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Abstract Small and medium-size enterprises (SMEs) are the engine of economic deve- lopment, but market imperfections such as those caused by underdeveloped fi- nancial and legal systems impede their growth. Although SMEs form a large part of private sector in many countries, they face larger growth constraints and are less likely to have access to formal sources of external finance than large firms. SMEs have the characteristics of informational opacity, weak finance, imperfect management and small size. These characteristics bring about moral hazard and adverse election, implying high credit risk of SMEs. Lending technologies can help facilitate SMEs¡¦ access to finance. The credit supplementation institutions have significant effects on SMEs credit availa- bility, so it becomes an important issue to policy makers around the globe setting up relevant legal systems and supporting financial assistance to SMEs. Since The New Basel Capital Accord had released the criteria and credit risk models of regulatory capital requirements for banks to follow, how to choose an appropriate model to measure the credit risk of SMEs and reasonably price the loan assets on a risk-return basis have become a common task of banks and the credit supplementation institutions. This paper uses the model developed by Kuo (2003) - ¡§How to Gauge the Default Probability: An Empirical Investigation of the Market-Based Approach to Bank¡¦s Loan Asset ¡¨ to gauge the probability of default to bank¡¦s loan asset for SMEs which guaranteed by Taiwan SMEG. Using market-based risk neutral approach, the probability of default for each SMEs¡¦ loan will be endogenously determined. This paper also uses the actuarial valuation principles to simulate the reasonable guarantee fee which should be received by SMEG through the breakeven analysis. The empirical results show that: 1.The tradeoff between recovery rate and the probability of default has joint effects. The probability of default increases rapidly while the recovery rate is over 70% and decreases smoothly while the recovery rate is below 60%. 2.The guaranteed loans over 70% coverage under the Authorized Approach have higher probability of default, as banks usually depend on the credit supp- lementation institutions for the larger portion of subrogation payment. 3.The guaranteed loans below 60% coverage under the Normal Approach have lower probability of default, as banks won¡¦t endure high probability of default and will turn to be conservative while lending to SMEs. Banks must also forward the relevant documents to the Taiwan SMEG for scrutiny and consideration, and it has reduced the default risk. 4.The guaranteed loans of 100% coverage under the Package Credit Guarantee have the highest probability of default if banks fully depend on the whole guaranteed coverage. However the bank loans lose given default will rely on bank¡¦s lending strategy, as the subrogation rate is set to be fixed on a maximum limit of guaranteed loans. 5.Using the actuarial valuation principles, with the estimations of pro- bability of default the reasonable rate of guarantee fee can be simulated through the breakeven analysis. The contribution of this paper is to submit the practical value for bank¡¦s loan pricing strategy, lending policy decision and credit risk management, also submit a subsidiary referential implication for SMEG to set the rate of guarantee fee, using the reduced form model to estimate default probability of bank¡¦s loan assets for SMEs which guaranteed by Taiwan SMEG, and using the actuarial va- luation principles to simulate the guarantee fee through the breakeven analysis.

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In almost all nations, credit guarantee is an important system that the government relies on to help small and medium enterprises (SMEs) obtain finance and provide guidance to them. In Taiwan, Small and Medium Enterprise Credit Guarantee Fund (SMEG) is an institution mandated by the government to assist SMEs to obtain necessary funds from financial institutions. Although SMEG is a non-profit organization, its financial status still affects its sustainability. Therefore, this paper modifies the model presented by Merrick (2001) and uses data of loans submitted by a domestic bank to SMEG for credit guarantee to estimate probability of default and recovery rate of credit guaranteed loans. As this model quantifies risk of credit guarantee, it can help SMEG calculate the necessary reserve for prepayment in subrogation. In this increasingly complicated financial environment, quality of risk control determines the prosperity or survival of an organization. The proposed model is a feasible risk evaluation model that credit guarantee institutions can utilize to effectively improve their quality of risk control.

Several reports research the best prediction power of the credit risk models for different industries. The structural models use firm¡¦s information for firms¡¦ structural variables, such as asset value and asset volatility, to determine the time of default, but it suffer from some drawbacks, which represent the main reasons behind their relatively poor empirical performance. It require estimates for the parameters of the firm¡¦s asset value, which is nonobservable. Moody's KMV model is well known and useful among them, but it ignores recovery rate and difference in financial structure and industry. The reduced-form models fundamentally differ from typical structural models in the degree of predictability of the default. Reduced-form models use market data and assume the probability of default is exogenously generated. However, the basel committee for banking supervision proposed that risk is endogenous. The purpose of this paper is using quantile and threshold regression to introduce a new approach which is based on the Moody¡¦s KMV model, the Lu and Kuo ( 2005) and the Altman, Brooks Brady, Resti and Sironi (2005) to the evaluation of the endogenous probability of default and the endogenous recovery rate.

As evidenced by its market size, credit default swaps (CDSs) has been the cornerstone product of the credit derivatives market. The central question that I attempt to answer in this thesis is: why and how does the introduction of CDS market affect bank loan financing? Theoretical works predict some potential effects from CDS market, but empirical evidence is still rare. This dissertation empirically examines the effects of CDS trading on bank loan financing. In chapter one, I find that banks increase average loan amount and charge higher loan spread after the onset of CDS trading on the borrower’s debt. Also, credit quality of the borrower deteriorates for those with active CDS trading. These findings suggest that banks tend to take on more credit risk by issuing larger loans and by lending to riskier firms that could not obtain bank loan in the absence of CDS. The risk-taking by banks ultimately transmitted to higher bank-level risk profile. The second chapter is the first empirical study of CDS’ role in determining loan syndicate structure. I find larger lead bank share when CDS is in place. Moreover, participation of credit derivatives trading by lead banks is much larger than by the participants, suggesting that lead banks have better chance to use CDS to their own advantage. Further analysis shows that lead banks retain an even larger share when it is more experienced dealing with the borrower and when information asymmetry between the lender and the borrower is less severe. Different from conventional wisdom about moral hazard in syndicated lending, our findings suggest that the lead bank likely takes on more credit risk voluntarily due to its increased financing capacity. The third chapter focuses on the effects of CDS on debt contracting. Given that current evidence does not show CDS reduces average cost of debt, we conjecture that the diversification benefit is reflected by relaxation of restrictions imposed on borrowers. Consistent with our hypothesis, we find the marginal effect from CDS trading on covenant strictness measure is 16.8% on average. One standard deviation increase in the number of outstanding CDS contracts loosens net worth covenants by approximately 8.9%. Using various endogeneity controls, we are able to show the loosening of covenants is due to the reduced level of debtholder-shareholder conflict. Furthermore, the loosening effect is stronger when the expected renegotiation cost is larger, consistent with the view that CDS mitigates contracting friction and improves contracting efficiency. Overall, this dissertation attempts to provide first empirical evidence on how CDS affects bank loan financing. We focus the analysis on loan issuance, syndicate structure and contracting. The findings suggest that banks lend to riskier borrowers in the presence of CDS. On a positive note, banks tend to impose less restrictive covenants on its borrower, which may mitigate frictions in lending market in terms of ex ante bargaining and ex post renegotiation cost. / published_or_final_version / Economics and Finance / Doctoral / Doctor of Philosophy

This dissertation studies the impact of several different housing market features on the macroeconomy. Chapter 1 augments the New-Keynesian model with collateral constraints to incorporate long-term debt in order to examine the interaction between multi-period loans, leverage, and indeterminacy. Allowing firms to borrow heavily against commercial housing by increasing the loan-to-value ratio from 0.01 to 0.90 reduces the level of steady state output approximately 3.19% and decreases social welfare. In contrast, increasing the debt limit of households increases steady state output by 2.72%. Social welfare is maximized under a utilitiarian function when households can borrow at a loan-to-value ratio of about 0.49. An economy with long-term debt also makes stabilization much more difficult for monetary policymakers because determinacy is harder to attain. Instead of only having to satisfy the Taylor Principle (which implies that a more than one-to-one response to inflation), central bankers must either use a strict inflation target or aggressively respond to inflation and the output gap to ensure determinacy. Chapter 2 examine a New-Keynesian model with housing where default occurs if housing prices are sufficiently low, resulting in a loss of access to credit and housing markets. Default decreases aggregate and patient household consumption, increases impatient household consumption, and amplifies the decline in housing prices due to a misallocation of housing. The effects on consumption often peak immediately before default occurs. Policies that prevent underwater borrowing or raise interest rates along with housing prices are generally desirable because they increase utilitarian social welfare. This paper shows that default is not simply a symptom of economic downturns, but a cause. Chapter 3 explores the correlation between the home mortgage interest deduction (HMID) and state economic growth. The HMID was introduced to incentivize home purchases by distorting the after-tax price, resulting in an overinvestment in real estate. Previous empirical work has shown that investment in physical capital increases economic growth more so than investment in structures. Theoretically, the anticipated effect of the HMID would be lower subsequent economic growth. However, this paper finds that residential housing is actually beneficial for economic growth.

The default mode network (DMN) is a system of brain regions observed on functional magnetic resonance imaging (fMRI) when an individual is resting and deactivated during performance of goal-directed cognitive tasks, and is thought to be involved in self-related information processing. While differences with age have been observed in anatomical and functional connectivity, resting activity, and task-related deactivation of the DMN, age-related differences in the interaction between resting connectivity and active processing in the DMN are not well understood. In this study, the relation between functional connectivity and cognitive activation during performance of a task known to involve key DMN regions (i.e., posterior cingulate, medial frontal, medial temporal, and parietal regions) was investigated. Statistical Parametric Mapping (SPM) was performed on fMRI scans in healthy young (n=11) and older (n=19) adults to assess functional connectivity of the DMN at rest, and activation during a self-related source memory task. Older adults were then divided based on task performance into high- and low-performing groups to assess individual differences in connectivity and activation. Though both young and older adults showed robust connectivity among DMN regions, older adults showed greater connectivity between the DMN and other areas, particularly in frontal regions; this expansion was especially evident in low performers. Activation of the DMN during encoding and retrieval of self-related versus other-related information was greater in young adults than older adults. While low-performing older adults showed no differences between self- and other-related activation at retrieval, high performers engaged regions outside the DMN during other-related retrieval. These results suggest that older adults whose self-related source memory performance is similar to young adults exhibit preservation of DMN connectivity, self-related activation in the DMN which more closely resembles that of young adults, and additional recruitment of non-DMN networks to achieve higher memory performance. Aging in low performers is associated with dedifferentiation of DMN connectivity with expansion particularly into frontal regions, and reduced ability to engage the DMN or other networks in discriminating self- from non-self-related information. Further, preservation of DMN-specific functional connectivity is directly related to greater activation differences during retrieval of self-related versus non-self-related information in older adults.

BACKGROUND: The under-5 mortality rate in Ethiopia is 118/1000. A child in Ethiopia is 30 times more likely to die before age 5 than a child in Western Europe. Children are the most vulnerable segment of the population, but many of the ailments that cause death in this population can be avoided by completion of routine childhood vaccination. METHODS: Data regarding child health from the Demographic and Health Survey (DHS), a periodic cross-sectional survey administered at the household level was utilized in this study. Data from 8,905 mothers of living children between 0-5 years of age was included in the study. Univariate and multivariate analyses of selected socio-demographic variables were conducted to examine association with vaccination status. RESULTS: Risk factors for vaccination defaulting were identified. Logistic modeling with the selected factors was conducted with vaccination status and the demographic characteristics of families as independent factors. Type of Residence, Region and Wealth Index were the only significant characteristic in predicting the likelihood of a child being vaccinated when controlled for other factors. CONCLUSION: The results of this study illustrate that geographic disparities result in lower vaccination completion for lower income families from rural settings than other groups. Families’ behavior around child vaccination is a microcosm of various social determinants affecting their decision-making. Resources further removed from health such as better roads and education can improve vaccination uptake.

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