Interest Rate Liberalization and Firm Leverage in China: Effects and Channels
We examine whether and how interest rate liberalization affects firm leverage in China. We find that interest rate liberalization exerts a negative effect on the leverage of firms. Specifically, firms experience a reduction in total leverage during the liberalization period, and firms’ short-term le...
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| Format: | Article |
| Language: | English |
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Wiley
2023-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2023/7926625 |
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| _version_ | 1849703488684032000 |
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| author | Caiyun Chen Xuefei Peng Liufang Yu |
| author_facet | Caiyun Chen Xuefei Peng Liufang Yu |
| author_sort | Caiyun Chen |
| collection | DOAJ |
| description | We examine whether and how interest rate liberalization affects firm leverage in China. We find that interest rate liberalization exerts a negative effect on the leverage of firms. Specifically, firms experience a reduction in total leverage during the liberalization period, and firms’ short-term leverage declines more relative to long-term leverage. Mechanism analysis shows that firms with high information asymmetry enjoy more decline in leverage relative to firms with low information asymmetry, and further, liberalization policy enables the reduction in credit transaction costs, which indicates that the behavior of banks actively collecting corporate information is an important channel that interest rate liberalization impacts firm leverage. Finally, in additional tests, we find that the impact is more salient when firms are non-state-owned, and loss making. Compare to operating liabilities, firms experience more reduction in financial liability. |
| format | Article |
| id | doaj-art-0b95a7ae836342e49aff31ffafcdf747 |
| institution | DOAJ |
| issn | 1607-887X |
| language | English |
| publishDate | 2023-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-0b95a7ae836342e49aff31ffafcdf7472025-08-20T03:17:14ZengWileyDiscrete Dynamics in Nature and Society1607-887X2023-01-01202310.1155/2023/7926625Interest Rate Liberalization and Firm Leverage in China: Effects and ChannelsCaiyun Chen0Xuefei Peng1Liufang Yu2Food Safety Research CenterSchool of BusinessFood Safety Research CenterWe examine whether and how interest rate liberalization affects firm leverage in China. We find that interest rate liberalization exerts a negative effect on the leverage of firms. Specifically, firms experience a reduction in total leverage during the liberalization period, and firms’ short-term leverage declines more relative to long-term leverage. Mechanism analysis shows that firms with high information asymmetry enjoy more decline in leverage relative to firms with low information asymmetry, and further, liberalization policy enables the reduction in credit transaction costs, which indicates that the behavior of banks actively collecting corporate information is an important channel that interest rate liberalization impacts firm leverage. Finally, in additional tests, we find that the impact is more salient when firms are non-state-owned, and loss making. Compare to operating liabilities, firms experience more reduction in financial liability.http://dx.doi.org/10.1155/2023/7926625 |
| spellingShingle | Caiyun Chen Xuefei Peng Liufang Yu Interest Rate Liberalization and Firm Leverage in China: Effects and Channels Discrete Dynamics in Nature and Society |
| title | Interest Rate Liberalization and Firm Leverage in China: Effects and Channels |
| title_full | Interest Rate Liberalization and Firm Leverage in China: Effects and Channels |
| title_fullStr | Interest Rate Liberalization and Firm Leverage in China: Effects and Channels |
| title_full_unstemmed | Interest Rate Liberalization and Firm Leverage in China: Effects and Channels |
| title_short | Interest Rate Liberalization and Firm Leverage in China: Effects and Channels |
| title_sort | interest rate liberalization and firm leverage in china effects and channels |
| url | http://dx.doi.org/10.1155/2023/7926625 |
| work_keys_str_mv | AT caiyunchen interestrateliberalizationandfirmleverageinchinaeffectsandchannels AT xuefeipeng interestrateliberalizationandfirmleverageinchinaeffectsandchannels AT liufangyu interestrateliberalizationandfirmleverageinchinaeffectsandchannels |