| Since China’s economy entered the “new normal”,high leverage and high financing costs in the corporate sector have become one of the major obstacles to stable economic development.In response to the downward pressure on the economy and to alleviate the problem of firms’ debt,monetary policy has launched a series of measures targeting the supply-side structural reform as the main line.However,Chinese firms’ debt financing shows characteristics that are not consistent with the expected effects of monetary policy: in terms of debt scale,the macro leverage ratio of the corporate sector remains high,while the gearing ratio shows a significant downward trend;in terms of debt structure,the ratio of firms’ financial debts to operational debts is comparable,with short-term debts dominating and long-term debts at a low level;in terms of debt costs,the cost of financing remains high for a long time.At the same time,in the face of the complex and volatile economic situation,Chinese monetary policy tends to use short-term,unconventional operational tools more and more frequently,and the monetary policy uncertainty is gradually highlighted.It is difficult for firms to decide the amount or price of debt financing completely autonomously and depends largely on the external policy guidance,especially when the policy changes are unpredictable,policy uncertainty can have an significant impact on firms’ debt financing.Therefore,this paper will try to explain the trend of changes in firms’ debt scale,structure and cost of financing from a new perspective,namely monetary policy uncertainty(MPU).In order to explain the reasons for the decline of firms’ debt scale,the alienation of debt structure,and the high debt cost from the perspective of MPU,we use the Chinese MPU Index constructed by Huang and Luk(2020)and the annual financial data of Chinese non-financial listed firms in Shanghai and Shenzhen A-shares from 2007 to 2020 to systematically analyze the impact of MPU on firms’ debt financing.The paper also discuss the impact of changes in firms’ debt financing on corporate performance under MPU shocks.The main research contents and conclusions of this paper are as follows:Part 1: Measurement and characteristics of MPUThis section systematically reviews the implementation of monetary policy in China from 2007 to 2020 in the context of the specific rules and transmission mechanism,discusses and compares the econometric and textual analysis approaches on the measurement of MPU,so as to identify the measurement of MPU.The trends of MPU and its determinants are summarized based on the Chinese MPU Index constructed by Huang and Luk(2020).China’s monetary policy has been adjusted more frequently and by a larger margin in recent years.The overall trend of MPU in China is oscillating significantly,with five phase highs during the period 2007-2020.Shocks from external economic conditions and policy changes,diversified monetary policy objectives,and diverse structural monetary policy instruments are the main factors affecting MPU in China.Part 2: The Scale Effect of MPU on Firms’ Debt FinancingBased on real options theory and precautionary savings theory,this section theoretically analyzes and empirically tests the impact of MPU on firms’ debt scale and its mechanism,and also examines the differential impact of MPU on debt scale of heterogeneous firms using group regressions.In addition,this section further discusses the impact of MPU on the dynamic adjustment of firms’ capital structure.There is a significant negative effect of MPU on firms’ debt scale.The results of the impact mechanism test show that firms’ asset allocation efficiency and cash flow uncertainty play a partial mediating effect in the path of MPU affecting firms’ debt scale.A rise in MPU makes firms’ asset allocation efficiency decrease and cash flow uncertainty increase,which leads to a decrease in firms’ debt scale.The negative effect of MPU on the debt scale of non-state owned,small-sized,non-cyclical firms,and firms in regions with less market-oriented financial sectors is more pronounced,the rise in MPU leads to differences in debt scale changes among firms of different ownership,sizes,industries,and regions.The higher the MPU,the slower the adjustment of firms’ capital structure and the greater the deviation of the actual gearing ratio relative to the target gearing ratio.After distinguishing the direction of adjustment,it is found that the negative effect of MPU on the speed of capital structure adjustment and the positive effect on the deviation of capital structure are both more pronounced among under-indebted firms.Part 3: The Structural Effect of MPU on Firms’ Debt FinancingBased on the hypothesis of debt heterogeneity,this section theoretically analyzes and empirically tests the effects of MPU on the source structure and the maturity structure of firms’ debt,and examines the moderating effects of firms’ financing constraints on MPU and debt structure,and examines the differential effects of MPU on the debt structure of heterogeneous firms using group regressions.MPU has a significant negative impact on the share of financial debts and a significant positive impact on the share of operating debts,thus changing the structure of firms’ debt sources and leading to a close ratio of financial debts to operating debts.MPU has a negative impact on the proportion of long-term debts,which changes the maturity structure of firms’ debt,leading to a short-term debt maturity structure.The more severe the financing constraint suffered by firms,the more obvious the impact of rising MPU on firms’ debt source structure and debt maturity structure,and the moderating effect of financing constraint indirectly illustrates that the adjustment of firms’ debt structure under MPU shock is a supply-led passive behavior.The impact of MPU on the debt source structure and debt maturity structure in non-state owned,small-sized,non-cyclical firms and regions with less market-oriented financial industry is more obvious,the rising MPU makes the changes in debt structure differ among firms of different ownership,scale,industries and regions.Part 4: The Cost Effect of MPU on Firms’ Debt FinancingBased on financial friction theory,this section theoretically analyzes and empirically tests the impact of MPU on firms’ debt cost and the mechanism of the impact,while examining the differential impact of MPU on the debt cost of heterogeneous firms using group regressions.MPU has a significant positive effect on firms’ debt cost,both in the broad and narrow sense.The results of the impact mechanism test show that the probability of firms’ debt default plays a partial intermediation effect in the path of MPU affecting the firms’ debt cost.An increase in MPU makes the probability of firms’ debt default increase,which leads to an increase in the firms’ debt cost.The positive effect of MPU on the debt cost of non-state owned,small-sized and non-cyclical firms is more pronounced,rising MPU causes differences in changes in the debt cost among firms of different ownership,sizes and industries,but does not lead to significant differences in the debt cost of firms in regions with different degrees of marketization in the financial sector.Part 5: The Economic Results of MPU on Firms’ Debt FinancingThis section introduces an interaction term between MPU and firms’ debt financing to systematically and empirically test the impact of changes in the scale,structure and cost of firms’ debt on corporate performance under MPU shocks.The effects of MPU on the scale,the structure,and the cost of debt can have a dampening effect on corporate performance.When MPU rises,the decline in the firms’ debt scale,the decline in the share of financial debts,the increase in the share of operating debts,the decline in the share of long-term debts,and the increase in the cost of debt all lead to a decline in corporate performance.Based on the above findings,we propose the following policy recommendations.First,ensure the stability and consistency of monetary policy,improve the transparency of monetary policy,and enhance public communication and expectation guidance,so as to alleviate MPU and build a favorable monetary policy environment.Second,screen changes in firm indebtedness,avoid “one-size-fits-all” deleveraging,pay attention to the differences in debt scale among heterogeneous firms,and consider “structural deleveraging” as well as“stabilization of leverage” as a way to alleviate the impact of monetary policy.Third,pay attention to the characteristics of firms’ debt structure,prevent hidden debt risks,ease financial market financing constraints,strengthen supervision and management of operating debts,reduce short term debts and increase medium and long term debts.Fourth,stabilize market interest rate expectations,strengthen the financial ecological environment,improve the ability of financial services to the real economy,ease financial friction and effectively reduce the firms’ debt cost. |
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