IMPACT OF THE CENTRAL BANK’S INTEREST RATE ON THE CAPITAL STRUCTURE OF THE ECONOMY’S CORPORATE SECTOR

Abstract

The article is devoted to analyzing the significance of the central bank's interest rate impact on the dynamics of the corporate sector’s capital structure, while that regulatory instrument influences the cost of corporate debt attraction. Using paired linear regression, a mathematical model was built that characterizes the aforementioned interdependence in the highly developed economies of the USA, Japan, Great Britain, and France in the time periods of 2000-2022 and, separately, during the period of progressive economic growth in 2000-2007. The two variables were taken to calculate the model: debt to equity ratio and yearly weighted average interest rate of the central bank for each respective country. The corresponding coefficients of determination were also calculated and reflected the weak model’s ability to explain the dependent variable in most cases. Further analysis of a shorter period which is characterized by steady economic growth showed that countries without significant shocks show relatively significant interrelation between the two examined variables. At the same time Japanese economy is characterized by the extremely low interest rates during the last 30 years, which influences the Bank’s of Japan ability to stimulate the economy, and as a result to fully realize its regulatory function. Transfer to euro significantly influenced the French economy, making it relatively less competitive and deprived its ability to make monetary regulations. The ECB was oriented on the whole EU’s situation, and realized its policy, which was detached from the economic problems of France. The further financial crises and economic shocks, pandemic limitations, regionalization of global economy cause the central banks’ need to respond quickly on the current challenges and make it difficult for the companies to change their capital structure rapidly. As a result, the periods of economic shocks, significant growth of inflation, quantitative easing periods also break the examined interrelation. The article also outlines prospects for further research in this field.