Predicting Financial Distress and Corporate Failure

The financial failure of a company can have a devastating effect on all seven users of financial statements e.g. present and potential investors, customers, creditors, employees, lenders, the general public, etc. As a result, users of financial statements as indicated previously are interested in predicting not only whether a company will fail, but also when it will fail e.g. to avoid high profile corporate failures at Enron, Arthur Anderson, and WorldCom, etc. Users of financial statements can predict the financial position of an organization using the Altman Z score model, Argenti A score model, and by looking at the financial statements i.e.… Read the rest

Understanding the Role and Impact of Green Bonds on the Financial Sector

Socially responsible investment has become an important role of financial services in the world. One of the latest investments that are available in the market is called “green bonds”, its popularity has taken off the recent years. A green bond is a bond specifically earmarked to be used for environmental and climate activities, meaning green bonds are used to fund projects with clear environmental benefits. To elaborate, green bonds are intended to encourage climate-friendly projects that aimed at pollution control, sustainable agriculture and wastewater management system, clean transportation, climate change adaptation, etc. Green bond market is open to different types of issuers such as government bodies, corporates, and financial institutions.… Read the rest

Mortgage Loan – Meaning, Types and Approval Factors

Mortgage loan is a loan secured use to finance by real property. It is usually used with specified payment periods and interest rates according to the agreement of the mortgage loan made between the two parties. Mortgage loan also can know as amortized loan. Under legal agreement, the mortgagor (borrower) gives the mortgagee (lender) a lien on the real estate as collateral for the loan. However, the home loan and mortgage are often used interchangeably. So, the mortgage is really an agreement that makes the home loan work- the commercial bank would not lend you some hundreds of thousands of money unless they knew they could claim your home in the event of your default.… Read the rest

Asset Securitization – Meaning, Process, Parties Involved and Benefits

Asset securitization is way of financing for lenders to obtain funds in the capital markets for the origination of consumer and business loans. It is different from the traditional way of financing, where lenders finance loan origination’s with deposits. Started in 1970, the asset securitization market had a remarkable history of growth and development. By 2000, it became the largest sector of the U.S fixed income securities market. In matured capital market, asset securitization has proven to be an efficient way of financing in that it reduces the ultimate funding cost for the borrower, improves the financial operation for the lender and provides diversified investment products for the investor.… Read the rest

Convergence of Accounting Standards

The emergence of the accounting standards has been beneficial for the companies and the investors of the companies. The accounting standards help in the presentation of the financial information of the company in a format that can be understood by the investors of the companies. The investors of the companies are interested in the performance of the company and the financial results are referred to analyze the results. Therefore, the companies must be able to communicate information that is useful for the investors and the other related parties.

The emergence of the standards has been helpful in introducing uniformity of the presentation in the companies.… Read the rest

Comparison Between Merit Based Regulation and Disclosure Based Regulation

There are two basic models of regulatory system which is the supervision framework for securities market which is a merit based regulation and disclosure based regulation. These regulation systems are important to provide adequate investor protection and regulate business practices or codes of conduct that reduce systemic risks. 

Merit Based Regulation (MBR)

A securities regulator is needed, which control all matters relating to securities and to take all reasonable measures to preserve the confidence of investors in the securities market by ensuring sufficient security for such investors. The securities regulator has the discretion to approve the proposals with such revisions and subject to such terms and conditions as it deems fit.… Read the rest