Collateral policy of the central bank and corporate financing costs: Evidence from China

Guangjie Geng, Zhixuan Han, Hongli Wu, Miao Cheng, Ran Wang and Huan Liu

The North American Journal of Economics and Finance, 2024, vol. 70, issue C

Abstract: This paper proposes a model of collateral policy to study the impact of the expansion of collateral scope by central banks on corporate financing costs. Based on the theoretical model and a quasi-natural experiment in China, this paper empirically tests the effect of the expansion of the collateral scope for Medium-Term Lending Facility (MLF) by the People's Bank of China on corporate financing costs. We find that this loosening of collateral policy in China can significantly reduce the credit spreads for enterprises by 45 bps and the loan financing costs for micro and small enterprises by 71 bps, respectively. After a series of robust tests, the impact of the loose collateral policy on corporate financing costs remains significant statistically and economically.

Keywords: Collateral Policy; Theoretical Model; Credit Spreads; Loan Financing Costs (search for similar items in EconPapers)
JEL-codes: E52 E58 G21 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:70:y:2024:i:c:s1062940823001651

DOI: 10.1016/j.najef.2023.102042

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