Imperfect Competition and Costly Screening in the Credit Market under Conditions of Asymmetric Information

This article provides an analysis of how banks determine levels of information production when they are in imperfect competition and there is a condition of information asymmetry between borrowers and banks. Specifically, the study concentrates on information production activities of banks in duopoly where they simultaneously determine intensity of pre-loan screening as well as interest rates. The preliminary model of this paper illustrates that due to strategic complementarities between banks, banking competition can result in inferior equilibrium out of multiple equilibria and insufficient information production. Policymakers must take into account the possible adverse effects of competition-enhancing policies on information production activities.

Financial Aspects of Transactions with FDI: Trade Credit Provision by SMEs in China

This paper will document financial aspects of transactions, and trade credit supply behavior with FDI among small and medium-sized enterprises(SMEs) based on two original surveys, conducted in four cities in China in 2003. The survey was designed to capture the nature of inter-firm transactions, trade credit and other financial conditions. Literature on FDI mainly refers to technology transfer, employment or investment. This paper focuses on the role and significance of FDI in the supply of trade credit due to its trade credit enforcement technology. Yanagawa, Ito and Watanabe [2006] developed a model which indicates that when a seller has higher enforcement technology or a buyer has richer liquidity, both trade credit and transaction volume will be increased. In this paper, we confirmed that FDI and G contributed to the provision of trade credit and had a positive external effect on trade credit enforcement towards China’s economy. (1) Sales towards FDI customers have the power to increase the trade credit ratio,even when controlling other factors such as choice of payment instrument, competitiveness, and expost default management. This implies that FDI does provide trade credit, not only because it has superior liquidity, but because it is also superior in terms of enforcement of trade credit repayment.(2) Cash constraints of the buyer influence the decisions concerning trade credit provided by the seller, as a model in Yanagawa, et al. [2006] predicted, and this implies that strategic default is a serious concern among SMEs in China. (3) Spillover effect exists in payment enforcement technology in transactions with FDI customers.

How does credit access affect children's time allocation? Evidence from rural India

Using a unique dataset obtained from rural Andhra Pradesh, India that contains direct observations of household access to credit and detailed time use, results of this study indicate that credit market failures lead to a substantial reallocation of time used by children for activities such as schooling, household chores, remunerative work, and leisure. The negative effects of credit constraints on schooling amount to a 60% decrease of average schooling time. However, the magnitude of decrease due to credit constraints is about half that of the increase in both domestic and remunerative child labor, the other half appearing to come from a reduction in leisure.

Ex ante bargaining and ex post enforcement in trade credit supply: theory and evidence from China

If payment of goods is easily default, economic transaction may deeply suffer from the risk. This risky environment formed a mechanism that governs how economic transaction is realized, subsequently how trade credit is given. This paper distinguished ex ante bargaining and ex post enforcement, then modeled that bargaining power reduces trade credit ex ante, and ex post enforcement power and cash in hand of buyer can enhances both trade amount and trade credit in a presence of default risk. We modeled this relationship in order to organize findings from previous literature and from our original micro data on detailed transaction in China to consistently understand the mechanism governing trade credit. Then empirically tested a structure from the theoretical prediction with data. Results show that ex post enforcement power of seller mainly determines size of trade credit and trade amount, cash in hand of buyer can substitute with enforcement power; Bargaining power of seller is exercised to reduces trade credit and trade amount for avoiding default risk, but it simultaneously improves enforcement power as well. We found that ex post enforcement power consists of (ex ante) bargaining power on between two parties and intervention from the third party. However, its magnitude is far smaller than the direct impact to reduce trade credit and trade amount.

Seasonal migration and micro-credit in the lean period : evidence from northwest Bangladesh

This paper investigates the relationship between access to micro-credit and temporary seasonal migration, an issue which is largely ignored in the standard rural-urban migration literature. Seasonal migration due to agricultural downturns is a common phenomenon in developing countries. Using primary data from a cross-sectional household survey from the northwest part of Bangladesh, this study quantifies the factors that influence such migration decisions. Among other results, we find that network effects play a significant role in influencing the migration decision, with the presence of kinsmen at the place of destination having considerable impact. Seasonal migration is a natural choice for individual suffering periodic hardship; however the strict weekly loan repayment rules of Micro-credit Institutes can have an adverse effect on this process, reducing the ability of borrowers to react to a shock. Our result suggests that poor individuals prefer the option of not accessing the micro-credit and opt for temporal seasonal migration during the lean period. The results have numerous potential policy implications, including the design of typical micro-credit schemes.

Competition of the mechanisms : how Chinese home appliance firms coped with default risk of trade credit?

During the transition period from a planned economy to a market economy in 1990s of China, there was a considerable accrual of deferred payment, and default due to inferior enforcement institutions. This is a very common phenomenon in the transition economies at that time. Interviews with home electronics appliance firms revealed that firms coped with this problem by adjusting their sales mechanisms (found four types), and the benefit of institutions was limited. A theoretical analysis claim that spot and integration are inferior to contracts, a contract with a rebate on volume and prepayment against an exclusive agent can realize the lowest cost and price. The empirical part showed that mechanisms converged into a mechanism with the rebate on volume an against exclusive agent and its price level is the lowest. The competition is the driving force of the convergence of mechanisms and improvement risk management capacity.

Risk sharing with Multilateral Financial Institutions in infrastructure and energy project financing : effect on capital relief for commercial banks

(Matsukawa and Habeck, 2007) analyse the main instruments for risk mitigation in infrastructure financing with Multilateral Financial Institutions (MFIs). Their review coincided with the global financial crisis of 2007-08, and is highly relevant in current times considering the sovereign debt crisis, the lack of available capital and the increases in bank regulation in Western economies. The current macroeconomic environment has seen a slowdown in the level of finance for infrastructure projects, as they pose a higher credit risk given their requirements for long term investments. The rationale for this work is to look for innovative solutions that are focused on the credit risk mitigation of infrastructure and energy projects whilst optimizing the economic capital allocation for commercial banks. This objective is achieved through risk-sharing with MFIs and looking for capital relief in project finance transactions. This research finds out the answer to the main question: "What is the impact of risk-sharing with MFIs on project finance transactions to increase their efficiency and viability?", and is developed from the perspective of a commercial bank assessing the economic capital used and analysing the relevant variables for it: Probability of Default, Loss Given Default and Recovery Rates, (Altman, 2010). An overview of project finance for the infrastructure and energy sectors in terms of the volume of transactions worldwide is outlined, along with a summary of risk-sharing financing with MFIs. A review of the current regulatory framework beneath risk-sharing in structured finance with MFIs is also analysed. From here, the impact of risk-sharing and the diversification effect in infrastructure and energy projects is assessed, from the perspective of economic capital allocation for a commercial bank. CreditMetrics (J. P. Morgan, 1997) is applied over an existing well diversified portfolio of project finance infrastructure and energy investments, working with the main risk capital measures: economic capital, RAROC, and EVA. The conclusions of this research show that economic capital allocation on a portfolio of project finance along with risk-sharing with MFIs have a huge impact on capital relief whilst increasing performance profitability for commercial banks. There is an outstanding diversification effect due to the portfolio, which is combined with risk mitigation and an improvement in recovery rates through Partial Credit Guarantees issued by MFIs. A stress test scenario analysis is applied to the current assumptions and credit risk model, considering a downgrade in the rating for the commercial bank (lender) and an increase of default in emerging countries, presenting a direct impact on economic capital, through an increase in expected loss and a decrease in performance profitability. Getting capital relief through risk-sharing makes it more viable for commercial banks to finance infrastructure and energy projects, with the beneficial effect of a direct impact of these investments on GDP growth and employment. The main contribution of this work is to promote a strategic economic capital allocation in infrastructure and energy financing through innovative risk-sharing with MFIs and economic pricing to create economic value added for banks, and to allow the financing of more infrastructure and energy projects. This work suggests several topics for further research in relation to issues analysed. (Matsukawa and Habeck, 2007) analizan los principales instrumentos de mitigación de riesgos en las Instituciones Financieras Multilaterales (IFMs) para la financiación de infraestructuras. Su presentación coincidió con el inicio de la crisis financiera en Agosto de 2007, y sus consecuencias persisten en la actualidad, destacando la deuda soberana en economías desarrolladas y los problemas capitalización de los bancos. Este entorno macroeconómico ha ralentizado la financiación de proyectos de infraestructuras. El actual trabajo de investigación tiene su motivación en la búsqueda de soluciones para la financiación de proyectos de infraestructuras y de energía, mitigando los riesgos inherentes, con el objeto de reducir el consumo de capital económico en los bancos financiadores. Este objetivo se alcanza compartiendo el riesgo de la financiación con IFMs, a través de estructuras de risk-sharing. La investigación responde la pregunta: "Cuál es el impacto de risk-sharing con IFMs, en la financiación de proyectos para aumentar su eficiencia y viabilidad?". El trabajo se desarrolla desde el enfoque de un banco comercial, estimando el consumo de capital económico en la financiación de proyectos y analizando las principales variables del riesgo de crédito, Probability of Default, Loss Given Default and Recovery Rates, (Altman, 2010). La investigación presenta las cifras globales de Project Finance en los sectores de infraestructuras y de energía, y analiza el marco regulatorio internacional en relación al consumo de capital económico en la financiación de proyectos en los que participan IFMs. A continuación, el trabajo modeliza una cartera real, bien diversificada, de Project Finance de infraestructuras y de energía, aplicando la metodología CreditMet- rics (J. P. Morgan, 1997). Su objeto es estimar el consumo de capital económico y la rentabilidad de la cartera de proyectos a través del RAROC y EVA. La modelización permite estimar el efecto diversificación y la liberación de capital económico consecuencia del risk-sharing. Los resultados muestran el enorme impacto del efecto diversificación de la cartera, así como de las garantías parciales de las IFMs que mitigan riesgos, mejoran el recovery rate de los proyectos y reducen el consumo de capital económico para el banco comercial, mientras aumentan la rentabilidad, RAROC, y crean valor económico, EVA. En escenarios económicos de inestabilidad, empeoramiento del rating de los bancos, aumentos de default en los proyectos y de correlación en las carteras, hay un impacto directo en el capital económico y en la pérdida de rentabilidad. La liberación de capital económico, como se plantea en la presente investigación, permitirá financiar más proyectos de infraestructuras y de energía, lo que repercutirá en un mayor crecimiento económico y creación de empleo. La principal contribución de este trabajo es promover la gestión activa del capital económico en la financiación de infraestructuras y de proyectos energéticos, a través de estructuras innovadoras de risk-sharing con IFMs y de creación de valor económico en los bancos comerciales, lo que mejoraría su eficiencia y capitalización. La aportación metodológica del trabajo se convierte por su originalidad en una contribución, que sugiere y facilita nuevas líneas de investigación académica en las principales variables del riesgo de crédito que afectan al capital económico en la financiación de proyectos.

The trade credit in the Spanish agrofood industry

Selling on credit is rather frequent in Mediterranean countries. Its generalized use can lead to excessive enlargements of the payment periods and consequently can deteriorate the profitability of firms. In spite of the relevance of this problem there are few empirical researches. This work intends to fill this gap and to shed light on the factors related to the extension of trade credit. In the theoretical and empirical literature, different motives have been proposed to explain this issue: a mechanism to reduce transaction costs, a financial alternative to the bank system and an additional tool to improve commercial activities. To contrast these ideas a panel of 388 firms of the Spanish agrofood industry has been taken, and static and dynamic regression models have been estimated by using robust methods to heteroskedasticity, autocorrelation and endogeneity of the explanatory variables. The results confirm that trade credit receivable is associated with more active firms and with cheaper bank financing. Other factors with positive relationships are short-term bank debts and accounts payable. These findings are consistent with commercial motives, rather than a pure financial view, in the sense that financial distressed producers extend trade credit as a way of promoting their products and in turn increasing their sales.

Modeling the evolution of item rating networks using time-domain preferential attachment

The understanding of the structure and dynamics of the intricate network of connections among people that consumes products through Internet appears as an extremely useful asset in order to study emergent properties related to social behavior. This knowledge could be useful, for example, to improve the performance of personal recommendation algorithms. In this contribution, we analyzed five-year records of movie-rating transactions provided by Netflix, a movie rental platform where users rate movies from an online catalog. This dataset can be studied as a bipartite user-item network whose structure evolves in time. Even though several topological properties from subsets of this bipartite network have been reported with a model that combines random and preferential attachment mechanisms [Beguerisse Díaz et al., 2010], there are still many aspects worth to be explored, as they are connected to relevant phenomena underlying the evolution of the network. In this work, we test the hypothesis that bursty human behavior is essential in order to describe how a bipartite user-item network evolves in time. To that end, we propose a novel model that combines, for user nodes, a network growth prescription based on a preferential attachment mechanism acting not only in the topological domain (i.e. based on node degrees) but also in time domain. In the case of items, the model mixes degree preferential attachment and random selection. With these ingredients, the model is not only able to reproduce the asymptotic degree distribution, but also shows an excellent agreement with the Netflix data in several time-dependent topological properties.

Design of a twin capacitive load and its application to the outdoor rating of photovoltaic modules

This paper describes the design of an original twin capacitive load that is able of tracing simultaneously the I?V characteristics of two photovoltaic modules. Besides, an example of the application of this dual system to the outdoor rating of photovoltaic modules is presented, whose results have shown a good degree of repeatability.

SOPHIA CPV module round robin: power rating at CSOC

Within the European funded project SOPHIA, a Round Robin measurement on CPV module has been initiated. Seven different test laboratories located in Europe between 48°N and 37°N perform measurements of four SOITEC CPV modules. The modules are electrically characterized with different measurement equipment under various climatic conditions. One pyrheliometer and one spectral sensor based on component cells are shipped together with the modules. This ensures that the irradiance and spectrum, two factors with high impact on CPV module performance, are measured with the identical equipment at each site. The round robin activity is performed in closeco-operation with the IEC TC82 WG7 power rating team in order to support the work on the CPV module power rating draft standard 62670-3. The resultingrated module power outputs at CSOC (Concentrator Standard Operating Conditions) are compared amongst the power rating methods and amongst the test labs. In this manner, a deviation in rated power output between different test labs and power rating methods is determined.

Determination of spectral variations by means of component cells useful for CPV rating and design

A methodology is presented to determine both the short-term and the long-term influence of the spectral variations on the performance of Multi-Junction (MJ) solar cells and Concentrating "This is the peer reviewed version of the following article: R. Núñez, C. Domínguez, S. Askins, M. Victoria, R. Herrero, I. Antón, and G. Sala, “Determination of spectral variations by means of component cells useful for CPV rating and design,” Prog. Photovolt: Res. Appl., 2015., which has been published in final form at http://onlinelibrary.wiley.com/doi/10.1002/pip.2715/full. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving [http://olabout.wiley.com/WileyCDA/Section/id-820227.html#terms]." Photovoltaic (CPV) modules. Component cells with the same optical behavior as MJ solar cells are used to characterize the spectrum. A set of parameters, namely Spectral Matching Ratios (SMRs), is used to characterize spectrally a particular Direct Normal Irradiance (DNI) by comparison to the reference spectrum (AM1.5D-ASTM-G173-03). Furthermore, the spectrally corrected DNI for a given MJ solar cell technology is defined providing a way to estimate the losses associated to the spectral variations. The last section analyzes how the spectrum evolves throughout a year in a given place and the set of SMRs representative for that location are calculated. This information can be used to maximize the energy harvested by the MJ solar cell throughout the year. As an example, three years of data recorded in Madrid shows that losses lower than 5% are expected due to current mismatch for state-of-the-art MJ solar cells.

SOPHIA CPV module round robin: power rating at CSOC

In the frame of the European project SOPHIA a concentrator photovoltaic (CPV) module measurement round robin has been initiated. The round robin includes measurements of four CPV modules at seven different test laboratories located in Europe. IV curves of the modules are measured with different measurement equipment under various climatic conditions. The aim of this activity is to perform at each site a rating of the modules at concentrator standard operating conditions CSOC according to IEC 62670-1. The outcome of the round robin is intended for direct feedback to the current draft standard IEC 62670-3 “Concentrator Photovoltaic (CPV) Performance Testing - Performance Measurements and Power Rating”. The paper discusses initial results from the first three partners that have already finished the measurements up to now.