Interest rate regulation, earnings transparency and capital structure: evidence from Chinese listed companies, 2003-2015

Li, Xiaolong, Tian, Lin, Han, Liang and Cai, Huifen (Helen) ORCID: https://orcid.org/0000-0002-5893-8291 (2019) Interest rate regulation, earnings transparency and capital structure: evidence from Chinese listed companies, 2003-2015. International Journal of Emerging Markets . ISSN 1746-8809 [Article] (Published online first) (doi:10.1108/IJOEM-04-2018-0164)

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Abstract

We use samples from Chinese listed companies to investigate the effects of interest rate deregulation and earnings transparency on company’s capital structure in China over the period of 2003-2015. In particular, we study the link between state-owned enterprises (SOEs), economic growth targets, and marketization in China's unique institutional context. The results show earnings transparency increases firm leverage and the additional tests suggest that such an effect takes place via a mechanism by reducing the cost of debt finance. However, information transparency could moderate the effects of interest rate deregulation on corporate capital structure. In addition, it finds that SOEs are less sensitive towards the changes of interest rates in China because lending to SOEs is policy-oriented and lacks of market evaluation of business risk. Government control is conducive to enhancing the transparency of the whole industry, however, market-oriented reform is conducive to enhancing the transparency of the company's own information. The results are robust to endogeneity tests and a variety of variable and model specifications. Lastly, we find that information transparency has little impact on equity financing because of IPO and SEO strictly controlled by the Chinese government. These findings are important for management and policy implications. The paper makes contribution to the relationship between earnings disclosure quality and capital structure in the Chinese unique institutional context, such as taking the progressive interest rate reform, SOES, different economic growth target and different marketization level in each province of China. We suggest that investors will pay more attention to the company's own unique information transparency in the provinces with high degree of marketization. As a potential direction for future research, we will investigate how the earnings transparency has impact on capital structure, and how such impact would depend on the transparency of specific business, the cap of foreign shareholding and the convenience of investment.

Item Type: Article
Research Areas: A. > Business School > International Management and Innovation
Item ID: 28118
Notes on copyright: This is the accepted version of the manuscript "Interest rate regulation, earnings transparency and capital structure: evidence from Chinese listed companies, 2003-2015", published in the journal "International Journal of Emerging Markets" available via the journal site at: https://doi.org/10.1108/IJOEM-04-2018-0164
This article is © Emerald Publishing Limited and permission has been granted for this version to appear here. Emerald does not grant permission for this article to be further copied/distributed or hosted elsewhere without the express permission from Emerald Group Publishing Limited.
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Depositing User: Helen Cai
Date Deposited: 08 Nov 2019 13:49
Last Modified: 04 Feb 2021 22:39
URI: https://eprints.mdx.ac.uk/id/eprint/28118

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