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The Actual Effects of Credit Supply Cycle in China:Firm Level Evidence
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TitleThe Actual Effects of Credit Supply Cycle in China:Firm Level Evidence  
AuthorWang Yizhong, Chen Lifang and Frank M. Song  
OrganizationZheJiang University;Peking University;; 
Key Wordscredit supply; financing purpose; Corporate investment; monetary policy 
AbstractCredit supply cycle affects the company's financing purposes firstly, then affects the company's financing options. In this paper, we measure the impact of credit supply by the substitution of liquidity needs and long-term funding needs. Using Chinese listed companies quarterly report data and building different proxies for credit supply cycle, we find that credit supply cycle significantly affects the companies’ financing purposes and the credit crunch will reduce the probability of long-term capital requirement. Moreover, this substitution will affect the investment behavior which leads the firms to reduce capital expenditure. This conclusion is not only highlights the importance of credit supply cycle, but more emphasis on the role of demand side factors in the effect of monetary policy transmission. The implication is that it is more important to pay attention to the change of credit capacity and the pace of credit supply than only focusing on the quantity of credit. Moreover, the policy makers may adjust the credit supply based on the financing purposes of firms. 
Serial NumberWP764 
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