Monetary Policy Financial Development And Financing Constraints

The MM theory is proposed by Modigliani and Miller, the view of the theory is that internal financing and external financing can substitute for each other in the perfect capital market. But the perfect capital market is not existent, the costs between making internal financing and external financing is different because of the existence of the asymmetric information, transaction costs and managerial agency problems. So when the internal funds is not enough to run, the enterprises will be faced with the problem of financing constraints. The changes of the monetary policy must change the external environment of the corporate financing. The tightening monetary policy could increase the difficulty of the enterprise external financing and the company’s financing constraints. In China, the credit channel is the most important monetary policy transmission channels, so the development of financial intermediaries and financial markets has a significant impact on the effects of monetary policy.The paper advance five assumptions by the analysis to the differences of the monetary policy effectiveness and the financial development in different regional. The first is that tightening monetary will exacerbate financing constraints; The second is that Financial development can ease financing constraints; The third is that when the monetary policy is tightening, the influence is smaller in the high level of financing development; The forth is that when the monetary policy is tightening, The bank loan borrowed by the state-owned enterprises will be more than the private enterprise. The last is that the case occurring in the forth assumption will be remitted. For texting the three assumptions, this paper build models which combines the model that advanced by Tang Jianxin, Chen Dong (2009) for testing the financial development and financing constraint and the other model cash-cash flow constraint model which proposed by Almeida (2004). In the model, the explanatory variables are monetary policy and financing development. There are four variables for controlling other elements, such as changing in short-term borrowings, non-changes in working capital, business growth, firm size. For testing the last assumptions, the short bank loan is the explained variable. Monetary policy and the nature of the firm is the explanatory variables. In the model, There are four variables for controlling other elements, such as changing in short-term borrowings, non-changes in working capital, business growth, firm size, roa. The data are form581public companies. This paper processed these data, including descriptive statistics and correlation test, and this paper build five models for testing the five assumptions and regression analysis about the models. At last, the regression results support the first to the forth assumption; the fifth assumption is not confirmed, the view of the paper think that there are three reasons for the result. Firstly,70%of the samples is state-owned enterprises; Secondly, the FIR can not description of the degree of financial competition; At last, non-state-owned enterprises are less in the financial underdeveloped areas.There are two innovations in this paper. Firstly, most of the previous study about monetary policy pay attention to macro level, findings show that the effect of the same monetary policy are different in different areas, however, the previous study did not show the form of the different. Well known that monetary policy has microscopic effect, the tightening of monetary policy will exacerbate financing constraints. The object of this paper is a listed company in different areas, these areas have kinds of level of financial development, so financing constraints of these company will occur different changes because of the same monetary policy. At last, the model of this paper combine the cash-cash flow sensitivity model and the model which is used to testing the relationship between financial development and financing constraints by JianXin Tang(2009), and set the cross terms to judge the relationship between the variable.There are two inadequacies in this paper; firstly, the sample of the paper selection are listed companies because of the data of the non-listed companies can not obtain, but the financing constraints of the non-listed companies is more serious, they are more sensitive to monetary policy. At last, the FIR can not description of the degree of financial competition.