How Does The Government-Driven Deleveraging Policy Impact Companies'Debt Level?

As China's economy steps into the "new normal" phase,improving the efficiency of resource allocation at the macro level has become an important measure to cope with the negative impact of the economic stimulus plan.After the financial crisis in 2008,the government promulgated a series of economic stimulus measures such as cutting interest rates,lowering reserve requirements,offering government subsidies,providing implicit guarantee and encouraging financial innovation,etc.,so as to maintain economic growth.The implementation of these measures created a relatively loose financial environment and thus raised the leverage ratio of some enterprises.In this course,excess capacity could not be cleared in time,and a large amount of capital was left in inefficient enterprises,which leaded to the decline of resource allocation efficiency and the slowdown of economic growth.At the same time,with high leverage ratio,enterprises were forced to raise more loans to repay those they previously borrowed,which leads to questions about the credit of those companies,entailing bankruptcy of private enterprises and poor performance of state-owned enterprises.It was within this context that China officially entered the stage of government-driven deleveraging,marked by the Central Economic Working Conference held at the end of 2015.Hereafter,to tackle with excessive leverage ratio at the macro level,various departments issued a series of documents to reduce the leverage ratio of enterprises and to regulate their financing behaviors.Rectification was conducted in key sectors such as the regulatory authorities,financial institutions and state-owned enterprises,so as to restrain the liabilities of enterprises,promote the transformation of zombie enterprises and alleviate the debt burden of all sectors of the national economy.In order to examine the concrete effects of the deleveraging policy after the year of 2015.this essay studies the changes in the debt levels of enterprises with different political connections by comparing the leverage ratio 1 of enterprises listed between 2013 and 2017.Firstly,this essay sorts out the relevant theories such as target asset-liability ratio,financial constraints,deleveraging policy and debt maturity structure theories.The following hypothesis are put forward based on the specific measures taken before,during and after the implementation of the deleveraging policy:1.Enterprises with political connections had higher leverage ratio before the deleveraging policy;2.After the deleveraging policy,the leverage ratio of enterprises decreased,and the political connections of enterprises promoted the effect of the policy;3.Before the deleveraging policy,politically connected companies had more bank borrowings and longer debt maturities,and the enterprises as a whole had more commercial credit;after the policy,the total amount of bank loans available for the enterprises reduced,and the debt maturity was shortened;and the demand of the enterprises for commercial credit decreased.5.After the deleveraging policy,the financing cost of enterprises will change with the changes of the debt level and debt maturity structure.The research methods adopted by this essay are as follows:1.In the definition of variables,the dummy variables of policy are introduced to distinguish the financial status of enterprises before and after the policy(0 or 1 respectively)and the data tested is derived from the quarterly data of financial statements of enterprises from 2013 to 2017.Besides,the dummy variables of enterprise nature are used to distinguish the enterprises with different nature of property rights(state owned enterprises are marked as 1).Leverage ratio is taken as the standard to measure the debt level of enterprises before and after deleveraging.2.The basic regression is the regression between the debt levels of enterprises and the policy variables,with the former being the dependent variable;and a model is constructed as interaction term to examine the changes of debt levels of enterprises with different nature of property before and after the deleveraging policy.3.In the further study,this essay replaces the debt level with specific accounting items to study the changes of debt maturity structure before and after the deleveraging policy and the concrete channels for the implementation of the policy.The following conclusions are drawn in the essay:1.Before the implementation of the deleveraging policy at the end of 2015,the leverage ratio of state-owned enterprises was high.After the policy,the overall leverage ratio of listed enterprises have decreased.2.After researching on enterprises with different categories of political connections,and the regression of interaction terms,it is concluded that compared with state-owned enterprises,the debt level of private enterprises decreased more greatly,and the nature of state-owned enterprises played an inhibitory role in the deleveraging process.3.Through the test on the specific channels for the implementation of the policy,it is found that before the policy,namely in the period of credit easing,the main financing methods were bank loans and commercial credit between enterprises,while bond financing was less common.During this period,the total amount of bank loans and commercial credit between enterprises was relatively high,and state-owned enterprises had significant advantages in access to long-term bank loans.After the policy,the scale of current liabilities of enterprises decreased significantly.As the main sources of financing,the scale of short-and long-term borrowing began to shrink,with the commercial credit cost growing higher.Nevertheless,the maturity of bank loans for state-owned enterprises was shortened,and the increase in long-term payables of private enterprises indicates that the post-policy financing structure has been improved.At the same time,bond financing has been developed,creating opportunities for the expansion of enterprises' financing channels.4.The financing cost of enterprises measured by the cost of interest decreased after the de-leveraging policy.