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The Impact of Firm-Specific Characteristics on the Response to Monetary Policy Actions

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  • Cihan Yalcin
  • Spiros Bougheas
  • Paul Mizen

Abstract

This paper examines the impact of monetary policy on firms' access to bank and market finance when allowance is made for differences in firm-specific characteristics. A theoretical model determines the cut-off values for project profitability that would allow firms to access bank or market finance. This model predicts that specific characteristics in terms of size, age, risk and debt can make a firm more vulnerable to tightening credit when interest rates increase. Empirically, the paper shows, using a panel of 16,000 UK firm records over 10 years, that firms distributed according to their type (asset size, rating etc) do have differing access to bank lending and market finance. Small, young and risky firms are more significantly affected by tight monetary conditions than large, old and secure firms. The evidence is consistent with a credit channel, and demonstrates that there are distributional implications from tightening monetary policy.
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Suggested Citation

  • Cihan Yalcin & Spiros Bougheas & Paul Mizen, 2004. "The Impact of Firm-Specific Characteristics on the Response to Monetary Policy Actions," Working Papers 0407, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:0407
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    References listed on IDEAS

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    Cited by:

    1. Anna Malinowska, 2016. "The impact of monetary policy and agent heterogeneity on firm financing structure: evidence from the USA," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 46.

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    JEL classification:

    • 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

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