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The Impact of the Interest Rate Liberalization on Both Banks and Small Firms: Evidence from China

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  • Qishui Chi
  • Shiwen Fu

Abstract

More and more commercial banks have developed their business with small firms rapidly in China since the interest rate liberation reform in 1996. Many scholars have investigated how the rate liberalization influences the risk taking behaviors of banks. Meanwhile, some researchers have exploded from another perspective that how the reform would affect the firms especially its financing business. However, few of them have put two of the effects together under one shared model to find out how the liberalization affect both of the suppliers and buyers in this financial market. Thus, this article makes an empirical analysis on the issue above by using the data of five biggest commercial banks in China from 2004 to 2015, trying to find out the interactive effect it has on both of the market players. We put a multiplication factor into the analysis model and use GMM regression method. The results show that under the situation of interest rate liberalization, the bank loans of small firms will not be exposed under great non-performing risks. On the contrary, this will encourage more banks to develop business with small firms, which could be viewed as a win-win result.

Suggested Citation

  • Qishui Chi & Shiwen Fu, 2016. "The Impact of the Interest Rate Liberalization on Both Banks and Small Firms: Evidence from China," Research in World Economy, Research in World Economy, Sciedu Press, vol. 7(2), pages 26-33, December.
    • Handle: RePEc:jfr:rwe111:v:7:y:2016:i:2:p:26-33
    DOI: 10.5430/rwe.v7n2p26
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    References listed on IDEAS

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    1. Sanchita Mukherjee & Rina Bhattacharya, 2015. "Do the Keynesian monetary transmission mechanisms work in the MENA region?," Empirical Economics, Springer, vol. 48(3), pages 969-982, May.
    2. Nicholas Odhiambo, 2009. "Interest Rate Liberalization and Economic Growth in Zambia: A Dynamic Linkage," African Development Review, African Development Bank, vol. 21(3), pages 541-557.
    3. Olaf Hübler & Lukas Menkhoff & Chodechai Suwanaporn, 2008. "Financial Liberalisation in Emerging Markets: How Does Bank Lending Change?," The World Economy, Wiley Blackwell, vol. 31(3), pages 393-415, March.
    4. Oludele Akinloye Akinboade & Emilie Chanceline Kinfack, 2013. "Interest rate reforms, financial deepening and economic growth in Cameroon: an empirical investigation," Applied Economics, Taylor & Francis Journals, vol. 45(25), pages 3574-3586, September.
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    Cited by:

    1. Cao, Guangxi & Jiang, Min & He, LingYun, 2018. "Comparative analysis of grey detrended fluctuation analysis methods based on empirical research on China’s interest rate market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 506(C), pages 156-169.

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