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Business and Economics > Investments: Stocks

You are looking at 1 - 10 of 17 items for :

  • Type: Journal Issue x
  • Bankruptcy; Liquidation x
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Cover Staff Discussion Notes
Insolvency Prospects Among Small-and-Medium-Sized Enterprises in Advanced Economies: Assessment and Policy Options
Mr. Federico J Diez
,
Mr. Romain A Duval
,
Jiayue Fan
,
Jose M Garrido
,
Sebnem Kalemli-Ozcan
,
Chiara Maggi
,
Mr. Maria Soledad Martinez Peria
, and
Mr. Nicola Pierri
The COVID-19 pandemic has increased insolvency risks, especially among small and medium enterprises (SMEs), which are vastly overrepresented in hard-hit sectors. Without government intervention, even firms that are viable a priori could end up being liquidated—particularly in sectors characterized by labor-intensive technologies, threatening both macroeconomic and social stability. This staff discussion note assesses the impact of the pandemic on SME insolvency risks and policy options to address them. It quantifies the impact of weaker aggregate demand, changes in sectoral consumption patterns, and lockdowns on firm balance sheets and estimates the impact of a range of policy options, for a large sample of SMEs in (mostly) advanced economies.
Keywords:
Insolvency; Bankruptcy; “Quasi” Equity Injections; Small- and medium-size enterprises; COVID-19; insolvent firm; cash position; equity injection; illiquid firm; firm exit; cash flow; Solvency; Small and medium enterprises; Stocks; Financial statements; Southern Europe; Asia and Pacific
Cover IMF Working Papers
Corporate Liquidity and Solvency in Europe during COVID-19: The Role of Policies
Mr. Christian H Ebeke
,
Nemanja Jovanovic
,
Ms. Laura Valderrama
, and
Jing Zhou
The spread of COVID-19, containment measures, and general uncertainty led to a sharp reduction in activity in the first half of 2020. Europe was hit particularly hard—the economic contraction in 2020 is estimated to have been among the largest in the world—with potentially severe repercussions on its nonfinancial corporations. A wave of corporate bankruptcies would generate mass unemployment, and a loss of productive capacity and firm-specific human capital. With many SMEs in Europe relying primarily on the banking sector for external finance, stress in the corporate sector could easily translate into pressures in the banking system (Aiyar et al., forthcoming).
Keywords:
corporate vulnerability; solvency risk; liquidity risk; policy effectiveness; WP; cash flow; illiquid firm; firm level; management action; insolvent firm; liquidity deficit
Cover IMF Working Papers
Stress Testing U.S. Leveraged Corporates in a COVID-19 World
Carlos Caceres
,
Dan Pan
, and
Suchanan Tambunlertchai
This paper analyzes a group of 755 firms, with aggregate indebtedness of US$6.2 trillion, to assess the solvency risks and liquidity needs facing the U.S. corporate sector based on projections of net income, availability and cost of funding, and debt servicing flows under different stress test scenarios. The paper finds that leveraged corporates account for most of the potential losses arising from the macroeconomic stresses associated with the COVID-19 crisis, with a concentration of these losses in the oil and gas, auto, and capital and durable goods manufacturing sectors. However, potential losses from corporate debt write-downs appear to be a fraction of banks’ capital buffers and, given the size of the leveraged segment and the relatively long duration of that sector’s debt, the near-term liquidity needs of these corporates appear modest. Corporate stresses could, however, amplify the current economic downturn—as firms cut investment spending and reduce employment—potentially giving rise to significant indirect losses for the financial system.
Keywords:
corporate; firm value; leverage; solvency; liquidity.; WP; cash inflow; equity position metrics; liquidity need; need Lt; net equity position; stress testing; liquidity; leverage ratio; revenue flow; revenue-to-assets ratio; rollover needs; amortization profile; maturing bond debt; maturing debt; Stocks; Corporate sector; Currencies; Loans; Global
Cover Staff Discussion Notes
A Capital Market Union for Europe
Mr. Ashok Vir Bhatia
,
Ms. Srobona Mitra
,
Mr. Shekhar Aiyar
,
Luiza Antoun de Almeida
,
Cristina Cuervo
,
Mr. Andre O Santos
, and
Tryggvi Gudmundsson
This note weighs the merits of a capital market union (CMU) for Europe, identifies major obstacles in its path, and recommends a set of carefully targeted policy actions. European capital markets are relatively small, resulting in strong bank-dependence, and are split sharply along national lines. Results include an uneven playing field in terms of corporate funding costs, the rationing out of collateral-constrained firms, and limited shock absorption. The benefits of integration center on expanding financial choice, ultimately to support capital formation and resilience. Capital market development and integration would support a healthy diversity in European finance. Proceeding methodically, the note identifies three key barriers to greater capital market integration in Europe: transparency, regulatory quality, and insolvency practices. Based on these findings, the note urges three policy priorities, focused on the three barriers. There is no roadblock—such steps should prove feasible without a new grand bargain.
Keywords:
SDN; EU counterparty; EU capital market practitioner; euro area; EU capital market rule; EU treaty; EU venture capital funds; Capital market union; financial integration; bilateral portfolio flows; monetary union; investment firm; funding cost; growth performance; private equity; equity valuation; capital market market fragmentation; nonfinancial firm; company information; Capital markets; Securities; Stocks; Mutual funds; Solvency; Europe; Global
Cover IMF Staff Country Reports
Switzerland: Financial Sector Assessment Program; Technical Note-Insurance Stress Testing
International Monetary Fund. Monetary and Capital Markets Department
Financial Sector Assessment Program; Technical Note-Insurance Stress Testing
Keywords:
ISCR; CR; investment; sovereign bond; capital; holding; bond investment; sovereign bond exposure; coverage ratio; investment holding; investment yield; low-yield environment; Insurance companies; Stress testing; Sovereign bonds; Insurance; Stocks; Global
Cover IMF Working Papers
Can Contingent Convertibles Help Private Asset Managers Fund Their Acquisition of Non-Performing Loans from Portuguese Banks?
Mr. Andre O Santos
This paper analyzes the capital structure of private asset managers in which the acquisition of nonperforming loans (NPLs) is funded with Contingent Convertibles (CoCos) placed with investors. The paper develops a model based on NPL transfer prices and residual recovery rates to assess capital structures consisting of CoCos and equity. The CoCos would contain put and call options to write down losses and write up profits, respectively, arising from liquidation and restructuring procedures. The paper concludes that the protection mechanism provided by debt write-downs embedded in CoCos and the incentives to investors provided by debt write-ups could help bridge the gap between Portuguese banks’ NPL bid prices and private equity firms’ ask prices.
Keywords:
WP; coupon rate; capital structure; book value; maturity date; Asset managers; contingent convertibles; asset pricing; nonperforming loans; recovery rate; NPL sale; debt write-up; portfolio acquisition; NPL securitization; Loans; Transfer pricing; Contingent convertible capital; Stocks; Global
Cover IMF Working Papers
Household Wealth and Resilience to Financial Shocks in Italy
Mr. Daniel Garcia-Macia
High household wealth is often cited as a key strength of the Italian economy. Both in absolute terms and relative to income, the Italian household sector is wealthier than most euro area peers. A sizable fraction of this wealth is held by the rich and upper middle classes. This paper documents the changes in the Italian household sector’s financial wealth over the past two decades, by constructing the matrix of bilateral financial sectoral exposures. Households became increasingly exposed to the financial sector, which in turn was exposed to the highly indebted real and government sectors. The paper then simulates different financial shocks to gauge the ability of the household sector to absorb losses. Simple illustrative calculations are presented for a fall in the value of government bonds as well as for bank bail-ins versus bailouts.
Keywords:
WP; bailout; bail-in; government bond; bond; financial linkages; flow of funds; balance sheet analysis; financial asset holding; sectoral financial asset exposure; flow-of-funds datum; bail-in case; non-financial corporates; MFI assets; equity impact; Stocks; Sovereign bonds; Income distribution; Creditor bail-in; Financial sector; Global
Cover Technical Notes and Manuals
Debt Equity Conversions and NPL Securitization in China: Some Initial Considerations
Mr. James Daniel
,
Jose M Garrido
, and
Ms. Marina Moretti
This note considers the role debt-equity conversions and NPL securitization can play in addressing excessive corporate debt in China, and the corresponding burden on banks of impaired assets. It finds that such techniques can play a role, but getting their design right is critical, as is nesting them within a comprehensive, system-wide, plan.
Keywords:
TNM; bank; debt-equity conversion; equity; debt; asset; Credit; bank lending; borrowing; bank regulation; insolvency; liquidation; non-performing; loan; corporate restructuring; governance; shares; bank ownership; NPL securitization; asset quality; equity holding; Nonperforming loans; Stocks; Distressed assets; Loans; Securitization; East Asia; Global
Cover IMF Working Papers
Optimal Bank Recovery
Mr. C. A. E. Goodhart
and
Miguel A. Segoviano
Banks’ living wills involve both recovery and resolution. Since it may not always be clear when recovery plans or actions should be triggered, there is a role for an objective metric to trigger recovery. We outline how such a metric could be constructed meeting criteria of (i) adequate loss absorption; (ii) distinguishing between weak and sound banks; (iii) little susceptibility to manipulation; (iv) timeliness; (v) scalable from the individual bank to the system. We show how this would have worked in the U.K., during 2007–11. This approach has the added advantage that it could be extended to encompass a whole ladder of sanctions of increasing severity as capital erodes.
Keywords:
WP; loss distribution; bank loss; distress probability; loss absorption buffer; log asset return; Bank Recovery; Bank Resolution; Metrics for Triggers; Loss Absorption; Probability of Distress; Loan Default; banks RBS; market cap; banks' equity; Systemic risk; Bank solvency; Loans; Financial sector stability; Stocks; Global
Cover IMF Working Papers
Assessing Default Risks for Chinese Firms: A Lost Cause?
Daniel Law
and
Mr. Shaun K. Roache
Assessing default risks for Chinese firms is hard. Standard measures of risk using market indicators may be unreliable because of implicit guarantees, the large role played by less-informed investors, and other market imperfections. We test this assertion by estimating stand-alone 1-year default probabilities for non-financial firms in China using an equity-based structural model and debt costs. We find evidence that the equity measure of default risk is sensitive to a firm’s balance sheet health, profitability, and ownership; specifically, default probabilities are higher for weaker, less profitable, and state-owned firms. In contrast, measures based on the cost of debt seem largely detached from fundamentals and instead determined by implicit guarantees. We conclude that for individual firms, equity-based measures, while far from perfect, provide a better measure of stand-alone default risks than borrowing costs.
Keywords:
WP; default probability; book value; growth industry; current liabilities; macroeconomic variable; equity market data; A-rated firm; firm default; Asset valuation; Debt default; Credit ratings; Credit risk; Stocks; Global; North America