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The Effect of Financial Development on The Firm Balance Sheet Channel

Author

Listed:
  • Hafezian, Farideh

    (PhD Student of Economics, Sistan and Baluchestan University)

  • Zamanian, Gholamreza

    (Associate Professor, Sistan and Baluchestan University)

  • Shahraki, Javad

    (Associate Professor, Sistan and Baluchestan University)

Abstract

The objective of this article is to investigate the impact of financial development on the balance sheet channel of monetary policy transmission. For this purpose, first, using data (2007-2018) related to 50 non-financial firms in the Tehran Stock Exchange, the existence of the balance sheet channel in Iran through Analyzing the effect of the financial and balance sheet situation of firms on their investment was examined.Therefore, using GMM method, an investment function is estimated, despite financial constraints. The results supported the balance sheet channel of monetary policy transmission in Iran. In addition, the effect of financial development on the balance sheet channel by testing the effect of interaction of financial development on balance sheet situation was examined. The results of the model estimate showed that financial development increased the investment of firms by reducing financial constraints, which means weakening the balance sheet channel of monetary policy transmission. The results also showed that financial development affected the investment of small firms that were facing more financial constraints compared to larger firms

Suggested Citation

  • Hafezian, Farideh & Zamanian, Gholamreza & Shahraki, Javad, 2022. "The Effect of Financial Development on The Firm Balance Sheet Channel," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 9(2), pages 245-264, September.
    • Handle: RePEc:ris:qjatoe:0274
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    More about this item

    Keywords

    Financial Constraints; Balance Sheet Channel; Investment; Financial Development; GMM;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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