Monetary Policy, Financing Constraints And Corporate Investment Decision

According to current international and domestic economic developments, international financial crisis sweeping the globe, the economic development of all countries is impacted in a way by the international financial crisis. In order to save the economy, to prevent significant economic downturn, many countries have eased monetary policy to stimulate economic development. In this context, the study of monetary policy on the impact of investment on the development and implementation of monetary policy has very important practical significance.To look at the situation and trend of the economic theory, professor Stiglitz pointed out that the 21st century would be the epoch that macroeconomics theories and microeconomics theories would be made into a whole after both of them had been established and developed for long by different economist independently. Macroeconomic Theory is looking for micro-economic basis, while microeconomics is also trying to deduce the macro-economic implications from individual behavior. On the big background of the economics theory development, This dissertation tests whether and how monetary policy impacts firm investment using microeconomic level firm data, which accords with the development trend of economic theory and trys to furnish some microeconomics foundation for monetary policy theory.Under asymmetric information, there is no longer irrelevancy between investment and financing which the MM capital structure theory narrates, but interrelationship because of information asymmetry. This dissertation analyses and summarizes firm external financial constraints and gives a definition of firm financial constraints:As the capital market is not perfect and external financing has a premium, so that internal financing can not entirely replace by external financing and firm investment have to more rely on internal fund, thus to the investment decision restricted by external financing variable. Basing on this definition, I analyzes how to measure the degree of financial constraints:according to the economic consequence of financial constraints, the degree of financial constraints can be measured by the degree of firm underinvestment; from an angle of the cause of financial constraints, the grade of financial constraints embodies the degree of the information asymmetric between firm and external capital market; with the characterization of financial constraints, the level of financial constraints can be measured by the external financing premium.The dissertation analyzes the impact of monetary policy to firm financing through carrying debt with credit rating, debt overhang and financial accelerator effect etc, and discusses the impact of monetary policy to firm financing through issuing stock according to the capital transmit path of monetary policy and combined with market timing theory. By virtue of pecking order theory and market segmention theory, the dissertation points out that our country's listed firms encounter financing conatraints and which is universality, so that the readjustment of monetary policy will universally affect the degree of our country's listed firm financing constraints. Meanwhile, learning from and develop the previous framework of analyzing the relation of between financing constraints and firm investment, the dissertation analyzes the impact of financing constraints to firm investment spending with two situation with no debt finance and debt finance.On the basis of analyzing the theory of monetary policy impacting firm investment through financial constraints, the dissertation deeply analyzes the relationship of three factors from cash flow angle. The dissertation consider that the contraction of monetary policy tightens firm's internal cash flow and make a contend occuring between working capital and long-term real investment. At the same time, tight monetary policy increases the premium of external finance and makes the availability of external fund more difficulty, so that it is more difficulty that the gap of firm's cash is complemented through external capital. In order to maintain normal activity, many firms have to decrease their long-term real investment. Furthermore, analyzing the relax factors of firm cash flow becoming more and more tight, the dissertation points out that cash reserve and the degree of firm investment's external capital dependence may affect the effective of monetrary policy impacting firm investment.In order to validate the impact of monetary policy to firm investment through financial constraint, the dissertation tests the impact using respectively discrete monetary policy variable and consecutive monetary policy variable in the empirical segment, at the same time, tests the impact of monetary policy to financial constraints and the asymmetry of the effectiveness of monetary policy to firm investment. The result of the study finds that tight monetary policy has disincentive on firm investment and loose monetary policy has incentive, but the effectineness of losse monetary policy is less than that of tight monetary policy. There is different among of the effectiveness of monetary policy to firm with different financial constraint, that is, the more firm has financial constraint, the bigger effect will the firm suffer from monetary policy. Through testing the impact on monetary policy to corporate financing constraints, the dissertation finds that the more tight monetary policy, the greater the level of regulation of corporate finance. These empirical results have fully demonstrated that monetary policy adjustment will change the company's level of external financing constraints, and the company's external financing constraints will affect the company's investment behavior. The conclusions of the study will not only provide a micro-economic foundation for the impact of monetary policy to corporate investment, but also extend it in the theory, which indciates that it is not an isolated between the investment and financing, that is, financing will be restricted investment, and investment in turn influence company's external financing capacity.This study's conclusion not only provides a micro-economic foundation for the theory of monetary policy and enrichs it, but also explains the confusion why the company's capital investment is more sensitive to monetary policy adjustments. According to this research, the reason why the company's capital investment is more sensitive to monetary policy adjustments is that monetary policy affects the company's cash flow and external financing constraints, so that the company had to choose how to use the limited cash, to fill the shortage of working capital, or for capital investment. In order to maintain normal production and operation, the company has to cut capital investment spending, but the company does not abandon the capital investment projects.