively take prudent saving, borrowing and investment selections that help them to generate income to meet timely loan repayment to access more microcredit for the continued existence. This is inadequate in the current theory of microfinance lending in rural financial markets.

The main purpose of this study is to test whether ethical financial behavior as a mediator promotes microfinance inclusion and survival of the poor young women microenterprises in rural Uganda.

The methods recommended by Kenny et al. (1998); Shrout and Bolger (2002); MacKinnon et al. (2004); and Preacher and Hayes (2004) were used to establish the existence of non-zero monotonic association between microfinance inclusion and survival through testing the mediating effect of ethical financial behavior in SmartPLS.

The results from the structural equation modeling revealed a significant full mediating effect of ethical financial behavior in the relationship between microfinance inclusion and survival of the poor young women microenterprises. Microfinance inclusion and ethical financial behavior explain 62 % of the variation in survival of the poor young women microenterprises in rural Uganda.

Whereas significant results were obtained from this study, the data were collected only from rural-based poor young women microenterprises located in northern Uganda. Extending the sample to cover the whole country may provide a more representative picture. Besides, it would be useful to compare results across developing countries as this may provide information about the generality of our findings.

The findings from this study can be useful to managers of microfinance institutions in developing countries to adopt practice that can promote financial discipline among rural poor young women microentrepreneurs. Routine financial education and business mentorship can be organized through workshops, trainings and seminars to teach rural poor young women microentrepreneurs how to manage money, especially business loans borrowed from the microfinance institutions to put it into right use. This can help them to meet timely loan repayment to increase access to future microfinance loans.

This study provides the first evidence on the use of the theory of planned behavior (TPB) and theory of reasoned action (TRA) to explain microfinance inclusion of the poor young women microentrepreneurs in rural Uganda. The study uses a blend of TPB and TRA derived from psychology and sociology to explain repayment intention and ethical behaviors of the poor young women borrowers, which determines the microfinance lending cycle to make microcredit available for them to engage in entrepreneurship to come out of poverty to attain wellbeing.

The purpose of this study is to test for the mediating effect of debt literacy in the relationship between microcredit access and the survival of micro, small and medium enterprises (MSMEs) owned and operated by young women in rural sub-Saharan Africa post COVID-19.

This study uses a five-point Likert scale questionnaire to collect data from young women entrepreneurs with MSMEs located in rural northern Uganda. The Statistical Package for Social Sciences (SPSS) and SmartPLS with bootstrapping are used to test the magnitude and level of the mediation effect as recommended by Baron and Kenny (1986) and Hair et al. (2022).

The results reveal that debt literacy increases the impact of microcredit on the survival of young women entrepreneurs with MSMEs in rural sub-Saharan Africa post COVID-19 based on data collected from rural northern Uganda.

A questionnaire was used to collect data for this study. Future studies could collect data using interviews and the experimental research design to evaluate the effect of debt literacy over time.

This study provides valuable insights on the importance of debt literacy in microcredit access and the survival of MSMEs. The results of this study can be used to inform policy and guide practitioners on how to integrate debt literacy into the national educational and literacy curriculum.

This study brings into the limelight the important role of debt literacy in helping young women microentrepreneurs learn to be more cautious when taking on future debts and helping them become more resilient in the post COVID-19 pandemic situation. This topic of debt literacy is limited in the microcredit literature and the theory of microfinance in rural Uganda post COVID-19.