Abstract:
Based on the bank-dominated financial institutional environment in China, this paper uses the quarterly data from A-share listed companies in Shanghai and Shenzhen Exchange to investigate how inflation expectations affect corporate bank debt financing. The results are: First, inflation expectations decrease actual interest rate, therefore, expected inflation is positively related with the level of corporate bank debt, implying that inflation expectations are important determinants of capital structure. Second, when expected inflation is high, Credit reluctance and bank discrimination are more severe among commercial banks. As a result, SOEs can borrow money more easily from banks. Thus, in SOEs, the positive relationship between expected inflation and bank debt level is more significant. Third, inflation expectations also affect firms’ deviation from optimal bank debt structure. Specifically, conservative firms optimize debt structure while aggressive firms deviate more from optimal debt structure. In further analysis, we find that the expected inflation is also positively related with the change of bank debt; if the company borrow money more easily from banks, inflation expectation has greater effect on these firms’ bank debt financing. This study enriches the literature of capital structure determinants and macro policy and micro activities, investigates the macro determinants of capital structure, and helps the government and firms cope with inflation better.
Ang, Andrew, Geert Bekaert and Min Wei, 2007. “Do Macro Variables, Asset Markets, or Surveys Forecast Inflation Better?”,<i> Journal of Monetary Economics, 54(4):1163~1212.<br />
</i>[14]Bekaert, Geert and Eric Engstrom, 2010. “Inflation and the Stock Market: Understanding the “Fed Model””<i>, Journal of Monetary Economics, 57(3):278~294.<br />
</i>[15]Bekaert, Geert and Xiaozheng Wang, 2010. “Inflation Risk and the Inflation Risk Premium”,<i> Economic Policy, 25(64):755~806.<br />
</i>[16]Chu, Yongqiang, 2012. “Optimal Capital Structure, Bargaining, and the Supplier Market Structure”<i>, Journal of Financial Economics, 106(2):411~426.<br />
</i>[17]Cook, Douglas O. and Tian Tang, 2010. “Macroeconomic Conditions and Capital Structure Adjustment Speed”<i>, Journal of Corporate Finance, 16(1):73~87.<br />
</i>[18]Cull, Robert, Wei Li, Bo Sun and Lixin Colin Xu, 2015. “Government Connections and Financial Constraints: Evidence from A Large Representative Sample of Chinese firms”<i>, Journal of Corporate Finance, 32:271~294.<br />
</i>[19]Flannery, Mark J. and Kasturi P. Rangan, 2006. “Partial Adjustment Toward Target Capital Structures”<i>, Journal of Financial Economics, 79(3):469~506.<br />
</i>[20]Frank, Murray Z. and Vidhan K. Goyal, 2009. “Capital Structure Decisions: Which Factors Are Reliably Important?”<i>, Financial Management, 38(1):1~37.<br />
</i>[21]Graham, John R. and R. Harvey Campbell, 2001. “The Theory and Practice of Corporate Finance: Evidence from the Field”<i>, Journal of Financial Economics, 60(2):187~243.<br />
</i>[22]Kim, Jeong-Bon, Byron Y. Song and Liandong Zhang, 2011. “Internal Control Weakness and Bank Loan Contracting: Evidence from SOX Section 404 Disclosures”<i>, The Accounting Review, 86(4):1157~1188.<br />
</i>[23]Konchitchki, Yaniv, 2011. “Inflation and Nominal Financial Reporting: Implications for Performance and Stock Prices”<i>, The Accounting Review, 86(3):1045~1085.<br />
</i>[24]Korajczyk, Robert A. and Amnon Levy, 2003. “Capital Structure Choice: Macroeconomic Conditions and Financial Constraints”<i>, Journal of Financial Economics, 68(1):75~109.<br />
</i>[25]Li, Xu, Chen Lin and Xintong Zhan, 2014, “Does Change in Information Environment Affect the Choice between Bank Debt and Public Debt?”, Working Paper.<br />
[26]
Lin, Chen, Yue Ma, Paul Malatesta and Yuhai Xuan, 2013. “Corporate Ownership Structure and the Choice Between Bank Debt and Public Debt”<i>, Journal of Financial Economics, 109(2):517~534.<br />
</i>[27]Mauer, David C. and Sudipto Sarkar, 2005. “Real Options, Agency Conflicts, and Optimal Capital Structure”<i>, Journal of Banking and Finance, 29(6):1405~1428.<br />
</i>[28] ztekin, zde, 2015. “Capital Structure Decisions around the World: Which Factors Are Reliably Important?”<i>, Journal of Financial & Quantitative Analysis, 50(3):301~323.<br />
</i>[29]Pilotte,Eugene A., 2003. “Capital Gains,Dividend Yields,and Expected Inflation”<i>,Journal of Finance,58(1):447~466.<br />
</i>[30]Schmeling, Maik and Andreas Schrimpf, 2011. “Expected Inflation, Expected Stock Returns, and Money Illusion: What Can We Learn from Survey Expectations?”<i>, European Economic Review, 55(5):702~719.<br />
</i>[31]Tsai, Ying-Ju, Yi-Pei Chen, Chi-Ling Lin and Jung-Hua Hung, 2014. “The Effect of Banking System Reform on Investment-cash Flow Sensitivity: Evidence from China”<i>, Journal of Banking & Finance, 46:166~176.</i>
