The sharp rise in nominal interest rates after 2022 constitutes a substantial test for European non-financial corporations after a prolonged period of exceptionally cheap debt. This paper examines how the cost of debt financing—proxied by the lagged, ex post real long-term sovereign yield, interpreted throughout as an indicator of economy-wide financing conditions rather than a direct corporate borrowing rate—is associated with the gross investment rate of non-financial corporations in the EU-27 over 2000–2025, using harmonised annual sector accounts and two-way fixed-effects panel models, interaction designs and local projections. Three findings emerge. First, the conditional association is stronger for the real than for the nominal cost of debt: a one percentage point increase in the lagged real yield is associated with a decline of roughly 0.3–0.4 percentage points in the investment rate, and a formal test does not reject treating the nominal yield and inflation as components of the real rate. Second, this association is not stable over time: it weakens markedly after 2020, and the weakening is robust to an alternative 2022 breakpoint and to wild cluster bootstrap inference. Third, direct tests with predetermined leverage and profit shares do not account for this weakening, so stronger corporate balance sheets—including the pronounced deleveraging from around 477% to around 226% of income—remain only one candidate explanation among several. The profit-share interaction is positive, but the evidence of attenuation is weak and specification-dependent: it is not statistically significant with the one-year-lagged measure and reaches only marginal significance under two alternative measures.
This paper examines the real performance and downside risk of thirteen static multi-asset portfolios across U.S. business-cycle phases from 1930 to 2025. Using 1,149 monthly observations, it analyses equities, U.S. government bonds, gold, silver, real estate investment trusts, and selected portfolio combinations. Recession and expansion periods are identified using the NBER chronology, while nominal cumulative performance is expressed in real terms using the Fisher equation. The analysis compares average monthly returns, volatility, cumulative performance, maximum drawdown, the frequency of positive and negative months, and correlations among assets and strategies. Equity-oriented strategies generally deliver stronger long-run performance but exhibit higher volatility and deeper drawdowns, particularly during recessions. Strategies with larger allocations to government bonds and gold tend to be more resilient in adverse economic conditions. The findings indicate that static diversification can mitigate downside risk, although its effectiveness depends on business-cycle conditions and portfolio composition.
This study examined whether Blue Bird's reported recovery in return on equity (ROE) after the 2020 pandemic shock reflected genuine economic value creation. PT Blue Bird Tbk was examined across six fiscal years (2020–2025), with PT Adi Sarana Armada Tbk as a comparative reference at the two most recent fiscal year-ends, using a descriptive-comparative design applied to audited consolidated financial statements. ROE was decomposed through DuPont analysis into net margin, asset turnover, and the equity multiplier; Economic Value Added (EVA) was calculated using a weighted average cost of capital built from Bank Indonesia's policy rate and Indonesia's equity risk premium; and liquidity and leverage were tracked through the current ratio and the debt-to-asset ratio. ROE moved from -3.12% in 2020 to 10.17% in 2025, yet EVA remained negative throughout, including 2025. The divergence was already visible in 2021, when net income turned marginally positive while operating profit after tax remained negative. Net margin and asset turnover drove the recovery through 2022; thereafter, further ROE gains came mainly from a rising equity multiplier, alongside a falling current ratio and a rising debt-to-asset ratio. Adi Sarana Armada posted a higher ROE than Blue Bird in 2024–2025 but carried roughly double the leverage and a current ratio below 1.0x in both years. Reported profitability alone overstated the extent of recovery from as early as 2021 and should be read alongside a capital-charge-adjusted measure once leverage begins driving ROE more than margin or turnover.
This paper extends the classical Merton structural credit risk model by incorporating dynamic refinancing risk into the measurement of bank default risk. The study addresses a key limitation of traditional structural models, which treat default as a function of asset values relative to liabilities but abstract from debt maturity structure and rollover conditions. The proposed framework integrates an issuance-based refinancing ladder, a market-consistent funding curve, and firm-level balance sheet data within a liquidity-adjusted structural model featuring an endogenous default barrier and a refinancing-adjusted distance-to-default measure. Using bank-level data (1564 daily observations, 2020–2026), the results show that, although the institution remains solvent under conventional structural measures, refinancing exposure materially compresses the effective solvency buffer. Short-term refinancing exposure averages R8.1 billion and reaches approximately R19.6 billion during stress periods; the liquidity-adjusted distance to default averages 1.47 (range 0.46–2.15) and the implied probability of default averages 9.5% (range 1.6–32.2%). A Newey–West heteroskedasticity- and autocorrelation-consistent regression that controls for asset volatility and the underlying solvency ratio confirms that the refinancing ratio has a negative and highly statistically significant partial effect on distance to default (coefficient −1.95, t = −7.41, p < 0.001, N = 1564), isolating the liquidity-adjustment channel from concurrent changes in volatility and balance sheet solvency. Stress testing further reveals nonlinear amplification of default risk when funding and refinancing shocks interact. The findings indicate that bank default risk is driven not only by leverage, but also by the interaction between asset values, liability structure, and funding conditions, with implications for credit risk modelling, stress testing, and prudential risk management.
The Reserve Bank of India’s amendment to the Commercial Banks- Capital Market Exposure Directions, 2025, effective 1 July 2026, formally permits Indian commercial banks to finance corporate acquisitions. This marks a significant departure from decades of regulatory restrictions. While the Directions establish a coherent regulatory regime through capital-linked exposure ceilings, board-approved lending policies, and defined collateral requirements, they leave critical adjacent questions unaddressed. Four structural frictions undermine the framework’s effectiveness: IBC avoidance provisions expose acquisition debt to clawback without protection for value-enhancing new money; the asymmetry between Sections 79 and 72A creates unpredictability in loss utilisation for leveraged purchases; the absence of a regulated onshore mezzanine layer pushes subordinated capital offshore; and underdeveloped connected-borrower norms leave concentration risk inadequately mapped. Drawing on EU regulatory experience, this piece argues that the Directions can function as intended only if these four domains are reformed in tandem.