Modelling local government unit credit risk in the Republic of Croatia
The objective of this paper is to determine possible indicators that affect local unit credit risk and investigate their effect on default (credit risk) of local government units in Croatia. No system for the estimation of local unit credit risk has been established in Croatia so far causing many pr...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Institute of Public Finance
2012-12-01
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| Series: | Financial Theory and Practice |
| Subjects: | |
| Online Access: | http://fintp.ijf.hr/upload/files/ftp/2012/4/posedel_primorac.pdf |
| _version_ | 1818498913050558464 |
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| author | Petra Posedel Marko Primorac |
| author_facet | Petra Posedel Marko Primorac |
| author_sort | Petra Posedel |
| collection | DOAJ |
| description | The objective of this paper is to determine possible indicators that affect local unit credit risk and investigate their effect on default (credit risk) of local government units in Croatia. No system for the estimation of local unit credit risk has been established in Croatia so far causing many practical problems in local unit borrowing. Because of the specific nature of the operations of local government units and legislation that does not allow local government units to go into bankruptcy, conventional methods for estimating credit risk are not applicable, and the set of standard potential determinants of credit risk has to be expanded with new indicators. Thus in the paper, in addition to the usual determinants of credit risk, the hypothesis of the influence of political factors on local unit credit risk in Croatia is also tested out, with the use of a Tobit model. Results of econometric analysis show that credit risk of local government units in Croatia is affected by the political structure of local government, the proportion of income tax and surtax in operating revenue, the ratio of net operating balance, net financial liabilities and direct debt to operating revenue, as well as the ratio of debt repayment and cash, and direct debt and operating revenue. |
| first_indexed | 2024-12-10T20:22:02Z |
| format | Article |
| id | doaj.art-484f2759089b4ccc9d9630eb0411f1b1 |
| institution | Directory Open Access Journal |
| issn | 1846-887X 1845-9757 |
| language | English |
| last_indexed | 2024-12-10T20:22:02Z |
| publishDate | 2012-12-01 |
| publisher | Institute of Public Finance |
| record_format | Article |
| series | Financial Theory and Practice |
| spelling | doaj.art-484f2759089b4ccc9d9630eb0411f1b12022-12-22T01:35:00ZengInstitute of Public FinanceFinancial Theory and Practice1846-887X1845-97572012-12-01364329354Modelling local government unit credit risk in the Republic of CroatiaPetra PosedelMarko PrimoracThe objective of this paper is to determine possible indicators that affect local unit credit risk and investigate their effect on default (credit risk) of local government units in Croatia. No system for the estimation of local unit credit risk has been established in Croatia so far causing many practical problems in local unit borrowing. Because of the specific nature of the operations of local government units and legislation that does not allow local government units to go into bankruptcy, conventional methods for estimating credit risk are not applicable, and the set of standard potential determinants of credit risk has to be expanded with new indicators. Thus in the paper, in addition to the usual determinants of credit risk, the hypothesis of the influence of political factors on local unit credit risk in Croatia is also tested out, with the use of a Tobit model. Results of econometric analysis show that credit risk of local government units in Croatia is affected by the political structure of local government, the proportion of income tax and surtax in operating revenue, the ratio of net operating balance, net financial liabilities and direct debt to operating revenue, as well as the ratio of debt repayment and cash, and direct debt and operating revenue.http://fintp.ijf.hr/upload/files/ftp/2012/4/posedel_primorac.pdfcredit risklocal government unitsTobit modelCroatia |
| spellingShingle | Petra Posedel Marko Primorac Modelling local government unit credit risk in the Republic of Croatia Financial Theory and Practice credit risk local government units Tobit model Croatia |
| title | Modelling local government unit credit risk in the Republic of Croatia |
| title_full | Modelling local government unit credit risk in the Republic of Croatia |
| title_fullStr | Modelling local government unit credit risk in the Republic of Croatia |
| title_full_unstemmed | Modelling local government unit credit risk in the Republic of Croatia |
| title_short | Modelling local government unit credit risk in the Republic of Croatia |
| title_sort | modelling local government unit credit risk in the republic of croatia |
| topic | credit risk local government units Tobit model Croatia |
| url | http://fintp.ijf.hr/upload/files/ftp/2012/4/posedel_primorac.pdf |
| work_keys_str_mv | AT petraposedel modellinglocalgovernmentunitcreditriskintherepublicofcroatia AT markoprimorac modellinglocalgovernmentunitcreditriskintherepublicofcroatia |