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The Influence of the Monetary Policy on the Investment Polilcy of the Firm

Author

Listed:
  • Iuliana Predescu
  • Mihai Aristotel Ungureanu
  • Stela Aurelia Toader
  • Antoniu Predescu

    ("Dimitrie Cantemir" Christian University)

Abstract

This paper examines the impact of the monetary policy, perceptible through the variation of the interest rate, the exchange rate and the market value of shares, on the investment policy of the firm, most important being the interest rate and the market value of shares. Thus, the existent interest rate has a strong influence on the investments (that can be) realized by a company, affecting the cash-flows from which the company takes advantages of: on one side, if the firm is highly indebted, the cash-flows are much more sensitive to the variations of the interest rate – that, through interest expenses, affects the firm once more; on the other side, the liquidities own by the company improve not only for the façade the status of cash-flows. The market value of shares is important firstly for the fact it affects the firms’ decisions and secondly for being influence by – among other factors – the value of the interest rate.

Suggested Citation

  • Iuliana Predescu & Mihai Aristotel Ungureanu & Stela Aurelia Toader & Antoniu Predescu, 2010. "The Influence of the Monetary Policy on the Investment Polilcy of the Firm," Knowledge Horizons - Economics, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 2(1), pages 140-149, March.
    • Handle: RePEc:khe:journl:v:2:y:2010:i:1:p:140-149
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    References listed on IDEAS

    as
    1. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    2. Whited, Toni M, 1992. "Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-1460, September.
    3. Gerald Carlino & Robert Defina, 1998. "The Differential Regional Effects Of Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 572-587, November.
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    More about this item

    Keywords

    Interest rate; shares; cash-flow;
    All these keywords.

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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