Financial Repression, Implicit Contract and Disguised Loan Interest Rate Marketization: Phenomenon and Explanation
SHEN Yongjian, XU Wei, JIANG Dequan
School of Accountancy, Nanjing University of Finance and Economics; The Institute of Accounting and Finance and the School of Accountancy, Shanghai University of Finance and Economics
Abstract:
Along with the financial market reform, the financial repression has been greatly improved. On one hand, however, the reform is still in a gradual progress and the effects of regulation still exist; on the other hand, understanding of the effect of financial repression to corporate credit and loan is the basic of correctly evaluate the reform's outcome. Therefore, our study focus on the heterization of contract between banks and corporations affected by financial repression before the financial market reform. The results shows that under the background of financial repression, invisible contracts of retained loans exist between banks and corporations. Banks use retained loans to maximize their profit while fulfill regulations. This study theoretically and empirically analyses this phenomena and find out that the occurrence of invisible contract are affected by factors like monetary policy, corporate character etc. Such invisible contracts are acting as overt market interest rate. Further study suggest that this invisible contract negatively affected firm value. Our paper enriches the literary of macro policy and micro corporate behavior, connect with the studies of invisible contract, enhance the comprehension of bank and corporation relationship under financial repression and could provide policy suggestion to the reform of financial institutions.
Fehr, Ernst and Gächter Simon, 2000, “Fairness and Retaliation: The Economics of Reciprocity,” Journal of Economic Perspectives, 14(3), pp.159~181.
[36]
Franklin, Allen, Qian Jun and Qian Meijun, 2005, “Law, Finance, and Economic Growth in China,” Journal of Financial Economics, 77(1), pp.57~116.
[37]
Hart, Oliver D., 1988, “Incomplete Contracts and the Theory of the Firm,”Journal of Law Economics & Organization, 4(1), pp.119~139.
[38]
Huang, Yiping and Wang Xun, 2011, “Does Financial Repression Inhibit Or Facilitate Economic Growth？ A Case Study of Chinese Reform Experience,” Oxford Bulletin of Economics & Statistics, 73(6), pp.833~855.
[39]
Laurence, Booth, Aivazian Varouj, Demirguc-Kunt Asli and Maksimovic Vojislav, 2001,“Capital Structures in Developing Countries,” Journal of Finance, 56(1), pp.87~130.
[40]
Loren, Brandt. and Li Hongbin, 2003, “Bank Discrimination in Transition Economies: Ideology, Information, Or Incentives？,” Journal of Comparative Economics, 31(3), pp.387~413.
[41]
Mckinnon, Ronald I., 1973, Money and Capital in Economic Development. Brookings Institution.
[42]
Shleifer, Andrei and Vishny Robert W., 1994, “Politicians and Firms,” Quarterly Journal of Economics, 109(4), pp.995~1025.
[43]
Thorsten, Beck, Demirguckunt Asli and Maksimovic Vojislav, 2004, “Bank Competition and Access to Finance: International Evidence,” Journal of Money Credit & Banking, 36(3), pp.627~648.
