Monetary Policy and Corporate Investment: Analysis of the Asset Price Channel and the Balance Sheet Channel (in Korean)

In order to confirm whether the monetary policy affect corporate investment or not, this paper examines the validity of the asset price channel and the balance sheet channel among monetary policy transmission mechanisms. Unbalanced dynamic panel model based on system GMM method is employed and annual financial statements data of Korean firms from 2000 to 2016 are used. For estimating the asset price channel, Tobin’s q is used as the independent variable, and for estimating the balance sheet channel, the cross products of liquidity asset ratio and call rate difference or liquidity asset ratio and rate of increase in monetary base are used as interaction independent variables. In addition, debt ratio and operating profit ratio are included as the regressors. The dependent variable is investment ratio (the ratio of real investment amount to real tangible fixed asset amount). The empirical test results show that there is a statistically significant relation between investment at t and Tobin’s Q at t-1. Considering lowering policy rate possibly increase stock price, and then stock price has a positive relation with Tobin’s Q, the plus signal of Tobin’s Q means that the asset price channel of monetary policy functions statistically significant. The coefficient of liquidity asset ratio at the former period (t-1) is also estimated as plus – it means that there might be information asymmetry between firms and banks. Meanwhile, the coefficient of interaction term which is the cross product of liquidity asset ratio and call rate difference is estimated plus and the one which is the cross products of liquidity asset ratio and rate of increase in monetary base is estimated minus. This means that the impact of liquidity asset on investment gets weaker during the time of easing monetary policy; therefore, the balance sheet channel of monetary policy function is statistically significant. Model estimation by firm size distribution shows that the impacts of the asset price channel and the balance sheet channel are stronger in the smaller firms. Besides, the impact of operating profit on investment is estimated more powerful in the smaller firms rather than in the larger firms. On the contrary, only the debt ratio coefficient of top 50% sized-firm group shows statistically significant minus sign. This study has policy implications in the aspects of firms’ investment during the time of tightening monetary policy, and external fund premium for smaller firms.