Marketization of interest rate quotation mechanism and bank credit-empirical evidence from Chinese listed companies

Abstract

Should interest rates be regulated and priced by the government or determined by the market? This article is based on the loan market interest rate quotation system reform implemented in China in 2019. Using data from 2016 to 2022 on bank loan credits obtained by Chinese listed companies, it was found that the marketization of loan interest rate quotations increased the credit amount these companies obtained from banks. The mechanism behind this involves the effects of information and competition. Further research found that compared to state-owned enterprises, the impact of the market-based interest rate quotation system on increasing the bank loan credit amount is more significant in private enterprises. In addition, the marketization of interest rate quotations has increased the credit term of corporate loans, reduced the need for collateral, and decreased the probability of default.