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Monetary Policy, Corporate Finance, and Investment

Author

Listed:
  • James Cloyne
  • Clodomiro Ferreira
  • Maren Froemel
  • Paolo Surico

Abstract

In response to a change in interest rates, younger firms not paying dividends adjust both their capital expenditure and borrowing significantly more than older firms paying dividends. The reason is that the debt of younger non-dividend payers is far more sensitive to fluctuations in collateral values, which are significantly affected by monetary policy. The results are robust to a wide range of possible confounding factors. Other channels, including movements in interest payments, product demand, profitability, and mark-ups, are also significant but seem unlikely to explain the heterogeneity in the response of capital expenditure. Our findings suggest that these types of financial frictions play an important role in the transmission of monetary policy.

Suggested Citation

  • James Cloyne & Clodomiro Ferreira & Maren Froemel & Paolo Surico, 2023. "Monetary Policy, Corporate Finance, and Investment," Journal of the European Economic Association, European Economic Association, vol. 21(6), pages 2586-2634.
  • Handle: RePEc:oup:jeurec:v:21:y:2023:i:6:p:2586-2634.
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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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