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Interest Rate Marketization, Financing Constraints and R&D Investments: Evidence from China

Xinxin Zhao (), Zongjun Wang () and Min Deng ()
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Xinxin Zhao: School of Management, Huazhong University of Science and Technology, Wuhan 430074, China
Zongjun Wang: School of Management, Huazhong University of Science and Technology, Wuhan 430074, China
Min Deng: Zuoling Sub-district Office, Wuhan East Lake High-Tech Development Zone, Wuhan 430075, China

Sustainability, 2019, vol. 11, issue 8, 1-17

Abstract: Under the background of the initial completion of Chinese interest rate marketization process, this paper aims to test the actual impact of interest rate marketization on micro-enterprise research and development (R&D) investments financing. Based on the current situation, we put forward the assumption that Chinese enterprises are generally facing financing constraints in R&D investment. The interest rate marketization, which reduced government intervention in fund pricing, helps alleviate financing constraints, especially for non-state-owned enterprises. This paper focuses on the moderating effect of interest rate marketization on financing constraints and R&D investments. The interest rate marketization index is constructed from three indicators: interest rate determination ways, interest rate fluctuation restrictions, and real interest rate level. We use the Euler-equation investment model to test the financing constraints of R&D investment. Based on panel data of listed firms for 2007–2016, we find that R&D investment faces wide financing constraints, and interest rate marketization alleviates financing constraints. More specifically, financing constraints are more significant for non-state-owned firms than for state-owned enterprises, and the deepening marketization of interest rates can effectively alleviate the financing constraints of non-state-owned enterprises.

Keywords: interest rate marketization; research and development investments; financing constraints; listed company (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2019
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