An Empirical Test of China´s Financial Accelerator Effects

In this paper I examine the financial accelerator effects in analyzing determinants of corporate interest rates. Using the data of Chinese firms from 1998-2007, I find that balance sheet indicators matter for the interest rates paid by firms. Market access is particularly important in this regard. The strength of corporate balance sheets seem to vary with firm size. There is also evidence that monetary policy has a stronger effect on small than on large firms. But I find no asymmetry in the monetary policy effects over the business cycle. These results suggest some support for the existence of financial accelerator effects in China.