Effects of National Easing Monetary Policy on Chinese Enterprises’ Investment

Abstract

Enterprise investment is closely related to cost of capital, and cost of capital is affected by lending rate driven by national monetary policy. For instance, the retail interest rate (including deposit, loan interest rates) of a bank would rise during the practice of tight national monetary policy. Excessively high loan interest rate would reduce enterprises’ investment due to increasing cost of capital. In this case, corporate investment behavior could be understood from national monetary policy. Taking listed companies publicly offered by Shanghai Stock Exchange and Taipei Exchange as the research samples, the open annual information from the database are acquired. Industry peculiarities, financial, securities, and insurance industries applicable to special accounting standards, as well as construction industry are excluded, and samples with incomplete or omitted data are deleted. The research results show that 1.the practice of easing policy in national monetary policy allows Chinese enterprises holding higher free cash flow, 2.Chinese enterprises with positive free cash flow appear higher investment behavior, and 3.the practice of easing policy in national monetary policy results in higher investment behavior of Chinese enterprises. According to the results, it is proposed to discuss the evaluation basis for impacts on industrial development during monetary policy. The results could assist policy makers in better understanding impacts of national monetary policy adjustment on enterprise investment effect as well as provide business managers for evaluating the effectiveness of national monetary policy.