Monetary Policy, Corporate Finance and Investment

Cloyne, J, Ferreira, C, Froemel, M and Surico, P (2023) Monetary Policy, Corporate Finance and Investment. Journal of the European Economic Association, 21 (6). pp. 2586-2634. ISSN 1542-4766 OPEN ACCESS

Abstract

In response to a change in interest rates, younger firms not paying dividends adjust both their capital expenditure and borrowing significantly more than older firms paying dividends. The reason is that the debt of younger non-dividend payers is far more sensitive to fluctuations in collateral values, which are significantly affected by monetary policy. The results are robust to a wide range of possible confounding factors. Other channels, including movements in interest payments, product demand, profitability and mark-ups, are also significant but seem unlikely to explain the heterogeneity in the response of capital expenditure. Our findings suggest that these types of financial frictions play an important role in the transmission of monetary policy.

More Details

[error in script]
Item Type: Article
Subject Areas: Economics
Funder Name: European Research Council
Date Deposited: 04 Apr 2023 15:40
Date of first compliant deposit: 15 May 2023
Last Modified: 28 Mar 2024 02:47
URI: https://lbsresearch.london.edu/id/eprint/2838
[error in script] More

Export and Share


Download

Published Version - Text
  • Available under License

Statistics

Altmetrics
View details on Dimensions' website

Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item