Financial Repression and Firm Nominal Loans
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| Title | Financial Repression and Firm Nominal Loans
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| Author | Shen Yongjian, Xu Wei and Jiang Dequan |
| Organization | School of Accounting, Nanjing University of Finance and Economics;；School of Management, School of Business, Nanjing University；School of Economics and Management, Wuhan University |
| Email | Yjshen@njue.edu.cn；will-nap@163.com；dqchiang@gmail.com |
| Key Words | Financial Repression; Nominal Loans; Implicit Contract; Capital Structure; Retained Loans |
| Abstract | There is financial repression characterized by interest rate regulation and high market access threshold in Chinese financial system. Under this circumstance, banks, agents of implementing macro monetary policies, may turn to invisible loan contracts in addition to visible ones in order to maximize their own interests. While carrying out the invisible contracts, banks retain part of the loan granted to the borrowers, creating discrepancies which are usually bearded by the borrowers between nominal and actual loans. It is suggested that the more stringent the monetary policy, the bigger the discrepancy, and that non-SOEs and firms with smaller regional contributions tend to bear larger divergence. Further studies point out that a company’s financial performance and the market return of its stock will suffer if it has loans retained by its banker. This paper enriches the literature of firms’ behavior responding to different macro policies, deepens the understandings of the relationship between banks and firms under financial repression, and provides further knowledge of the capital structures of Chinese firms. |
| Serial Number | WP671 |
| Time | 2014-08-26 |
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