A Study On The Influence Of Interest Rate Marketization On Fiancial Constraint Faced By SMEs

Financial Repression and Financial Deepening theories by McKinnnon and Shaw suggest that a state regulated interested rate would hinder economic development and therefore cause interest rate to be far lower than average and may lead to insufficient allocation of social resources.It is commonly believed that China's interest rate liberalization began in 1986,so far the process has not drawn to an end.The goal of interest rate marketization is to let the market play the leading role in resource allocation.Under the macro-economic control and adjustment,social resources can be utilized to the maximum.While increasing banks' capability to adjust and control interest rate,interest rate marketization simplifies external financing for enterprises.Weather marketization of interest rate will be the key to alleviate financial restraint faced by SMEs remains the focus of researchers.This thesis selects and studies the financial panel data of 499 listed C hinese enterprises from the SME board dating from 1986 to 2005 using internationally accepted Eulerian Model and proves that interest rate marketization may alleviate financial constraint faced by SMEs in China.The result of analysis again indicates that financial constraint widely exists among SMEs,and marketization of interest rate is the solution to the situation.This thesis further divides Chinese enterprises into two categories: state-owned and privately-owned enterprises,and later discovers the differences of influence of interest rate marketization to these two categories are hardly noticeable,however the extent and significance of alleviation from financial constraint for privately-owned enterprises is greater than for state-owned enterprises.Therefore the author concluded that the reform for interest rate marketization will bring a positive impact to SMEs' financing,and the reform should be steadily pushed forward.In the meantime,during the period when the interest rate is yet to be entirely liberalized,the credit scale for private sector should be expanded in order to alleviate the financial restraint faced by enterprises.This thesis contains 7 chapters:Chapter One provides the background of choosing this particular topic,the significance of the study,line of thought and the innovative ideas of this dissertation.Chapter Two is reference that summarizes relating reference materials based on measuring indicators,models and empirical study.Three measuring methods are concluded: simple binary method or ternary method,categorized binary-average method,Principal Component Analysis;the model demonstrates three internationa lly commonly used models: sales accelerator model,Tobin's Q Model,Euler Equation of Investment Model.Chapter Three introduces the theoritical basis of the dissertation.Chapter Four formulates the indicator for interest rate marketization.China Financial Liberalization Index is referred in the measurement of the process of interest rate marketization;with the support of Principal Components Analysis of SPSS when choosing major variables,Interest Rate Marketization Index can be fomulated to graph the flow chart of interest rate marketization.Chapter Five first summarizes financial constraint faced by China's SMEs,then confirms and studies whether SMEs are in the situation of financial constraint,and compares the scale of financial constraint faced by state-owned and privately-owned enterprises.Chapter Six is empirical research which studies in influence of interest rate marketization to financial constraint faced by SMEs.Chapter Seven is conclusion of the dissertation and policy recommendations based on findings given in Chapters Four to Six.