The Effects Of Loan Interest Rate Marketization On Listed Companies’ Financing Structure

With the deepening of China’s financial reform and increasingly urgent demand for national innovation mechanism system, the interest rate liberalization is already speeding up the process. This is reflected not only in the top-down policies, but also in the bottom-up innovative financial activities. This paper attempts to find that how the non-market interest rate affects the financing structure of listed companies, and to predict that when the loan rate completes the market-oriented reform, how these enterprises will change their financing structure. This study has a very real and important meaning for guiding and forecasting for the interest rate liberalization.Firstly, this paper summarizes the findings of previous scholars on the financing preference, and organizes the relevant theories about the relationship of rate and financing structure. Next, it explores in detail the general financing structure of China’s listed companies and the current interest rate system, as well as qualitatively describes the relationship of them. Subsequently, this thesis uses Panel Data model to analyze the impact of official and market interest rates on the financing structure of 240 listed companies which is divided into two categories: state-owned enterprises and private enterprises.Based on the above analysis, we found the following conclusion: Firstly, leverage ratio of the sample enterprises is generally low, while Chinese listed companies show a significant preference for equity financing. Second, among all of the control variables, only firm size and asset-backed capacity of the enterprise exists significant impact on lending practices. Third, the price of capital from bank and from the market displays a completely different effect on guiding the direction of corporate financing structure. Fourth, of private enterprises is less sensitive about changes in interest rates than the state-owned enterprise, which is contrary to common belief. This paper makes a detailed analysis of these phenomena above.Finally, it forecasts how listed companies will change their financing behavior after the loan rate completing market-oriented reform, by regression test about more than 70 listed companies which have been disclosed annual report in 2013. This paper argues that, in the context of interest rising, state-owned enterprises leverage ratio will increase, because of debt returning to the optimal level and interest rates uplifting. Although private enterprises leverage have the same change, it is mainly attributed to the increased interest rate sensitivity.According to the text of the study, this paper presents four recommendations: Firstly, encourage a top-down financial innovation; secondly, promote the credit rating system, in order to reduce the asymmetric information risk; thirdly, minimize the official interest rate impact on corporates’ behavior; finally, in order to reverse the Chinese preference for corporate equity, related departments should accelerate bond market building and urge enterprises to improve their governance structure.