Corporate Finance Under Low Interest Rates: Evidence from Hong Kong

Paul Mizen () and Cihan YALCIN ()

No 112005, Working Papers from Hong Kong Institute for Monetary Research

Abstract: This paper examines the impact of the dramatic reduction in interest rates by the Federal Reserve on Hong Kong. Using a panel of several hundred firms in Hong Kong we find that firms increase all types of debt, but shift from short-term to long-term debt as rates fall. This can be attributed in part to a supplyside effect as the benign monetary policy environment has improved creditworthiness. The most noticable result from our analysis is the high level of bank dependence among Hong Kong firms and the continued dependence on bank finance even when interest rates fall. Potentially this may reveal that Hong Kong lacks the benefits of a deep domestic bond market.

Date: 2005-11
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