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Corporate Finance Under Low Interest Rates: Evidence from Hong Kong

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  • Paul Mizen

    (Hong Kong Institute for Monetary Research, University of Nottingham)

  • Cihan Yalcin

    (University of Nottingham, University Park)

Abstract

This paper examines the impact of the dramatic reduction in interest rates by the Federal Reserve on Hong Kong. Using a panel of several hundred firms in Hong Kong we find that firms increase all types of debt, but shift from short-term to long-term debt as rates fall. This can be attributed in part to a supplyside effect as the benign monetary policy environment has improved creditworthiness. The most noticable result from our analysis is the high level of bank dependence among Hong Kong firms and the continued dependence on bank finance even when interest rates fall. Potentially this may reveal that Hong Kong lacks the benefits of a deep domestic bond market.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 112005.

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Length: 32 pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:hkm:wpaper:112005

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  1. Stefan Gerlach & Wensheng Peng & Chang Shu, 2005. "Macroeconomic conditions and banking performance in Hong Kong SAR: a panel data study," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 481-97 Bank for International Settlements.
  2. Benoit Mulkay & Bronwyn H. Hall & Jacques Mairesse, 2000. "Firm Level Investment and R&D in France and the United States: A Comparison," NBER Working Papers 8038, National Bureau of Economic Research, Inc.
  3. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
  4. Stephen Bond & Julie Ann Elston & Jacques Mairesse & Beno�t Mulkay, 2003. "Financial Factors and Investment in Belgium, France, Germany, and the United Kingdom: A Comparison Using Company Panel Data," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 153-165, February.
  5. Anil K. Kashyap & Jeremy C. Stein & David W. Wilcox, 1991. "Monetary policy and credit conditions: evidence from the composition of external finance," Finance and Economics Discussion Series 154, Board of Governors of the Federal Reserve System (U.S.).
  6. Simon G. Gilchrist & Ben Bernanke & Mark Gertler, 1994. "The financial accelerator and the flight to quality," Finance and Economics Discussion Series 94-18, Board of Governors of the Federal Reserve System (U.S.).
  7. Mark Gertler & Simon Gilchrist, 1991. "Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms," NBER Working Papers 3892, National Bureau of Economic Research, Inc.
  8. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
  9. Franklin Allen, 2004. "Financial Systems in Europe, the USA, and ASIA," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 490-508, Winter.
  10. Spiros Bougheas & Paul Mizen & Cihan Yalcin, 2004. "Access to External Finance : Theory and Evidence on the Impact of Firm-Specific Characteristics," Working Papers 0406, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  11. Oliner, Stephen D & Rudebusch, Glenn D, 1996. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance: Comment," American Economic Review, American Economic Association, vol. 86(1), pages 300-309, March.
  12. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  13. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
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