A Comparative Study On The Interest Rate Of Loans Between Internal And External Capital Markets

The phenomenon of “funding difficulties” and “funding expensive” has always been the focus of problems in our economy.Since 2015,the Chinese government has implemented a supply-side reform with “cost reduction” as its core content,and expects to effectively reduce corporate financing costs.In particular,in economic practice,in addition to the inter-enterprise capital allocation implemented by external capital market mechanisms such as bank credit and equity financing,there is a very common internal(group)internal lending transaction.However,due to the difficulty in obtaining corporate loan interest rate information,there is not much research on the mechanism of corporate external borrowing pricing in the academic community,especially the lack of research on the internal lending price of enterprises(groups).In this context,important issues such as how to price internal and external loans,whether there are differences,and how to effectively reduce corporate borrowing rates are urgently needed.Based on a sample of loans disclosed by Chinese listed companies in 2005-2016,we examine the differences in the loan rates between internal and external capital markets.It is found that,compared with the external debt financing such as bank loans,the internal borrowing costs are relatively low,which is consistent with the intuition of information advantage in internal capital markets.Further test results show that the price advantage in internal capital markets is relatively greater in three situations:(1)the age of the borrowing enterprise and the size of the assets are smaller;(2)the information transparency of the borrowing enterprise is lower;(3)the analyst's attention is lower.These results show that the information asymmetry is an important factor that leads to the difference of financing cost between internal and external capital markets,which enhances our understanding of how to determine the price of corporate borrowing.The research in this paper has clear theoretical and practical significance.Firstly,this paper examines the impact of information transparency on the difference of internal and external capital market loans,enriching the research literature of “internal capital market contract decision mechanism” and enhancing our understanding of the internal capital market.Secondly,the conclusions have profound policy implications.We are aware that only by strengthening information disclosure and information production can we alleviate information asymmetry and reduce the financing costs of corporate debt.