A Study On The Influence Of Monetary Policy On Corporate Financial Behavior And Its Effect

The expected role of monetary policy is achieved by its impact on corporate behavior at the microeconomic level, while wether it manages to achieve its expected role is closely related to the impacting process. In the past few years, China’s monetary policy has been adjusted abnormally, consequently leading to structural defection at the macroeconomic level, i.e., monetary policy has exerted different influence on different corporate, resulting in economic unbalance. Following the streams of prior research in relevant areas and building on China’s reality, this thesis empirically tests the impact of monetary policy on corporate financial behavior together with the resulting impact after controlling corporate characteristics, so as to unveil the acting mechanism of monetary policy, as well as provide theoretical and empirical basis for policy and decision formulation.Specifically, using a sample of A-share listed corporate in China from2002to2011, this thesis first studies the effect of monetary policy on capital structure adjustment, and tests the excess corporate value change under the capital structure adjustment in this period. The empirical result shows that monetary policy influences capital structure adjustment, resulting in excess corporate value loss. After taking into account firm types, we find that monetary policy influences capital structure adjustment of different types of firms, and that firms with small scale suffered greater losses than that of large scale, highly competitive firms suffered greater losses than that of less competitive, highly financing distressed firms suffered greater losses than that of less financing distress, and private-owned firms suffered greater losses than that of state-owned.Secondly, this thesis attempts to figure out the determinant of corporate investment under different monetary environment, and further analyze the resulting effect. The empirical result shows that that corporate investment is determined not only by such firm characteristics as free cash flow and growth opportunity, but also by monetary policy. Corporate investment is more dependent on cash flow during monetary contraction, while it is more dependent on growth opportunity during monetary expansion. Corporate investment helps bring more excess corporate value, in particular during monetary expansion. After taking into account firm types, corporate investment by firms with higher degree of market is more dependent on cash flow. For firms with higher degree of market, corporate investment is much more dependent on cash flow during monetary contraction, while it is much more dependent on growth opportunity during monetary expansion. For firms with higher degree of market, corporate investment brings more excess value during monetary contraction than during monetary expansion. In addition, corporate investment becomes less dependent on cash flow and more dependent on growth opportunity as corporate governance improves. Better corporate governance helps bring more excess corporate value in any environment.Last but not least, using a sample of A-share listed corporate in China from2002to2011, this thesis tests the effect of monetary policy on capital structure and then on information disclosure. Empirical result shows that the easier the monetary policy, the higher the debt ratio, the more influential the creditor in corporate governance, and the more short-range and certain the information disclosure, indicating reduction in information disclosure quality. With the aim of highlighting this feature, we take into account such factors as executive compensation, managerial ownership, nature of the controlling shareholder and corporate credit rating respectively, and find that the above result still holds. Naturally, reduction in information disclosure quality implies the decline of excess value.The all-round study indicates that for the sake of corporate efficiency, on the one hand, a stable and structurally balanced financial market environment is in urgent need, while the key to a sound monetary policy lies in the reform of the banking system, i.e., to vigorously develop marketirized banking service system, so that it’s able to accomplish monetary policy transmission based on the market mechanism, the improvement of the money market and capital market system, so that more direct financing channels will be available, and ease the shock to the market brought about by the current monetary policy characterized by total control, and the introduction of monetary policy characterized by interest rate leverage. On the other hand, in order to mitigate the adverse effect brought about by monetary policy adjustment, corporate need to formulate a long-term goal, pay close attention to its outer environment, proactively improve their financing capability, improve their investment efficieny, and improve corporate governance in order to improve decision efficiency. Only with the continuous improvement of both the inner and outer corporate environment, can market main body be well nurtured, can the effectiveness and stability of monetary policy be improved, can corporate decision efficiency be improved, and promote market-oriented economic development fundamentally. The two aspects as of equal importance and lacking of any aspect may jeopardize the result.