A Study About Interest Rate, Capital Structure And Saving Rate

In this paper, we studied the impact of loan interest rate on financing structure through the channel of credit rationing. We developed a dynamic financing model with asymmetry information to claim that equity fund, including undistributed profits and new equity issuing, could screen different type of corporates when there exists information asymmetry between enterprises and banks. Lower interest rate would make credit loan more attractive, so less risky enterprises will rise more equity fund in order to rise the possibility of getting credit loan. Through this "interest rate-credit rationing-financing strategy" channel, changes in loan interest will produce opposite effect on equity financing.Using a firm-level data set which contained listed and non-listed companies subsamples, we tested this theory and found:(1) Equity financing ratio of non-listed companies have significant but opposite reaction to change of loan interest rate, while equity financing ratio of listed companies have no significant reaction.(2) In contrast with the listed companies, the impact of ROA on equity financing ratio of non-listed companies is much smaller than interest rate,.(3) When the likelihood of being rationing get higher, the negative impact of interest rate on its equity financing ratio would be greater. Empirical results supported our view.Using the theoretical frame of "interest-credit rationing-financing strategy" mechanism, we explained the extremely unordinary rising of China saving rate. We believe it was the low interest rate policy which promoted the saving rate of firm sector and household sector through the channel of credit rationing. During the low interest rate period after2000, in order to chase low cost loan (avoid credit rationing),high income families and firms likely to be rationed increased their own funds invested in the proportion of total financing.We tested our interpretation of the corporate sector savings with a firm level sample which included a public firm subsample and a private firm subsample. Econometric analysis showed that:(1) asset-liability ratio of public companies and lending rates are negatively correlated or uncorrelated.(2) asset-liability ratio of private companies and lending rates are significantly positive correlated (1%statistical level).(3) The impact of loan rate on asset-liability ratio of private companies is greater than ROA. These econometric results are totally consistent with the predictions of "interest rate-credit rationing-financing strategy" theory.We tested our "interest-credit rationing-financing strategy" hypothesis of household sector savings with a balanced cross-provinces panel sample of urban householder and rural householder income and expenditure survey data. We found:(1) the average rural household savings rate has no significant change in the trend after2000, while the average urban household savings rate increased significantly.(2) Urban household saving rate is significantly negative correlated with interaction term of income and loan rate, while there is no significant correlation between rural household saving rate and interaction term of income and loan rate. These results imply that saving rate of household having good investment opportunities do have strongly negative reaction to loan rate, confirmed our interpretation of household saving.