Abstract
The aim of this study is to investigate the impact of real interest rate on invest- ment level on different industries of Jiangsu, China over the period of 10 years from 2003 to 2012. The effect of interest rate on investment in different industries is tested by using static and dynamic panel-data model. The empirical evidences indicated that interest rate and investment are positively correlated. However, interest rate uncer- tainty has small impact on rate of investment in different industries. Industries like manufacturing, power, gas, and water industry, finance and real estate are more sensi- tive to interest rate fluctuation. Furthermore, evidence indicated that sensitivity of interest rate on investment is also low. It is suggested that government should accelerate the pace of interest rate liberalization and improve the sensitivity of investment to interest rate. The government should encourage rate sensitive industries in province.
Highlights
The relationship between interest rate and investment is seriously affected by difference in capital structure of enterprises
Based on the data of interest rates and ISE national 100 indexes over a period of (2002-2010), the result showed that investors can’t cope with the impact of interest rates in the short term (Mustafa and Ayhan, 2012). When it came to the optimal investment decision-making under the rate risk in the long term, it is proved that interest rate had a great influence on the investment income. (Hiroaki and Jun, 2006)
Zhou Siyuan, (2011) conducted a research based on 400 listed companies in manufacturing industry by using panel data concluded that there is a positive relationship between interest rate and choice of investment behavior in company
Summary
All kinds of investments directly or indirectly become part of any industry. Interest rate has big impact on investment in an enterprise. The interest rate can control the investment behavior of an enterprise by. Different enterprises have various capital structures, especially in distinct industries. In few industries, the ratio of fixed assets to total assets is larger but in others the ratio of floating capital is higher. The relationship between interest rate and investment is seriously affected by difference in capital structure of enterprises. The capital structure of the enterprise is able to influence the reaction of investment to the interest rate.
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