Abstract
This paper investigates the effects of interest rate reform, regulation vs. deregulation, on capital structure by collecting data from Chinese listed companies between 2003 and 2013 and controlling for the impacts of earnings transparency. We find that the deregulation of interest rates strengthens the positive relationship between earnings transparency and capital structure, implying a favourable effect of interest rate deregulation on risk management. We also find, however, private firms are more sensitive towards interest rate deregulation than state-owned enterprises which have better access to debt finance in China.
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