Does Counter-Cyclical Monetary Policy Promote Enterprise R&D Investment in a Recession? Empirical Evidence from China

Abstract

Using the continuous difference-in-difference (DID) model, this paper analyzes the Chinese listed companies’ panel data from 2013 to 2019 by taking the rapid monetary policy easing in mid-2015 as the policy shocks to test the impact of loose monetary policy on enterprise R&D investment. The results show that loose monetary policy significantly weakened the negative impact of high leverage on enterprise R&D investment. After considering the heterogeneity and fixed effects of enterprise and industry characteristics, loose monetary policy still significantly improved highly leveraged enterprises’ R&D investment and showed a greater innovation-driving role in a competitive market environment. Based on this, this paper believes that The People’s Bank of China should continue to guide the decrease of medium- and long-term interest rates and promote benign competition among enterprises to improve the effectiveness of the monetary policy.