Administrative monopoly regulation and the cost of debt financing: Evidence from China

Abstract

Traditional antitrust research has primarily focused on the market-based monopoly, while less attention given to those formed by administrative power. This study explores how the Fair Competition Review System (FCRS) in China, designed to curb administrative monopoly, influences corporate debt financing costs. We find that administrative monopoly regulation reduces the cost of debt financing. Enhanced accounting information quality and lower corporate default risk are two possible channels. The main effect is more pronounced among private firms, small-sized and medium-sized firms, and firms in regions with lower degree of financial marketization. The FCRS also aids in addressing the issue of “zombie firms”, mitigating their crowding-out effect on the debt financing of normal firms. Moreover, the cost of debt financing decreases more when the review measures include both stringent self-inspection and external supervision. These findings underscore the importance of administrative monopoly regulation and contribute to the advancement of antitrust endeavors in the Asia-Pacific region.