Do Macroprudential Policies Lower Firms' Financial Leverage? Firm-Level Evidence from China

The effectiveness of macroprudential policies in lowering Chinese firms’ financial leverage is discussed in this paper. Combining 2255 listed nonfinancial firms with information on the implemented macroprudential policies from 2001Q1 to 2014Q4 in China, we find that macroprudential policies help to decrease firms’ financial leverage, in terms of both ratio and absolute value. The effect is asymmetry in short- and long-term leverage and tightening and loosening policies. Furthermore, the macroprudential policies of the US have a greater effect than those of China. The effect varies in firms’ ownerships, sizes, and industries. Though financial leverage is decreased, macroprudential policies do not increase commercial credit in return. Results show that Chinese macroprudential policies are effective in reducing firms’ leverage, providing a new perspective in deleveraging