Monetary policy, financing constraints and investment efficiency : Evidence from listed private companies of China

Purpose – This paper aims to analyze the different impacts of monetary policy on the financing constraints of diverse enterprises from China by introducing the concepts of external and internal management factors, and on the investment efficiency of these enterprises with the help of “Hayek Triangle”. Design/methodology/approach – Based on the concept of human action, this paper builds an empirical model which is remarkably different from previous related researches and conducts an empirical test by using the chosen sample data of 312 Chinese listed private companies from 2003 to 2012. Findings – This paper shows that owing to the differences of management capacity of diverse enterprises, under the condition of the governmental micro-economic intervention in the allocation of credit funds, the loose monetary policy relieves the financing constraints confronted by the enterprises with better external management capacity, and aggravates the financing constraints confronted by the enterprises with better internal management capacity. This paper also shows that the loose monetary policy will distort the market interest rate signal, which in turn falsely directs the enterprises to divert resources from short-term to long-term investment projects. Research limitations/implications – These findings mean that under the condition of the loose monetary policy, contrasted with the private enterprises with better internal management capacity, the investment efficiency of the private enterprises with better external management capacity will be lowered because they are able to acquire more credit funds preferentially and readily. Practical implications – This paper argues that the government should strengthen the ex-post property rights protection for financial transactions, reduce the micro-economic intervention in the credit funds allocation and improve the marketization level of the financial deals. Also, the government should prudently regulate macro-economy by monetary policy. Originality/value – This paper is mainly based on the market process theory of Austrian School, and therefore initiates a totally new perspective for the research of corporate financing.