Abstract
Commercial paper plays a significant role in China's social financing system. On one hand, as a short-term financing instrument, commercial paper offers firms a rapid and efficient resource of capital funding. The refinement of the commercial paper system can help optimize capital management for firms in the real economy, enhance capital utilization efficiency, and reduce financing costs. This is pivotal for expanding social financing channels, improving social financing efficiency, and promoting the development of the real economy. On the other hand, the commercial paper market serves as a crucial conduit for monetary policy transmission. By adjusting the issuance volume and rediscount rates of commercial paper, the central bank can effectively regulate market monetary supply, expand or contract social credit, influence market interest rates, and convey monetary policy intentions, thereby facilitating the achievement of monetary policy objectives. The healthy development of the commercial paper market also enhances the effectiveness of monetary policy. Furthermore, as a short-term financing tool, commercial paper can help banks diversify default risk associated with loans, meet short-term liquidity demands, and generate capital gains from discounting.Around 2016, China's commercial paper market experienced frequent turbulence, with numerous high-profile cases of irregularities, resulting in market disorder and unnecessary losses for businesses and the public. In response to this backdrop, the People's Bank of China initiated financial top-level design, establishing the Shanghai Commercial Paper Exchange Corporation Ltd (referred to as "the Exchange" herein) and promulgating the “Measures for the Administration of Commercial Paper Transactions”. The regulators of China's financial markets have committed to refining institutional frameworks, promoting market standardization through financial innovation.
These measures aim to establish a robust system that ensures the market operates safely, stably, and efficiently. Since the establishment of the Exchange in December 2016, China's commercial paper market has gradually unified, achieving full lifecycle digitalization, including issuance, acceptance, endorsement, redemption, discounting, interbank discounting, and rediscounting. From 2017 to 2020, the total business volume in the commercial paper market grew annually by an average of 15.4%. Currently, digital paper accounts for 99% of the market, with traditional commercial paper posing almost negligible risk. The number of firms using commercial paper has grown annually by an average of 36.72%, with a more homogeneous regional distribution. Among them, the total amount of commercial paper used by firms has reached 44 trillion Chinese yuan, constituting 53% of the total. Meanwhile, the gap between commercial paper rates and the weighted average rates of normal loans has expanded from an average of 86 basis points in 2017 to 218 basis points in 2022, thereby helping businesses reduce financing costs to some extent.
In such a context, this study takes the establishment of the Shanghai Commercial Paper Exchange in 2016 as a case study to investigate whether financial system innovation can enhance firms’ risk taking. We select A-share listed firms from 2011 to 2019 as research samples and employ a Difference-in-Differences model analysis method. Based on commercial paper usage propensity, we divide the samples into experimental and control groups. The research results indicate that the establishment of the Shanghai Commercial Paper Exchange significantly enhances firms’ risk taking. We also conduct heterogeneous studies on the influencing factors and economic consequences of risk-taking levels, examining the impact of the Exchange's establishment on corporate risk-taking levels for companies with different supply chain concentrations, financing constraints, ownership systems, and regional marketization levels. Furthermore, we investigate the impact of the Exchange's establishment on corporate performance and commercial credit. These studies fill a gap in current literature on China's commercial paper market, emphasizing the external influences on firms and the significance of financial institutional innovation through organizational construction and system innovation on firms’ operational risk and performance. This further underscores the positive role of optimizing financial top-level design in the effective operation of enterprises in the socialist market economy.
| Date of Award | 26 Sept 2023 |
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| Original language | Chinese (Traditional) |
| Awarding Institution |
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| Supervisor | Changjiang LYU (External Supervisor) & Junbo WANG (Supervisor) |