Loan-to-Deposit Ratio Constraints of Commercial Banks, Economic Growth, and Corporate Financing Structure: A DSGE Simulation for China

This paper investigates the impact of commercial banks' loan-to-deposit ratio constraints on corporate financing structure in China from the perspective of economic growth. A DSGE model incorporating loan-to-deposit ratio regulation and corporate financing structure shocks is developed to clarify their relationship. A fixed-effects model is employed to empirically examine how loan-to-deposit ratio constraints influence direct financing, indirect financing, and corporate financing structure. Moreover, a mechanism model explores the role of economic growth in this process. The findings are: (i) Relaxing loan-to-deposit ratio constraints increases credit supply, sends a signal that supports economic development, stimulates financial investment, and increases firms' direct and indirect financing. However, firms prefer indirect financing, causing the proportion of direct financing in the financing structure to decline, reflecting a negative structural adjustment. (ii) Economic growth enhances investor risk appetite, expanding equity investment and direct financing channels. This moderating effect significantly influences the relationship between loan-to-deposit ratio constraints and both direct financing and financing structure, but has limited impact on the relationship between these constraints and indirect financing. (iii) Firms with higher financing constraints and smaller sizes face lower credit ratings and greater financing difficulty. Therefore, relaxing loan-to-deposit ratio constraints has a stronger impact on their financing.