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Rollover restrictions and the maturity mismatch between investment and enterprise financing

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  • Min Bai

Abstract

The economic effect triggered by changes in the bank rollover standard has always been the focus of public attention. The purpose of this study was to investigate the association between the rollover restriction and the mismatch between investment and financing of enterprises in China. Using a difference‐in‐differences approach based on a quasi‐natural experiment of the 2007 reform of bank loan rollover policy that now prohibits firms from borrowing new loans to repay old ones, we employed the data of listed Chinese firms from 2002 to 2013 and determined that the rollover restriction significantly alleviated the degree of maturity mismatch. In addition, corporate short‐term loans decreased significantly after the restriction—mainly in the form of credit debt—while the level of long‐term debt did not significantly change. We further observed that bank credit resources began to favor high‐quality enterprises under the new rules. In addition, we concluded that the improvement in the efficiency of enterprise investment was the main reason for the alleviation of the maturity mismatch. Enterprises' preference for short‐term loans further aggravated the degree of maturity mismatch. Finally, the rollover restriction reduced corporate default risk and stock price crash risk.

Suggested Citation

  • Min Bai, 2022. "Rollover restrictions and the maturity mismatch between investment and enterprise financing," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3286-3300, December.
    • Handle: RePEc:wly:mgtdec:v:43:y:2022:i:8:p:3286-3300
    DOI: 10.1002/mde.3594
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    3. Gao, Xing & Lai, Xiaobing & Huang, Ting & Lai, Huisu, 2024. "Does social dishonesty accelerate corporate maturity mismatch of investment and financing?," Finance Research Letters, Elsevier, vol. 64(C).
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    6. Qianbin Feng & Lexin Zhao & Mingxue Xu, 2023. "Tax Incentives and Maturity Mismatch between Investment and Financing: Evidence from China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 31(4), pages 1-36, July.

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