Study On Monetary Policy And Non-financial Corporates Leverage

The excessive growth of non-financial sector leverage often have a negative impact on the economy and was once used as an early warning sign of financial crisis.After 2011,the rapid rise in the leverage of China's non-financial corporates sector has caused widespread concern and worry around the world.International credit rating agencies such as moody's and standard & poor's have successively downgraded China's sovereign debt rating in 2013,and argue that high leverage is one of the major risks for China in the future.In order to prevent debt risk and systemic risk,many scholars and international research institutions(such as the International Monetary Fund,the Bank for International Settlements,etc.)have suggested that China should pay high attention to the rapid rise in the leverage of non-financial corporate sectors and actively seek ways to reduce leverage.However,leverage is a micro-concept.So Credit/GDP is not a very accurate index to determine whether the pressure of China's non-financial corporates sector leverage is too high or not.And it is also not conducive to providing guidance for the introduction of the “deleverage” policy.In order to have a better understanding of the China's non-financial corporates leverage problems and the pressure of “de-leveraging”,it is necessary to further examine the current situation of China's non-financial corporates leverage and potential debt risks of China's non-financial corporates from micro perspective.Therefore,this paper firstly documents a set of stylized facts about leverage and financial fragility in the non-financial corporate sector China from the perspective of macro-leverage and micro-leverage.And we use the corporate financial vulnerability indicators of countries(areas)in the Asian financial crisis(AFC)on the eve of the crisis as a benchmark to measure the vulnerability of today's non-financial corporate sectors in China.The results shows that the level or growth of China's non-financial corporates sector macro-leverage is significantly higher than the average level of the emerging countries and even the average level of crisis countries(regions)on the eve of the Asian financial crisis.From a micro perspective,there are obvious structural problems in the leverage of Chinese nonfinancial corporates.High leverage is mainly concentrated in large-scale corporates,stateowned corporates,overcapacity industries and the western region.Although China's nonfinancial corporate sector currently do not necessarily fall into debt crisis,the overall financial situation is at the edge of bankruptcy.The rise in macro leverage and the deterioration of the company's financial position are huge risks to China's economic growth and financial stability.Therefore,it is necessary to take a series of measures to promote the non-financial corporates to deleverage smoothly in China.Although the high leverage of non-financial corporates in China is not unrelated to some long-standing institutional problems,the direct role of monetary policy cannot be ignored.Then,will the tighter monetary policy help non-financial corporates to achieve the benign deleveraging? In order to answer this question,this paper uses the quarterly financial data of China's A-share listed non-financial corporates from 2005 to 2017 to conduct an empirical analysis of the above problems.The results show that there is a significant U-shaped nonlinear relationship between monetary policy and corporate leverage,which is more pronounced between short-term leverage and non-state-owned firms.That is to say,the initial non-financial enterprise leverage ratio will show a downward trend with the tightening of monetary policy.Once the monetary policy tightening exceeds a certain threshold,the leverage ratio of nonfinancial enterprises will rebound.Further research shows that non-state-owned enterprises located in areas with low degree of marketization and in less competitive industries and nonstate-owned enterprises with lower actual profitability have a more obvious U-shaped nonlinear relationship between leverage and monetary policy.At the same time,with the deepening of global financial and economic integration,emerging market countries are increasingly affected by the spillover effects of US monetary policy.Will the existence of the international conduction effect of monetary policy affect the leverage ratio of non-financial corporates in China? What is the form of influence? The understanding of the above issues is also a problem that cannot be ignored in the current deleveraging process in China.Therefore,based on the research results of existing literature,this paper further studies the relationship between US monetary policy and the leverage growth of non-financial corporates in EMs.This paper studies the relationship between the leverage ratio of non-financial corporates in EMs and US monetary policy by using data of non-financial listed corporates in 28 emerging market countries from 2003 to 2015.The results suggest that there is a significant negative correlation between the US shadow interest rate and the leverage ratio of non-financial companies in emerging market countries.That is,accommodative U.S.monetary conditions are reliably associated with faster EM leverage growth during the past decade.Moreover,this impact is more pronounced for sectors dependent on external financing,for firms with more financial constraints,and for firms in more financially open EMs with less flexible exchange rates regimes.These findings indicate that contractionary U.S.monetary policy may hitting the deleveraging of non-financial corporate sector in China.As a policy on total quantity,monetary policy itself is difficult to solve the structural problems of the leverage ratio of non-financial corporates in China.No matter how monetary policy is adjusted,it needs to influence real economy through transmission channels such as balance sheet channels and credit channels.The typical bank-oriented financial structure makes the credit channel the main channel for China's monetary policy transmission.Under China's unique economic system,this indirect financing method,which relies heavily on bank credit,further exacerbates the difficulty of monetary policy to solve the structural problems of China's non-financial enterprise leverage by restricting the transmission channels of monetary policy.The increase in the degree of marketization of the financial structure will not only help to enrich the channels of monetary policy transmission,but also help to increase the financing channels of non-financial enterprises,especially equity financing.Then,does the increase in the degree of marketization of financial structure help to resolve the structural problems of China's nonfinancial corporates leverage? With the increasing degree of marketization of financial structure,the external financing channels of domestic corporates will continue to be enriched.Does this affect the relationship between domestic monetary policy and corporate leverage and the international transmission effect of monetary policy in developed countries? This paper uses the data of non-financial firms listed in 47 countries(areas)from 2000 to 2015 to conduct an empirical analysis of the above problems.The results show that there is there is a significant negative correlation between the financial structure and the leverage ratio of the enterprise,and the increasing degree of marketization of the financial structure will also increase the corporate debt term.Furthermore,this effect will show significant heterogeneity among different countries,industries and firms.This effects is more pronounced for firms(1)in the countires with less reliance on investment as a proportion of GDP,a higher financial development,higher regulation quality,better information disclosure and a higher ratio of innovation or service industry in GDP or(2)with a high leverage ratio,a large size,poor profitability,low ownership concentration and a weak political connection.In addition,the increase in the degree of marketization of a country's financial structure will help to improve the effectiveness of domestic monetary policy on the leverage of non-financial corporates,and alleviate the impact of the international transmission of monetary policy in developed countries on the leverage of non-financial corporates in the country.Therefore,in order to promote the smooth realization of China's non-financial corporates structural de-leverage,monetary policy should moderately increase flexibility under the premise of maintaining a stable and neutral state,and be moderately loose and tight according to the dynamic changes of the situation.In the future,regulators should also pay attention to the impact of US monetary policy changes brought about,to avoid the impact of domestic and foreign monetary policy superimposed cause excessive deleveraging the risks.Policy makers should strengthen the finacial system reform and improve the capital market espeically the equity market.Meanwhile,at the macro level,the government should change the investmentled growth model,develop the service and innovative industry and improve the regulation quality and information disclosure.At the micro level,the government should strengthen the state-owned enterprise reform and reduce government intervention in enterprises.