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Collateral policy of the central bank and corporate financing costs: Evidence from China

Author

Listed:
  • Geng, Guangjie
  • Han, Zhixuan
  • Wu, Hongli
  • Cheng, Miao
  • WANG, RAN
  • Liu, Huan

Abstract

This paper proposes a model of collateral policy to study the impact of the expansion of collateral scope by central banks on corporate financing costs. Based on the theoretical model and a quasi-natural experiment in China, this paper empirically tests the effect of the expansion of the collateral scope for Medium-Term Lending Facility (MLF) by the People's Bank of China on corporate financing costs. We find that this loosening of collateral policy in China can significantly reduce the credit spreads for enterprises by 45 bps and the loan financing costs for micro and small enterprises by 71 bps, respectively. After a series of robust tests, the impact of the loose collateral policy on corporate financing costs remains significant statistically and economically.

Suggested Citation

  • Geng, Guangjie & Han, Zhixuan & Wu, Hongli & Cheng, Miao & WANG, RAN & Liu, Huan, 2024. "Collateral policy of the central bank and corporate financing costs: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:ecofin:v:70:y:2024:i:c:s1062940823001651
    DOI: 10.1016/j.najef.2023.102042
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    More about this item

    Keywords

    Collateral Policy; Theoretical Model; Credit Spreads; Loan Financing Costs;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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