Monetary Policy,Bank Connections And Dynamic Capital Structure Adjustment

Capital structure,as a core concept in financial theory,influences the enterprises value as well as the investment and financing decision.Trade-off theory and agency cost theory all argue that enterprises do have a target capital structure.However,changing economic environment leaves enterprises moving away from and towards their target capital structure all the time.Monetary policy is an important macro-control means to stimulate economic development and capital allocation.However,the existing literatures only focused on the macro level,with few studies reached the micro level.It's meaningful in theory to explore micro-transmission mechanism of macro monetary policy on the enterprises'capital structure.Under the policy of supply-side reform and sound monetary policy,deleverage is the dynamic adjustment process of capital structure.Considering the bank-dominated financial system in China,It's meaningful in practice to explore the relationship between monetary policy,bank connections and dynamic capital structure adjustment.The sample used in this paper is obtained from CSMAR over the period 2008 to 201 6_The paper employs the"one-stag"partial adjustment capital structure model with firm characteristic variables and independent variables.The paper uses GMM method to estimate the impact of macro-monetary policy and bank connections on capital structure adj ustment.The empirical results show that,firstly,the speed of capital structure adjustment is slower in tight monetary policy relative to loose monetary policy,and monetary policy has a greater impact on the speed of capital structure adjustment of non-state-owned enterprises relative to state-owned enterprises;secondly,bank connections promote the speed of capital structure adjustment,the enterprises with bank connections adjust capital structure toward target faster than the enterprises without bank connections;thirdly,bank connections weaken the impact of monetary policy on the speed of capital structure adjustment,the speed of capital adjustment of enterprises without bank connections is more sensitive to the change of monetary policy relative to enterprises with bank connections.From the perspective of optimizing capital structure,the paper proves the value of bank connections and finds the relationship between macro-monetary policy and micro-enterprises behavior.Finally,the recommendations are put forward from two aspects.On the one hand,government should formulate accurate and efficient monetary policy to promote further capital structure adjustment.On the other hand,enterprises should engage with bankers proactively to cope with the impact of macro policy.