CEO Incentive,Monetary Policy And Corporate Bank Loans

In the background of economic slowdown, to mobilize the enthusiasm of the private economy is particularly important. However, it’s more difficult for private enterprises to obtain bank loans than state-owned enterprises. With the continuous improvement of the market economic system, this problem will be eased, while private enterprises themselves can also ease the financial pressure on many ways. Equity incentive is thought to alleviate agency conflicts, and to transfer the capital market a positive signal. Since the stock reform and the implementation of equity incentive plan, more and more executives hold shares. Therefore, this paper focused on executive equity incentive, and studied the relationship between the executive equity incentive and private enterprises’bank loans with the micro data. Further, we took the monetary policy into account, and explored the relationship between equity incentive and bank loans under different monetary policy. These are the issues that this article wants to explore.First, this paper put forward the problem that private enterprises have difficulty in obtaining loans, then we analyzed the possible causes and solutions. Based on previous research, there may be three reasons;one is poor qualification of private enterprises themselves, the other is banks’ "discrimination" in the credit decision-making, the third is information asymmetry. For these three issues, the existing study proposes some solutions, one of which is executive equity incentive. Executive equity incentive can alleviate Principal-agent problems and improve business performance, and thus play a role in improving enterprise qualification. Further, based on the signal transfer model (Leland and Pyle,1977), managerial ownership can provide a positive signal to the market about the project, thus reducing information asymmetry. So theoretically speaking, executive equity incentive can help companies get more bank loans. Does this effect exist in our economic practice? This is the first question we want to answer. Further, we explored how executive equity incentive impact on bank loans under different monetary policy.This paper is divided into six chapters. The main content of each chapter is organized as follows:The first chapter is the introduction, the first section introduced the research background and significance of the research. The second section describes the research ideas, methods and the framework of this article. In the end of this chapter, we point out the possible innovation of this article.The second chapter reviewed the relevant literature. This chapter classified literature into three categories. The first section elaborated factors which impact on bank borrowings, including accounting information, the nature of ownership, firm size, institutional environment, corporate governance and internal controls. Based on existing research, these factors have a significant impact on enterprises’ bank loans, so we added above factors into the control variables. Section II were focused on the relationship between executive equity incentive and corporate bank loans. The third section mainly reviewed the literature of monetary policy and corporate bank loans. Existing research generally agreed that monetary policy significantly affect the number and cost of bank borrowing. And under tight monetary policy, the impact on private enterprise is bigger. But there is no research about the equity incentive and bank loans under different monetary policy, so this is the innovation of this study.The third chapter is the analysis of relevant theory and the hypothesis of this paper. This study is mainly related to asymmetric information theory, principal-agent theory, risk theory, expectancy theory. In addition, the credit transmission mechanism of monetary policy is briefly described. Section II of this chapter raised five issues. And based on these five questions, we proposed hypothesis of this paper.The fourth chapter is the study design and sample selection. The strength of the equity incentive is an endogenous variable, this article reference the existing research to establish a structural equation, and use the two-stage least squares regression to study the relationship between executive equity incentive and enterprise’s bank loans. This chapter also describes the method of sample selection, as well as descriptive statistics and correlation analysis of samples.The fifth chapter is the regression analysis. This chapter consists of two parts, the first part is the return of the whole sample. The regression results confirm the executive equity incentive had a significant positive impact on the bank loans of private enterprises. The second part is the return under different monetary policy, the first section describes the distinction between different monetary policies. We classified the 2007 and 2011 as monetary tightening period, and 2009,2010 and 2012 is the period of monetary easing. On this basis, the sample was divided into two sub-samples. Regression results confirm that the monetary policy had a significant impact on the relationship between equity incentive corporate and bank borrowing. And this influence is more apparent in the monetary tightening period.Chapter VI summarized the conclusions of this study and pointed out the shortages and improve directions of this paper.The main conclusions of this study are:(1) Executive equity incentive intensity has a significant positive effect on private enterprises to obtain more bank loans. It shows that banks believe equity incentive of private enterprise is efficient, it also confirmed the presence of signaling effects.(2) Considering the bank loans’maturity structure, the stronger executive equity incentive can help private enterprises to get more short-term borrowings, which is in line with the assumptions of Risk theory.(3)Executive equity incentive have a significant effect in helping private enterprises to obtain bank loans both in easing and tightening monetary policy, and this effect is more pronounced in the period of monetary tightening. In addition, executive equity incentives bring significant increase in short-term borrowings to private enterprises under tightening monetary policy, while a significant decrease under in long-term borrowings. When monetary tightening, banks pay more attention to business risk, and executive equity incentive is more effective at this time to alleviate the pressure of private enterprises.The innovation of this paper is mainly reflected in the following three aspects:(1) Existing research have not taking account the monetary policy into the correlation studies between bank loans and executive equity incentive. Distinction of monetary policy environment is more conducive to observe the relationship between executive equity incentive and corporate borrowing from banks. In this paper, we analyzed the relationship between the executive equity incentive and corporate bank loans in "loose" and "tight" monetary policy environment. It complements the existing literature. (2) Based on the analysis of how executive equity incentive affect enterprise bank loans, we analyzed how executive equity incentive affect the term structure of corporate bank loans in-depth. It proved that risk theory conforms to the behavior of market players. (3) This paper selects samples from 2006 to 2013, and explored the relationship between executive equity incentive and private enterprises bank loans with the last eight years of data. The latest data helped us obtain time-efficient analysis conclusion.