Do firm and lender characteristics matter in monetary policy transmission? Evidence from Korean loan-level data

This paper investigates how corporate lending responses to monetary policy shocks vary by firm size, lender type, and loan type. With our unique approach of extending local projection methodology by incorporating Korean credit registry data, we find that monetary tightening reduces both term loans and credit line usage across firms, yet large firms exhibit a relatively smaller decrease – or in some cases, an increase – compared to smaller firms. We attribute this to their greater creditworthiness and more abundant collateralizable assets. Moreover, large firms offset reduced term loans from banks by either increasing bank credit line drawdowns or substituting with term lending from non-banks–a “waterbed effect”. Our findings suggest that the presence of large firms and the expansion of the nonbank sector may attenuate the credit channel in the transmission of monetary policy, and that monetary tightening widens disparities in firms’ access to financing. In this light, our findings highlight the need for well-targeted policy interventions to mitigate the amplification of sectoral disparities induced by monetary policy.