JACIII Vol.28 No.3 pp. 494-501
doi: 10.20965/jaciii.2024.p0494

Research Paper:

The Micro-Effect of Monetary Policy on the Misallocation of Credit

Fan Wu*,† and Ridong Hu**

*College of Economics and Finance, Huaqiao University
No.269 Chenghua North Road, Quanzhou, Fujian 362021, China

Corresponding author

**Institute of Quantitative Economics, Huaqiao University
No.668 Jimei Avenue, Jimei District, Xiamen, Fujian 361021, China

September 13, 2023
November 8, 2023
May 20, 2024
monetary policy shock, heterogeneous enterprise, credit allocation

The structural effects of monetary policy and these effects impact on credit allocation are crucial facets of monetary policy research. This study initially estimates China’s monetary policy based on the GDP growth target and CPI target found in the Chinese Government’s Annual Work Report. Subsequently, it quantifies the extent of credit misallocation among Chinese firms using data from listed companies from the years 2013 to 2022. Finally, we empirically investigate the repercussions of expansionary monetary policy shocks on credit misallocation, focusing on micro-firms. Empirical findings reveal that expansionary monetary policy significantly exacerbates credit misallocation, particularly in underfinanced firms. Mechanistic analysis suggests that a preference for loan size in lending behavior constitutes a major factor contributing to credit misallocation among firms.

Cite this article as:
F. Wu and R. Hu, “The Micro-Effect of Monetary Policy on the Misallocation of Credit,” J. Adv. Comput. Intell. Intell. Inform., Vol.28 No.3, pp. 494-501, 2024.
Data files:
  1. [1] Q. Du, F. Zhou, and M. Zhan, “Information Asymmetry Resource Allocation Efficiency and Business Cycle Fluctuation,” Chinese Industrial Economy, No.4, pp. 61-79, 2022 (in Chinese).
  2. [2] Y. Peng and Y. Fang, “Structural Monetary Policy, Industrial Structure Upgrade and Economic Stability,” Economic Research, Vol.51, No.7, pp. 29-42, 2016 (in Chinese).
  3. [3] X. Chen, W. Chen, and Y. Chen, “Total Factor Productivity and the Effectiveness of Monetary Policy: Theory and Quantitative Analysis,” J. of Quantitative Economics and Technical Economics Research, Vol.40, No.4, pp. 203-224, 2023 (in Chinese).
  4. [4] D.-K. Si and X.-L. Li, “Monetary Policy Moderation and Corporate Excess Cash Holdings,” Modern Finance - J. of Tianjin University of Finance and Economics, Vol.42, No.2, pp. 82-95, 2022 (in Chinese).
  5. [5] Y. Wang, T. Sheng, and G. Zhou, “Macroeconomic Policy, Financial Resource Allocation and the High Leverage Ratio of Enterprises Sector,” Financial Research, No.1 pp. 36-52, 2018 (in Chinese).
  6. [6] T. M. Whited and J. Zhao, “The Misallocation of Finance,” The J. of Finance, Vol.76, No.5, pp. 2359-2407, 2021.
  7. [7] S. Sheng, “The Birth and Development of Social Financing Scale Indicators,” Chinese Finance, No.19, pp. 108-111, 2019 (in Chinese).
  8. [8] N. Zhang, “Analysis of the Transmission Effect of Monetary Policy Bank Credit Channels: from the Perspective of Micro Competition Level of Banks,” Studies of Int. Finance, No.2, pp. 54-65, 2019 (in Chinese).
  9. [9] B. S. Bernanke and M. Gertler, “Inside the Black Box: The Credit Channel of Monetary Policy Transmission,” J. of Economic Perspectives, Vol.9, No.1, pp. 27-48, 1995.
  10. [10] Y. Liu and B. Mo, “Monetary Policy, Credit Scale and Industrial Structure Upgrading – An Analysis Based on Bank Competition,” J. of Shanxi University of Finance and Economics, Vol.43, No.8, pp. 43-56, 2021 (in Chinese).
  11. [11] Y. Cai, “Expansionary Monetary Policy and Credit Allocation: Evidence from China,” China Economic Review, Vol.66, Article No.101595, 2021.
  12. [12] L. W. Cong, H. Gao, J. Ponticelli, and X. Yang, “Credit Allocation Under Economic Stimulus: Evidence from China,” The Review of Financial Studies, Vol.32, No.9, pp. 3412-3460, 2019.
  13. [13] J. Shen, M. Firth, and W. P. H. Poon, “Credit Expansion, Corporate Finance and Overinvestment: Recent Evidence from China,” Pacific-Basin Finance J., No.39, pp. 16-27, 2016.
  14. [14] J. Zhang and Y. Shi, “The Resource Reallocation Effect of Monetary Policy,” Int. J. of Finance & Economics, Vol.29, Issue 1, pp. 665-683, 2022.
  15. [15] X. Li, P. Xie, H. Ding, and D. Si, “Central Bank Lending Facility and Investment Efficiency of Non-SOEs: Evidence from China,” Economic Modelling, Vol.126, Article No.106421, 2023.
  16. [16] H. Kasahara, Y. Sawada, and M. Suzuki, “The Effect of Bank Recapitalization Policy on Corporate Investment: Evidence from a Banking Crisis in Japan,” J. of Banking and Finance, Article No.107047, 2019.
  17. [17] P. Ottonello and T. Winberry, “Financial Heterogeneity and the Investment Channel of Monetary Policy,” Econometrica, Vol.88, Issue 6, pp. 2473-2502, 2020.
  18. [18] D. Baqaee, E. Farhi, and K. Sangani, “The Supply-Side Effects of Monetary Policy,” J. of Political Economy, 2023 (in press).
  19. [19] T. Bianco, “Monetary Policy and Credit Flows,” J. of Macroeconomics, Vol.70, Article No.103362, 2021.
  20. [20] D. Lu, H. Tang, and C. Zhang, “China’s Monetary Policy Surprises and Corporate Real Investment,” China Economic Review, Vol.77, Article No.101893, 2023.
  21. [21] C.-J. Shu, P. Hong, and L.-C. Zhang, “The Micro-effect of Monetary Policy Shocks on the Leverage Ratio of Heterogeneous Enterprises,” Finance Forum, Vol.25, No.8, pp. 52-61, 2019 (in Chinese).
  22. [22] X. Wei, Y. Chen, M. Zhou, and Y. Zhou, “SOE Preference and Credit Misallocation: A Model and Some Evidence from China,” Economics Letters, No.138, pp. 38-41, 2016.
  23. [23] Q. Wang and S. Meng, “A Mechanism Analysis of Leverage Cycle of Chinese Enterprise Sector,” Chinese Industrial Economy, No.1, pp. 62-80, 2020 (in Chinese).
  24. [24] S. Xiao, W. Peng, and X. Huang, “Is the Financing Constraint of the Current Manufacturing Enterprises Excessive or Insufficient: The Review and Judgment Based on the Requirements of High Quality Development,” Nankai Business Review, Vol.23, No.2, pp. 85-97, 2020 (in Chinese).
  25. [25] Y. Ma and C. Yao, “The Effects of Monetary and Macro-Prudential Policies Under the Two-Pillar Adjustment Framework: from the Perspective of Bank Risk-Taking,” J. of Management World, Vol.37, No.6, pp. 51-69, 2021 (in Chinese).
  26. [26] C. Zhang, H. Tang, and Z. Chen, “The Hangover Effects of Monetary Policy Shock on Non-Financial Firms’ Portfolio Choices,” J. of Financial Research, No.9, pp. 1-19, 2022 (in Chinese).
  27. [27] K. Chen, J. Ren, and T. Zha, “The Nexus of Monetary Policy and Shadow Banking in China,” American Economic Review, Vol.108, No.12, pp. 3891-3936, 2018.

*This site is desgined based on HTML5 and CSS3 for modern browsers, e.g. Chrome, Firefox, Safari, Edge, Opera.

Last updated on Jun. 03, 2024