Dawood Ashraf, Arifusalam Shaikh, Barbara L’Huillier
The purpose of this paper is to propose a collaborative value chain financing (CVCF) approach whereby the manufacturer/supplier, bank, and SME/buyer collaborate for their mutual benefit. Under the CVCF approach, all parties involved in the transaction engage in risk-taking. The supplier provides the necessary materials to the SME for sale or further value addition while the bank evaluates and monitors credit risk. The trilateral risk-sharing aids in better working capital management, higher turnover for suppliers, and lower default risk for the bank. Currently, a lack of trust between those involved in the value chain results in high financing costs to SMEs due to expected default risk and lower turnover for suppliers in the value chain. We present a CVCF model with a zero percent financing/mark-up rate based on the practice of a steel company listed on the Saudi Arabian stock exchange.
{"title":"Collaborative Value Chain Financing: The Case of Working Capital Management for SMEs","authors":"Dawood Ashraf, Arifusalam Shaikh, Barbara L’Huillier","doi":"10.2139/ssrn.3621721","DOIUrl":"https://doi.org/10.2139/ssrn.3621721","url":null,"abstract":"The purpose of this paper is to propose a collaborative value chain financing (CVCF) approach whereby the manufacturer/supplier, bank, and SME/buyer collaborate for their mutual benefit. Under the CVCF approach, all parties involved in the transaction engage in risk-taking. The supplier provides the necessary materials to the SME for sale or further value addition while the bank evaluates and monitors credit risk. The trilateral risk-sharing aids in better working capital management, higher turnover for suppliers, and lower default risk for the bank. Currently, a lack of trust between those involved in the value chain results in high financing costs to SMEs due to expected default risk and lower turnover for suppliers in the value chain. We present a CVCF model with a zero percent financing/mark-up rate based on the practice of a steel company listed on the Saudi Arabian stock exchange.","PeriodicalId":410187,"journal":{"name":"FEN: Institutions & Financing Practices (Topic)","volume":"274 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133388062","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Micro, small, and medium-sized enterprises in developing countries face severe financing difficulties, especially when trying to expand internationally. “Information friction” is a significant cause of this financing gap. Recent financial technologies (fintech) can improve supply chain finance efficiency. This paper therefore proposes a conceptual and analytical framework to study how fintech can close the financing gap by reducing information friction. We classify fintech into two categories: information processing technology (Type-A) and information collecting technology (Type-B) and find that both help close the financing gap by lowering the probability of misclassification of good firms as bad. Banks’ optimal Type-A investment increases in the bank’s size, profit margin, and the fraction of good firms in the market. They invest in Type-B if and only if the investment is sufficiently small. Due to “double marginalization,” a bank’s optimal fintech investment is lower than a socially optimal level, calling for mechanisms to incentivize or complement banks’ investment in fintech.
{"title":"The Role of Fintech in Mitigating Information Friction in Supply Chain Finance","authors":"Hsiao-Hui Lee, S. A. Yang, Kijin Kim","doi":"10.2139/ssrn.3590850","DOIUrl":"https://doi.org/10.2139/ssrn.3590850","url":null,"abstract":"Micro, small, and medium-sized enterprises in developing countries face severe financing difficulties, especially when trying to expand internationally. “Information friction” is a significant cause of this financing gap. Recent financial technologies (fintech) can improve supply chain finance efficiency. This paper therefore proposes a conceptual and analytical framework to study how fintech can close the financing gap by reducing information friction. We classify fintech into two categories: information processing technology (Type-A) and information collecting technology (Type-B) and find that both help close the financing gap by lowering the probability of misclassification of good firms as bad. Banks’ optimal Type-A investment increases in the bank’s size, profit margin, and the fraction of good firms in the market. They invest in Type-B if and only if the investment is sufficiently small. Due to “double marginalization,” a bank’s optimal fintech investment is lower than a socially optimal level, calling for mechanisms to incentivize or complement banks’ investment in fintech.","PeriodicalId":410187,"journal":{"name":"FEN: Institutions & Financing Practices (Topic)","volume":"95 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129922727","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-05-30DOI: 10.1108/IES-05-2019-0004
Syed Munawar Shah, Mariani Abdul-Majid
The purpose of this paper is to examine whether reputation element affects the decision relative performance of trust, bonus and incentive contracts using social laboratory experiments.,The study conducts the following lab experiments bonus–incentive treatment without reputation, bonus–incentive treatment with reputation and trust–incentive treatment with reputation.,The study finds that the reputation and fairness concerns, in contrast to self-interest, may have a decisive impact on the actual and optimal choices in the reciprocity-based contracts. The principal pays higher salaries in the bonus contract as compared to an incentive contract.,The study contributes to the behavioral economic literature in the following dimensions. The existing literature on lab experiments considers a bonus contract as better than the debt contract; however, it does not consider the trust contract better than the debt contract.
{"title":"Reciprocity, Self-Interest and Reputation: Debt vs Equity Contracts","authors":"Syed Munawar Shah, Mariani Abdul-Majid","doi":"10.1108/IES-05-2019-0004","DOIUrl":"https://doi.org/10.1108/IES-05-2019-0004","url":null,"abstract":"The purpose of this paper is to examine whether reputation element affects the decision relative performance of trust, bonus and incentive contracts using social laboratory experiments.,The study conducts the following lab experiments bonus–incentive treatment without reputation, bonus–incentive treatment with reputation and trust–incentive treatment with reputation.,The study finds that the reputation and fairness concerns, in contrast to self-interest, may have a decisive impact on the actual and optimal choices in the reciprocity-based contracts. The principal pays higher salaries in the bonus contract as compared to an incentive contract.,The study contributes to the behavioral economic literature in the following dimensions. The existing literature on lab experiments considers a bonus contract as better than the debt contract; however, it does not consider the trust contract better than the debt contract.","PeriodicalId":410187,"journal":{"name":"FEN: Institutions & Financing Practices (Topic)","volume":"26 3","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132236932","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Guarantees offered for ṣukūk in Islamic finance have become a problematic issue of discussion. From the authors’ perspective, the issue should be approached from two aspects: one considering the required conditions for the validity of contracts and the other considering the Sharīʿah objectives. This research aims to emphasize the necessity of considering the objectives of contracts from a Sharīʿah perspective before judging their validity; particularly with regard to guaranteed ṣukūk. To achieve this goal, the research employs two methods: one descriptive and the other analytical as well as critical. The research has concluded that it is not permissible to stipulate holding the ṣukūk issuer liable neither for the ṣukūk nominal values nor for a predetermined amount of profit; that the idea of holding the ṣukūk issuer responsible based on considering him a joint muḍārib is not founded on solid evidence; that it is not permissible for the muḍārib, partner, or wakīl to be committed to give loan to ṣukūk holders when the actual return for ṣukūk is less than expected; that, in some of their applications, ṣukūk based on lease ending with ownership involve the impermissible ʿīnah transaction; that guarantees in ṣukūk contradict Sharīʿah rules when the issuer undertakes to purchase the ṣukūk assets at their nominal values at the end of the muḍārabah, mushārakah, or wakālah; and that the criteria to assess Islamic ṣukūk on the basis of Sharīʿah objectives can be divided into: criteria related to the motive, criteria related to the contract structure, and criteria for the outcomes of implementing the product.
{"title":"Guarantees in Ṣukūk between Sharīʿah Objectives and Contract Conditions","authors":"Ali bin Hussein Aidi, M. Salama","doi":"10.4197/islec.32-1.10","DOIUrl":"https://doi.org/10.4197/islec.32-1.10","url":null,"abstract":"Guarantees offered for ṣukūk in Islamic finance have become a problematic\u0000issue of discussion. From the authors’ perspective, the issue should be approached\u0000from two aspects: one considering the required conditions for the validity of contracts\u0000and the other considering the Sharīʿah objectives. This research aims to emphasize the\u0000necessity of considering the objectives of contracts from a Sharīʿah perspective before\u0000judging their validity; particularly with regard to guaranteed ṣukūk. To achieve this\u0000goal, the research employs two methods: one descriptive and the other analytical as\u0000well as critical. The research has concluded that it is not permissible to stipulate\u0000holding the ṣukūk issuer liable neither for the ṣukūk nominal values nor for a\u0000predetermined amount of profit; that the idea of holding the ṣukūk issuer responsible\u0000based on considering him a joint muḍārib is not founded on solid evidence; that it is\u0000not permissible for the muḍārib, partner, or wakīl to be committed to give loan to ṣukūk\u0000holders when the actual return for ṣukūk is less than expected; that, in some of their\u0000applications, ṣukūk based on lease ending with ownership involve the impermissible\u0000ʿīnah transaction; that guarantees in ṣukūk contradict Sharīʿah rules when the issuer\u0000undertakes to purchase the ṣukūk assets at their nominal values at the end of the\u0000muḍārabah, mushārakah, or wakālah; and that the criteria to assess Islamic ṣukūk on\u0000the basis of Sharīʿah objectives can be divided into: criteria related to the motive,\u0000criteria related to the contract structure, and criteria for the outcomes of implementing\u0000the product.","PeriodicalId":410187,"journal":{"name":"FEN: Institutions & Financing Practices (Topic)","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-01-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124481435","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-12-01DOI: 10.5089/9781484386200.001
Daniel Gurara, A. Presbitero, M. Sarmiento
Cross-border bank lending is a growing source of external finance in developing countries and could play a key role for infrastructure financing. This paper looks at the role of multilateral development banks (MDBs) on the terms of syndicated loan deals, focusing on loan pricing. The results show that MDBs' participation is associated with higher borrowing costs and longer maturities---signaling a greater willingness to finance high risk projects which may not be financed by the private sector---but it is also associated with lower spreads for riskier borrowers. Overall, our findings suggest that MDBs could crowd in private investment in developing countries through risk mitigation.
{"title":"Borrowing Costs and the Role of Multilateral Development Banks: Evidence from Cross-Border Syndicated Bank Lending","authors":"Daniel Gurara, A. Presbitero, M. Sarmiento","doi":"10.5089/9781484386200.001","DOIUrl":"https://doi.org/10.5089/9781484386200.001","url":null,"abstract":"Cross-border bank lending is a growing source of external finance in developing countries and could play a key role for infrastructure financing. This paper looks at the role of multilateral development banks (MDBs) on the terms of syndicated loan deals, focusing on loan pricing. The results show that MDBs' participation is associated with higher borrowing costs and longer maturities---signaling a greater willingness to finance high risk projects which may not be financed by the private sector---but it is also associated with lower spreads for riskier borrowers. Overall, our findings suggest that MDBs could crowd in private investment in developing countries through risk mitigation.","PeriodicalId":410187,"journal":{"name":"FEN: Institutions & Financing Practices (Topic)","volume":"122 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123023208","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This paper investigates whether financial assistance from Australian state and federal governments to firms facilitates access to external financing. Findings show that government assistance affects firms through increasing their propensity to seek financing and further by increasing their propensity to obtain the financing. The former is the larger effect. Besides, the largest additionality accrues to small and innovative firms. Magnitude of the effect also changes with the form and the number of assistance packages received from the government. The findings suggest that government financial assistance can have much broader impact than just supplying firms with direct cash.
{"title":"Government Financial Assistance as Catalyst for Private Financing","authors":"Sasan Bakhtiari","doi":"10.2139/ssrn.3131267","DOIUrl":"https://doi.org/10.2139/ssrn.3131267","url":null,"abstract":"Abstract This paper investigates whether financial assistance from Australian state and federal governments to firms facilitates access to external financing. Findings show that government assistance affects firms through increasing their propensity to seek financing and further by increasing their propensity to obtain the financing. The former is the larger effect. Besides, the largest additionality accrues to small and innovative firms. Magnitude of the effect also changes with the form and the number of assistance packages received from the government. The findings suggest that government financial assistance can have much broader impact than just supplying firms with direct cash.","PeriodicalId":410187,"journal":{"name":"FEN: Institutions & Financing Practices (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-02-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131189178","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Ivalina Kalcheva, Janet Kiholm Smith, Richard L. Smith
We study the relation between institutionalization of capital and the reliance on public markets by corporations and investors. Country-level evidence indicates that capital under institutional management (ownership by mutual funds, pension funds, and insurance companies) is negatively related to the levels and growth rates of numbers of publicly listed companies and also negatively related to the levels and growth rates of aggregate market capitalization and trading activity on public equity markets. The results indicate that, as economies mature and direct ownership of equity by retail investors declines, financial systems move in the direction of being less public market-centric to more institution-centric.
{"title":"Institutionalization of Capital and the Changing Role of Public Equity Markets: International Evidence","authors":"Ivalina Kalcheva, Janet Kiholm Smith, Richard L. Smith","doi":"10.2139/ssrn.2979490","DOIUrl":"https://doi.org/10.2139/ssrn.2979490","url":null,"abstract":"We study the relation between institutionalization of capital and the reliance on public markets by corporations and investors. Country-level evidence indicates that capital under institutional management (ownership by mutual funds, pension funds, and insurance companies) is negatively related to the levels and growth rates of numbers of publicly listed companies and also negatively related to the levels and growth rates of aggregate market capitalization and trading activity on public equity markets. The results indicate that, as economies mature and direct ownership of equity by retail investors declines, financial systems move in the direction of being less public market-centric to more institution-centric.","PeriodicalId":410187,"journal":{"name":"FEN: Institutions & Financing Practices (Topic)","volume":"47 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115428263","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract The paper examines for foreign portfolio investment recent result that foreign direct investment has positive effect on institutions in developing countries. Promise of firms to improve governance (in order to raise funds from outsiders) is more credible if they cross-list on the U.S. stock exchange. Stringent disclosures required by the U.S. are available to domestic regulators who become under pressure to follow global standards. Using 48 developing countries, I show greater openness of stock and bonds markets leads to better quality relevant institutions. I use both a natural experiment, viz. 2008 financial crisis outflows, and 2SLS/IV estimation to examine the endogeniety issues.
{"title":"Financial Openness & Institutions in Developing Countries","authors":"C. Kant","doi":"10.2139/ssrn.2909349","DOIUrl":"https://doi.org/10.2139/ssrn.2909349","url":null,"abstract":"Abstract The paper examines for foreign portfolio investment recent result that foreign direct investment has positive effect on institutions in developing countries. Promise of firms to improve governance (in order to raise funds from outsiders) is more credible if they cross-list on the U.S. stock exchange. Stringent disclosures required by the U.S. are available to domestic regulators who become under pressure to follow global standards. Using 48 developing countries, I show greater openness of stock and bonds markets leads to better quality relevant institutions. I use both a natural experiment, viz. 2008 financial crisis outflows, and 2SLS/IV estimation to examine the endogeniety issues.","PeriodicalId":410187,"journal":{"name":"FEN: Institutions & Financing Practices (Topic)","volume":"56 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121242555","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Litigation against the largest subprime mortgage servicer in the US provides lessons about the appropriate regulation of mortgage servicing and adds to research about the causes of the financial crisis. Mortgage servicing is essential to the functioning of the financial system so servicers must be held to a high standard. The litigation revealed egregious practices but was settled quickly for a nominal amount and provided the servicer a very broad release of liability, allowing it to expand without correcting serious problems, and created significant wealth gains for the parent firm. Dodd-Frank appropriately concentrated authority over such servicers in one agency; regulatory authority should not be split between agencies.
{"title":"Dodd-Frank and the Regulation of Mortgage Servicing: Lessons from the Financial Crisis","authors":"J. Mcnulty, Luis García‐Feijóo, Ariel M. Viale","doi":"10.2139/SSRN.2867008","DOIUrl":"https://doi.org/10.2139/SSRN.2867008","url":null,"abstract":"Litigation against the largest subprime mortgage servicer in the US provides lessons about the appropriate regulation of mortgage servicing and adds to research about the causes of the financial crisis. Mortgage servicing is essential to the functioning of the financial system so servicers must be held to a high standard. The litigation revealed egregious practices but was settled quickly for a nominal amount and provided the servicer a very broad release of liability, allowing it to expand without correcting serious problems, and created significant wealth gains for the parent firm. Dodd-Frank appropriately concentrated authority over such servicers in one agency; regulatory authority should not be split between agencies.","PeriodicalId":410187,"journal":{"name":"FEN: Institutions & Financing Practices (Topic)","volume":"71 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-11-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114148874","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
G. Dorfleitner, Lars Hornuf, Matthias Schmitt, Martina Weber
In the following, we provide overview of the entire German FinTech market. Subsequently, general trends of the FinTech industry are described, and market sizes and developments within the respective subsegments are analyzed.
{"title":"The Fintech Market in Germany","authors":"G. Dorfleitner, Lars Hornuf, Matthias Schmitt, Martina Weber","doi":"10.2139/ssrn.2885931","DOIUrl":"https://doi.org/10.2139/ssrn.2885931","url":null,"abstract":"In the following, we provide overview of the entire German FinTech market. Subsequently, general trends of the FinTech industry are described, and market sizes and developments within the respective subsegments are analyzed.","PeriodicalId":410187,"journal":{"name":"FEN: Institutions & Financing Practices (Topic)","volume":"188 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-10-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124038113","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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